The death of SA Express might be imminent — its business rescue practitioners want to liquidate the struggling airline because it has run out of cash and has no reasonable prospects of being rescued. 

Phahlani Mkhombo and Daniel Terblanche, the business rescue practitioners for SA Express, the second state-owned airline, whose flight routes typically serve smaller cities in SA, launched an urgent application at the Johannesburg High Court on Wednesday 25 March to liquidate the airline. The matter might be heard in court on 28 April 2020.

Liquidation is the immediate death of a company as its operations would permanently shut, employees would lose their jobs and assets would be sold to pay creditors.

In court papers obtained by Business Maverick, the rescue practitioners said they want the business rescue proceedings of SA Express to be discontinued and the airline to be liquidated as “there is no reasonable prospect for SA Express to be rescued”.

Under the Companies Act, business rescue practitioners have the power to ask a court to liquidate a company if they believe rescue efforts are futile – especially if the business rescue process was court-ordered in the first place. 

SA Express was placed under involuntary business rescue by the High Court in Johannesburg on 6 February 2020 after a court application by the airline’s former service provider and creditor, Ziegler SA.

In court papers, rescue practitioner Terblanche said SA Express is facing a working capital crunch as it continues to incur liabilities despite the grounding of most of the airline’s planes on 17 March 2020 due to outstanding aviation insurance payments. The insurance is crucial because it protects an airline’s business, passengers and its pilots and crew.

The rescue practitioners have calculated – using SA Express’ financial statements – that the airline owes R2.8-billion to creditors and preliminary claims submitted by creditors in the business rescue process amount to R173-million. 

Despite the successive government bailouts amounting to R1.5-billion that SA Express has received over the past two years, the airline is technically insolvent as its current liabilities exceed its current assets by R374-million during its 2019 financial year. It recorded a loss of R591-million in 2019, more than three times the previous year’s R162-million loss.

A source close to the business rescue process told Business Maverick that SA Express’s financial position is so dire that March 2020 salaries to its 691 employees have not been paid. Terblanche confirmed this, saying in court papers:

“As at the date of commissioning (the business rescue process), there are no funds available and therefore salaries will not be paid.

“There is no money to pay salaries and there is a sum of approximately R150-million owed to the SA Revenue Service for arrear PAYE (pay-as-you-earn) tax payments. (Aviation) insurance was not paid and accordingly, a decision was made to ground the aircraft because the risk was too great to operate the aircraft without insurance.”

Delayed funding 

The main factor that pushed the rescue practitioners to apply to liquidate the airline is delays in funding from the Department of Public Enterprises (DPE) and National Treasury – in the form of a government guarantee – that will enable SA Express to continue operating while a final business rescue plan is put in place. 

The rescue practitioners required between R438-million and R691-million in funding from the government, but this has failed to materialise since SA Express was placed under business rescue in February. Without this funding, the rescue practitioners cannot solicit more funding from commercial banks or state-owned development finance institutions to fund the airline’s immediate working capital requirements. 

“The appointment of a liquidator needs to happen on an urgent basis so that the liquidator can take control of the assets of SA Express with a view to discharge its liabilities. It is also critical that the liabilities of SA Express cease accruing. 

“Without the ability to fund the immediate trading activity of SA Express, we have therefore concluded, as of 21 March 2020, that there is no reasonable prospect of rescuing SA Express,” said Terblanche. 

However, the rescue practitioners and DPE officials are in a stalemate as both parties sharply disagree about how the airline should be restructured. The rescue practitioners have accused DPE officials of deliberately withholding the required funding and frustrating their work to rescue the airline because the government was against SA Express being placed under business rescue. Meanwhile, DPE said the rescue practitioners have not produced a credible and compelling draft business rescue plan that will be worthy of funding from the National Treasury. 

Read more here: Stalemate: Government opposes business rescue practitioners’ decision to ground SA Express and Government snubs appointed SA Express business rescue practitioners, drafts alternative restructuring plan.

Asked for comment on the liquidation application, a DPE spokesperson said the department was preparing a statement on the affairs of SA Express. BM