Business Maverick

Business Maverick

SA Express is facing business rescue application

The logo of South African Airways Express is seen on an Bombardier Dash 8 Q400 airplane at OR Tambo international airport in Johannesburg, South Africa on 08 November 2015. EPA/MIKKO PIHAVAARA

SA Express and South African Airways (SAA) are both state-owned airlines. Like SAA, SA Express is also facing working capital and debt woes. Like SAA, SA Express is facing business rescue prospects. 

SA Express, the cash-strapped state-owned airline whose routes typically serve SA’s smaller cities, is facing an urgent court application for it to be placed under business rescue because it cannot pay its debts. 

 A former SA Express service provider, who is seeking R11.3-million from the airline for unpaid services, has launched an urgent application at the high court in Johannesburg on Friday 17 January 2020 to place SA Express under business rescue. 

Business rescue is a bankruptcy protection process that is provided for under the Companies Act that intends to save companies that are financially distressed by restructuring their operations. 

The court application is expected to be heard on 28 January 2020.  SA Express has been given a deadline of Monday 21 January to decide if it plans to oppose the urgent court application, which adds more woes on the state-owned airline that faces a working capital crunch and debt problems. 

 Business Maverick understands that SA Express has already been served with the business rescue application at its head offices in Kempton Park, Johannesburg. 

The application comes at a time when South African Airways (SAA), which has a strategic alliance with SA Express, is also in the throes of business rescue to fend off the worst-case scenario of liquidation, which signals the death of a company because it would shut its operations. 

Ziegler  SA – a logistics and transport company that provides services including freight forwarding, customs clearing, warehousing and supply chain management – has turned to the high court to recover the money it’s owed by SA Express dating back to 2017.

 On 23 January 2017, Ziegler SA and SA Express concluded a written memorandum of agreement that would see the former being responsible for, among other things, the local and international movement of aircraft parts and engine parts for maintenance on behalf of SA Express. The agreement was valid for three years, starting on 18 February 2017 to 17 February 2019.

 In an affidavit,  Ziegler SA MD Charl Du Toit says since the agreement was concluded between both parties, SA Express has “rarely, if ever” honoured payments to it within the required and agreed 30 days. The firm was often forced to extend payment terms to 60 days – at the request of SA Express. 

 Ziegler SA agreed to extend the payment terms to 60 days, which would allow the firm to continue offering its logistics and transport services to SA Express.  According to Ziegler SA, this extension was reflected in an addendum to the existing memorandum of agreement, which was signed on 16 August 2018 at a meeting, which was attended by Ziegler SA’s Du Toit and SA Express interim CEO Siza Mzimela, at SA Express’ head office. 

In the addendum, SA Express acknowledged the R10-million debt it owed Ziegler SA, and agreed that should it fail to pay the debt within six months, the company would seek a court judgment, wherein the state-owned airline would be forced pay the debt in instalments (with interest).

 In court papers, Du Toit says although Ziegler SA extended payment terms to 60 days to make it easier for SA Express to honour its debt, the airline has “continuously failed to pay on time or at all.” As of 23 December 2019, SA Express owes Ziegler SA R11.29-million (including accrued interest).

 Ziegler SA is no longer a service provider of SA Express, as the state-owned airline terminated its agreement with the company on 17 February 2019. However, since 13 February 2019, Ziegler SA, its lawyers, and SA Express have been involved in talks for the airline to honour its debts. 

Now Ziegler SA wants SA Express to be placed under business rescue. A judge will only sanction business rescue if he/she believes that there is a reasonable prospect of SAA Express surviving.  Because the business rescue process is initiated by Ziegler SA, it wants Daniel Terblanche and Phahlani Mkhombo to be appointed as joined business rescue practitioners. If the business rescue application is not granted, Ziegler SA wants SA Express to be liquidated. 

SA Express faces three more liquidation applications from its former service providers, which have become creditors, including Flyfofa Airways that is claiming R18.7-million from the airline, Mothebe Shuttle Services (R1.5-million) and African Charter Airlines (R14-million).  Business Maverick understands that these applications are still on-going. 

Like SAA, SA Express is also facing working capital and debt woes. 

 SA Express has joined the rank of state-owned companies that have requested a bailout from the government. In September 2019, the National Treasury approved a R300-million lifeline, which is on top of the R1.2-billion it got from Finance Minister Tito Mboweni in the February budget.

 Like SAA, SA Express has not tabled financial statements in Parliament for the past two years. According to the Auditor General’s report, SA Express recorded a loss of R591-million for its 2018/2019 financial year. The airline’s current liabilities exceed its current assets by R374-million, making it technically insolvent. 

This is a developing story. The article will be updated with SA Express’ comments. BM