SA Express, the struggling state-owned airline that is in the throes of business rescue, is in a dire financial position as efforts by the rescue practitioners to seek funding from the Department of Public Enterprises to pay employee salaries have stalled.
Without the urgent funding from the department, which oversees the operations of SA Express, the state-owned airline might struggle to pay salaries beyond February 2020 to its about 1,000 employees and business rescue proceedings might be hobbled.
While it is unclear how much funding SA Express requires from the department for business rescue proceedings, the airline previously said it required a R164-million government bailout for the 2020/21 financial year to remain operational.
In his budget speech on 26 February 2020, Finance Minister Tito Mboweni allocated SA Express R200-million for 2020/21 – money that is yet to be transferred into the airline’s bank account. However, Mboweni said the government will “need to assess its appetite for continued ownership” of SA Express as it plays a small role in the local aviation market. SA Express flight routes typically serve smaller cities in SA and neighbouring countries as a feeder to South African Airways (SAA), which is also fighting for survival through business rescue.
SA Express was placed under business rescue by the High Court in Johannesburg on 6 February 2020 because it doesn’t have enough working capital to fund operations and pay its debts. The business rescue process was involuntary as it was sparked by legal action instituted against SA Express by its former creditor Ziegler SA, which is owed R11.3-million by the airline.
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.
To commence the business rescue process, the appointed practitioners, Phahlani Mkhombo and Daniel Terblanche, require funding in the form of post-commencement financing to ensure that SA Express’ operations continue. There is an expectation from the rescue practitioners that the Department of Public Enterprises, the only shareholder of SA Express, would provide funds that would keep the airline airborne, pay salaries and fund other operational matters.
A source close to business rescue proceedings said Mkhombo and Terblanche have been asking the department for funds to pay salaries beyond February 2020 as the “airline has no money”. Mkhombo and Terblanche have met with department officials since SA Express was placed under business rescue earlier in February, but there hasn’t been any decisive action about the release of funds to the airline. Instead, the department only said it remained “hopeful” that the business rescue practitioners “will be able to raise the post-commencement financing”, without indicating where the funds will come from.
Mkhombo and Terblanche didn’t respond to Business Maverick’s requests for comment. A spokesperson for SA Express said that the airline has not yet received funding from the department, adding this delay has “not hindered the payment of employee salaries as they are paid every month”.
Debt running into billions of rands
Mkhombo and Terblanche have already met with SA Express creditors to update them about the business rescue process and the financial status of the airline, as they are required to do so by the Companies Act. The duo told creditors in a meeting on 22 February 2020 that SA Express faces total claims from creditors amounting to R2.7-billion.
The airlines creditors include, among others, Transnet (owed about R260-million according to SA Express’ latest financial statements), Rand Merchant Bank (it had a R14.4-million loan repayment that was due on 24 February 2020), former logistics service providers Flyfofa Airways (owed more than R18-million), Mothebe Shuttle Services (owed R1.5-million) and African Charter Airlines (owed R14-million).
Meanwhile, SA Express assets stood at R1.98-billion and net liabilities were R747-million. The practitioners added a proviso to the numbers; they could not be verified as they are still investigating the true financial position of SA Express.
SA Express has already challenged the business rescue practitioners on their numbers, saying they are inaccurate. The airline said its board – chaired by Tryphosa Ramano – has been working to reduce debt over the past 18 months and the debt amount “currently sits well below R1-billion”. It said recent bailouts it had received from government have gone into settling bank loans and reducing legacy debt. In September 2019, the National Treasury approved a R300-million lifeline to SA Express, which is on top of the R1.2-billion it got from Mboweni in the February 2019 Budget. BM
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