SA Express will be the first distressed state-owned enterprise to approach the Unemployment Insurance Fund (UIF) for assistance, to pay outstanding March 2020 salaries to its 691 employees because it has run out of cash and might be liquidated.

At the same time, the airline announced on Monday 30 March 2020 that its interim CEO, Siza Mzimela, has resigned after 17 months in the top job to “pursue other opportunities”. Thuli Mpshe, the acting general manager for human capital at SA Express, has been appointed as acting CEO effective 1 April.

Mzimela, who was appointed in August 2018 to restructure and clean up the airline, which was at the centre of SA’s State Capture story, becomes the fourth CEO to resign in about three years. The airline hasn’t had a permanent CEO since long-serving CEO Inati Ntshanga resigned in March 2017.

Mzimela’s resignation could not have come at a worse time for the struggling state-owned airline.

SA Express is seeking emergency assistance from the UIF, which has a disaster benefit called the Temporary Employee Relief Scheme (Ters) that was put in place by the government to assist financially distressed companies to deal with the impact of the Covid-19 pandemic.

Funds from Ters are intended to give financial support to employees who have been laid off (temporarily or permanently) during the Covid-19 pandemic and the resultant 21-day nationwide shutdown imposed by President Cyril Ramaphosa.

The financial situation at SA Express, the second state-owned airline whose flight routes typically service SA’s smaller cities and neighbouring countries, has deteriorated further as it has suspended flight operations due to the shutdown. Without its planes taking to the skies, SA Express cannot generate revenue from flight ticket sales and cannot afford to pay March salaries to employees.

Government steps in

The Department of Public Enterprises, which oversees the operations of SA Express, confirmed on Sunday evening 29 March that the government had stepped in to assist the airline with the payment of salaries by approaching the UIF.

“We have approached the Unemployment Insurance Fund to ensure workers receive support during this time of hardship and uncertainty. A formal application has been launched with the UIF and we have asked that it be expedited,” the department said.

SA Express is looking for help from the UIF even though it hasn’t made contributions to the fund – on behalf of its employees – since it was placed under involuntary business rescue by the High Court in Johannesburg on 6 February 2020 after a court application by the airline’s creditor, Ziegler SA.

According to the business rescue practitioners of SA Express, Phahlani Mkhombo and Daniel Terblanche, the airline’s working capital crunch has meant that it could only pay employee salaries in February and not obligations such as UIF, pension and medical aid contributions, and PAYE.

The Department of Public Enterprises didn’t disclose how much funding it wants from the UIF. For its financial year to the end of March 2019, SA Express’s costs relating to employees amounted to R489.9-million including employee benefits such as bonuses, pension, medical aid and accrued leave.

About UIF

Arguably, this might not be the total amount the UIF grants to SA Express as it’s unclear how much funds have been allocated to the disaster benefit, with Labour Minister Thulas Nxesi recently saying that “actuaries are busy crunching figures”.  

SA Express employees might not get their full salaries, as employees who are either retrenched, unemployed or have exhausted their paid sick leave, usually receive – under normal UIF benefits – half or even less of their salary for 12 months.

The economic impact of the 21-day shutdown might result in huge demand by distressed companies for funds managed by the UIF, resulting in SA Express joining a large queue.   

The National Treasury expects the UIF to run an average surplus of R3.6-billion over the next three years. This is in addition to the UIF having investments worth about R160-billion on the JSE and bond market that are managed by the Public Investment Corporation, a state-owned asset manager. But the value of the UIF’s investments (R160-billion) is probably outdated considering the volatility of financial and bond markets in recent weeks due to Covid-19 that has probably reduced the intrinsic value of the fund’s investments.

The rescue practitioners have given up on saving SA Express, saying the government is frustrating their efforts to restructure the airline.  Mkhombo and Terblanche have launched an urgent court application to convert the airline’s business rescue proceedings into liquidation, which signals the death of a company. Read more here: SA Express rescue practitioners move to liquidate the state-owned airline.

The department said it is still considering whether to challenge the court application as it is still studying the liquidation application. BM