Sucked dry: For the first time, Mango Airlines’ dire financial situation is revealed as business rescue looms
Mango, a state-owned airline, last recorded a profit in 2018 despite several efforts by the board and management to turn its fortunes around. The low-cost airline plunged into a loss of R497-million in 2020, a disruptive year for the wider aviation industry.
The true financial situation of Mango Airlines has been opaque for many years because the audited financial statements of the state-owned airline were never released for public consumption.
But Mango’s financial books have now been opened and they show that the airline has been sailing close to the wind in recent years.
Mango, which is owned by the government and is a subsidiary of SAA, last turned a profit in 2018 despite several efforts by the board and management to turn its fortunes around. Mango has followed in the footsteps of its parent company, SAA, which was last profitable in 2011 and has recorded considerable financial losses since then.
In Mango’s case, the airline recorded a profit of R105-million during its 2018 financial year, then swung into a financial loss position of R134-million in 2019. This loss swelled more than three times to R497-million in 2020, a disruptive year for the aviation industry as the Covid-19 pandemic forced many airlines to be grounded.
Mango’s financial position has been unveiled in court papers by trade unions representing the airline’s 750 workers. The unions – including the National Union of Metalworkers of South Africa, the South African Cabin Crew Association and the Mango Pilots’ Association – want Mango to be placed into business rescue by the Johannesburg High Court because the airline is fast running out of cash, cannot honour payments to creditors and hasn’t paid salaries for June and July. On outstanding salaries alone, Mango owes R157-million to its workers. It last paid full salaries in April 2020.
The court papers of trade unions were submitted on 24 July and include a document that outlines the case for Mango voluntarily submitting itself for business rescue proceedings. The court papers also include the airline’s financial position going back to 2007. The document was presented to Mango’s stakeholders including creditors, the government and trade unions representing the airline’s workers.
The SAA management and board have agreed for Mango to start business rescue proceedings, which are governed through the Companies Act as a way of rehabilitating the affairs of financially distressed companies.
Behind Mango’s financial losses
Between 2007 and 2020, Mango recorded cumulative financial losses of nearly R1-billion. Over this period, Mango, which has a market share of about 40%, faced intensified competition that impacted on its revenue as management battled to rein in runaway costs – especially fuel costs, which are the biggest expense for airlines.
SA’s aviation industry has seen a decline in travel volumes by consumers and the entrance of new players offering domestic flights, the combination of which has hurt Mango’s profitability.
Mango’s financial situation worsened as the airline’s flight operations were suspended on Tuesday, because the airline failed to pay navigation services to the Air Traffic Navigation Services (ATNS), a state-owned entity that is responsible for informing pilots where to fly to prevent collisions. When airlines fly, they have to pay a fee to ATNS.
Mango CEO William Ndlovu informed customers via Twitter on Tuesday that the airline would suspend flights until further notice because it had failed to pay money owed to ATNS. “Senior management and our shareholder are locked in discussions to find an amicable solution to this impasse,” Ndlovu said.
This is the second time in 2021 that Mango flights have been grounded because it has been unable to pay take-off and landing fees to the Airports Company South Africa, a state-owned entity that owns and operates the country’s nine biggest airports, including OR Tambo International in Joburg, Cape Town International and others.
Mango’s debt now stands at R2.5-billion. It is unclear if the airline is in a position to honour all or any of its debt payments, but one of its creditors – Aergen, an aircraft leasing company that provided Mango with planes – has already decided to go to court to have the airline liquidated. Liquidation would involve Mango permanently closing its doors and assets being sold to pay outstanding debts.
Liquidation would be a drastic approach for Mango creditors to recover monies they are owed. The unions representing Mango workers have argued that business rescue proceedings – to be led by Ralph Lutchman from Concord Administrators as the practitioner – might be more appropriate in saving the airline from collapse.
The unions believe Mango has a better fighting chance if it is placed under business rescue, as it is expected to be profitable in 2023 or 2024, depending on future lockdown situations.
Mango is expected to incur a loss of R3.8-million in 2022, but the airline could generate a profit of R97.5-million in 2023 and R146.5-million in 2024.
Parliament recently approved a special allocation of R2.7-billion to SAA subsidiaries, of which R819-million would be allocated to Mango as working capital. Put differently, this is a government bailout for Mango. But the transfer of this money has been delayed, precipitating the need for its business rescue process. DM/BM
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