Business Maverick

TAKING FLIGHT – OR NOT

Mango Airlines’ business rescue runs into a funding snag — and clashes with the SAA board

A Mango Airlines plane at OR Tambo Internationbal Airport, Johannesburg. (Photo: Flickr)

The government and SAA have washed their hands of raising money for Mango Airlines to fund the implementation of its business rescue plan. This means that Mango will be sold to private sector players who will inject capital into the embattled low-cost airline.

The business rescue process of Mango Airlines has already been plagued by severe turbulence, with the low-cost airline running into difficulties raising new money to fund efforts to save it from collapse. 

Mango, which is owned by the government and is a subsidiary of SAA, stopped flying at the end of July 2021 when it was placed under business rescue. 

Like SAA, Mango is financially distressed as it is loss-making and faces a smothering debt load of R2.8-billion that it cannot pay back. 

But the government and SAA have washed their hands of raising money for Mango to fund the implementation of its business rescue plan, which proposes that the airline restart its flight operations in December to take advantage of the peak travel season.  

The SAA board has informed Mango’s business rescue practitioner, Sipho Sono, in letter exchanges seen by Business Maverick, that it is not able to provide the airline with money to help it restart flight operations. The SAA board also said it cannot lobby the government to inject capital into Mango for its business rescue process. 

The SAA board wants Mango to be hived off from its operations, paving the way for private sector players to provide the airline with capital and buy it. 

In a statement on Wednesday, SAA interim board chair John Lamola said “finding a strategic equity partner (SEP) for the low-cost carrier would be a sustainable solution” to fund its restructuring and restart. SAA is also going the SEP route because the government plans to sell a 51% shareholding of the airline to a consortium comprised of two private sector companies. 

Read: SAA’s new wings undermined by pending questions about its funding model

The Mango business rescue plan was finalised on 29 October 2021 and proposes that the airline be sold to private sector players if the government and SAA fail to throw it a financial lifeline. If Mango doesn’t attract private sector buyers, the airline would be wound down, which involves selling its assets to pay creditors. 

But the rescue plan reveals that Mango doesn’t have many assets to sell. The airline’s assets include a spare aircraft engine, furniture and equipment that are collectively worth R101.8-million — substantially less than the R2.8-billion it owes creditors. 

Mango, like other airlines, doesn’t own aircraft, but leases its fleet of eight planes from Ireland-based Macquarie Aircraft Leasing Service. 

Even Mango’s balance sheet is not strong enough to pay its creditors. Mango’s audited financial statements were not published for public consumption, but the business rescue plan has, for the first time, revealed the airline’s financial position. 

In 2019, Mango’s operating profit was R977.5-million. But since the start of Covid-related lockdowns in 2020, which brought flight activity to a halt, Mango’s operating profit fell to R462.8-million – and the airline swung into a financial loss of R157.1-million in 2021.

Tensions over Mango’s rescue 

The SAA board and business rescue practitioner Sono are at odds about how Mango should restart its operations. It’s unclear how much money Mango requires to restart its operations in December. 

Sono wants to use some of the R719-million still due to Mango in terms of a special allocation made by Parliament from R10.5-billion allocated for SAA’s business rescue plan. Sono has used only R100-million of the R719-million to pay Mango’s 708 workers their full salaries for July, August and September, and partial salaries for October. 

The SAA board is against Sono resuming flight operations in December. 

In a letter to Sono dated 30 October, interim SAA board chair Lamola said: “Our considered view remains that Mango cannot resume sustainable operations before the introduction and on-boarding of a strategic equity partner with requisite funding. Resuming flight operations of Mango in a month or two is neither feasible nor viable under prevailing circumstances.”

The SAA board wanted Sono to not only use the R719-million allocated to Mango for restarting flight operations in December, but recommended that the funds be used for the entire business rescue process. 

Lamola has rejected suggestions that there are tensions between the SAA board and Sono about how Mango should be saved from collapse. 

“There is no misalignment between SAA Board and the BRP [business rescue practitioner]… rather it is a matter of when operations should resume,” he said in a statement. 

Sono’s plan to save Mango involves restarting flight operations in December for the airline to generate ticket-sale revenue; reducing the workforce from 708 to 412 and (voluntary severance packages would be offered to workers); resuming operations with three aircraft (five aircraft will be returned to lessors); and passengers who bought tickets before Mango went into business rescue would be offered travel vouchers as recompense. DM/BM

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