Business Maverick

LICENCES SUSPENDED

Is it the end of the runway for Mango Airlines?

Is it the end of the runway for Mango Airlines?
Mango airlines desks at King Shaka International Airport on 8 July 2020 in Durban, South Africa. (Photo: Gallo Images / Darren Stewart)

The Air Services Licensing Council has suspended licences that give Mango the right to fly, because the state-owned airline has been grounded for more than 12 months. Without licences, investors that have lined up to rescue Mango might walk away, hastening its demise.

The ongoing attempted rescue of Mango Airlines is on shaky ground as its valuable assets, which would help the state-owned airline to receive much-need capital from investors, have been taken away. 

The Air Services Licensing Council (ASLC), which is part of the Department of Transport and is responsible for awarding or revoking traffic rights to airlines, has suspended two air services licences belonging to Mango because the airline hasn’t flown in over 12 months. The suspension is for two years. 

Mango hasn’t flown since the end of July 2021 because it submitted itself to business rescue proceedings, which are aimed at rehabilitating the airline’s financial situation which worsened due to Covid lockdowns that floored South Africa’s aviation industry.  

The Air Services Licencing Act, which governs the country’s aviation licensing regime, requires that flight operations of airlines not be interrupted or grounded for more than 12 months if they want to keep their licences. 

Mango has exceeded the 12-month grace period and its business rescue practitioner, Sipho Sono, has to now hand over the airline’s licences to the ASLC. 

Mango, a subsidiary of state-owned SAA, has to essentially relinquish its right to fly. Without air services licences, efforts to rescue Mango and revive its flight operations will be futile.

The process to find investors jeopardised 

Mango’s rescue plan is premised on finding strategic equity partners or investors who would buy the airline from the government and recapitalise it. 

The Department of Public Enterprises – the custodian of state-owned entities (including airlines) – wants Mango to be hived off from SAA’s operations and completely sold to private sector players. Sono has already identified a preferred group of investors interested in buying Mango. The investors, who are part of a consortium, haven’t been named. 

Flights timetable at the Cape Town International Airport on 28 April 2021 in Cape Town, South Africa. (Photo: Gallo Images / Die Burger / Jaco Marais)

The investors had already signed an agreement with Sono to buy shares in Mango and the final step was for the group to assemble funding for the purchase by 10 August 2022. But this deal hangs in the balance now that Mango’s right to fly has been taken away. 

Investors would typically want Mango to have valid air services licences so that the airline can restart its operations, work to regain its market share in the domestic aviation industry and, above all, generate money. 

In the Mango business rescue plan, Sono said “it is important that route rights and licences be preserved as it may be critical for the investor [who will purchase the airline]”. 

Air licences are valuable for airlines because they normally don’t own assets but lease assets to run their operations. In Mango’s case, before it submitted to business rescue proceedings, it had a fleet of eight aircraft – all leased from Macquarie (an Ireland-based aircraft leasing company). Mango also leased the furniture and equipment used at its headquarters in Kempton Park, Gauteng. 

The only asset Mango owns is a spare aircraft engine that was acquired from SAA. The engine is valued at R97-million. Mango is technically insolvent because the value of its asset (the engine) is substantially less than the value of its liabilities (monies that it owes creditors), estimated to be about R2.85-billion. 

If Mango doesn’t find a way to regain its air service licences, and the group of investors walk away, Sono might declare that the airline no longer has a reasonable prospect of being rescued. This will pave the way for Mango to be liquidated, which involves the airline permanently closing its doors and the only asset being sold to pay creditors. 


Visit Daily Maverick’s home page for more news, analysis and investigations


Sono was not available to comment on Monday about the next steps he will take after Mango’s air services licences were suspended. And it’s not clear if investors that Sono has lined up will still stick by the financially distressed airline. 

If liquidated, Mango would be the second airline this year to suffer such a misfortune. Comair, the operator of Kulula and British Airways in Southern Africa, is going through liquidation proceedings after the failure of its business rescue process. 

Read more here: Comair in sight of its final resting place 

According to Fin24, the ASLC has also suspended two air service licences of Comair for two years because the company is no longer operating flights. 

Comair has also lined up potential investors who might buy its assets and potentially revive its operations. But without air service licences, it will be difficult to convince potential investors to back Comair. 

The closure of Comair and Mango has resulted in a dearth of competition in the domestic aviation market and a shortage of seats, resulting in consumers paying a lot more on fares – especially for last-minute bookings. 

Read more here: Crunch in the supply of flights pushed up airline ticket prices DM

Gallery

Comments - Please in order to comment.

  • Roelf Pretorius says:

    The question to be asked, according to me, is why did the business rescue process of Mango take so long? Surely the business rescue personnel must have known that they have to start up within 12 months? Or is this a way of making space for SAA to become profitable again? And I can’t help to wonder what is the chances of what is left of Mango, Comair & SAA Express to be merged into one new budget airline. Because when most of us took flights, it was by looking for the cheapest one possible – we can’t afford any more expensive ones. Or will SAA become more competitive when it takes over all these flights?

Please peer review 3 community comments before your comment can be posted