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Illustrative image | source: Waldo Swiegers / Bloomberg via Getty Images
Business Maverick understands that the latest suspension also affects the operations of SAA’s subsidiaries, including low-cost carrier Mango Airlines, SAA Technical, Air Chefs and SAA Cargo.
SAA’s aviation operations have been suspended again because the government failed to raise R10.5 billion in urgent funds to restart the troubled state airline.
SAA operations, along with the aviation industry in general, have been suspended since March 27, when the government implemented travel restrictions and closed borders to curb the spread of Covid-19. But this time the foundation of SAA’s operations is due to its precarious financial situation.
SAA’s business rescue professionals informed creditors in a note on Tuesday, September 29, that all SAA operations had been suspended with “immediate effect” because the airline had run out of working capital entirely.
In early September, SAA rescue practitioners Siviwe Dongwana and Les Matuson told creditors that the airline’s financial situation was “dire” because the working capital available to finance its operations is “on the verge of exhaustion” .
Delays in receiving funds from the government aggravated SAA’s financial situation, resulting in the suspension of its operations twice in six months.
Business maverick understands that the latest suspension also affects the operations of SAA’s subsidiaries, including Mango Airlines, SAA Technical, Air Chefs and SAA Cargo.
It has been a bad week for Mango Airlines, with threats that its aircraft will be grounded because it supposedly owes money to SAA Technical for aircraft maintenance work, according to a television channel report. Encan.
Dongwana and Matuson said in a note that all SAA operations would be placed under “care and maintenance,” and that only essential safety and maintenance work would be performed to preserve its fleet of aircraft and other aviation-related assets.
The pair have been in talks for the past two weeks with the Department of Public Enterprises, the National Treasury and commercial banks to raise funds for the airline’s commercial bailout plan.
The SAA requires R10.5 billion to finance the implementation of its business bailout plan, which proposes to pay unsecured creditors nearly R2 billion over three years, staff reduction packages worth R2.2 billion to 2,000 workers and finance the restart of the airline’s flights. in January 2021.
But the government has been unable to provide the money for SAA, saying only that there is a clear commitment from the Cabinet to provide funds to the troubled airline. This would be done in a “fiscally neutral manner” and could include asking ministers to cut their departmental budgets to free up funds for SAA, rather than raising funds through new sources of debt.
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The poor will pay for SAA
With no government money, rescuers requested short-term bridge financing from commercial banks to cover SAA’s operating expenses while it restructured.
Some of the banks, already exposed to SAA because they are the airline’s biggest creditors, were unwilling to provide more support to SAA because it is not solvent given its dire financial situation.
But Dongwana and Matuson said that commercial banks had indicated a “willingness to provide a portion of the funds necessary for the implementation of the business rescue plan.”
The pair did not disclose how much funds the banks are willing to invest in SAA’s restructuring. The banks want the financing to be backed by more government guarantees, an agreement that the government or the treasury would pay if the SAA defaults on payments.
But there has been no progress on the government’s part of the funding required by the SAA.
“The BRP [business rescue practitioners] they are engaging with the government regarding obtaining the remaining financing required to fully implement the business rescue plan and what the implications would be for the company if it receives a portion of the required funding, “Dongwana and Matuson said in a note. to creditors.
Dongwana and Matuson said they now “need time to evaluate and determine the appropriate way to proceed in the absence of funding.”
Without funding from the government, rescue professionals have presented two options for the future of SAA: a structured liquidation of its operations or liquidation. A liquidation involves the disposal of assets and the payment of liabilities with the product, and the possible survival of a company in financial difficulties. Liquidation involves a retail sale of a company’s assets and their permanent closure.
A decision will be made next week, but in the meantime, rescuers have suspended all SAA operations. DM / BM
