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SA Airlink, Comair could determine SAA’s fate

Voting rights proportionate to money owed to creditor.

SA Airlink will play a determining role in the fate of embattled South African Airways (SAA), whether the urgent application argued in the High Court in Johannesburg on Tuesday succeeds or not.

If it succeeds, SAA’s business rescue practitioners (BRPs) will have to pay Airlink more than R500 million within five days, which could be the final straw for the bankrupt airline.

If its application fails, Airlink will be out of pocket, but it would make Airlink one of SAA’s biggest creditors. This would give Airlink a large weighting in the voting pool for or against the business rescue plan that is due to be published at the end of the month.

If the business rescue plan is summarily rejected, SAA will go into liquidation.

Another rival airline, Comair, is believed to be an even bigger creditor. It is owed about R1 billion in terms of an earlier court settlement for damages, after SAA was found to have contravened the Competition Act.

This means two competing airlines could determine whether the state-owned airline will get another shot at survival.

It is believed that some South African banks will be the other substantial independent creditors.

Tuesday’s application was aimed at forcing the BRPs, Les Matuson and Siviwe Dongwana, to pay more than R500 million over to Airlink within five days. This is money SAA collected on behalf of SA Airlink in relation to the sale of flight tickets on SA Airlink flights.

Read: SA Airlink asks court to rescue it from SAA

SAA handled the ticket sales as an agent for SA Airlink in terms of an alliance agreement, but the BRPs have classified the amounts that were due to be paid over in December as pre-commencement debt.

Airlink is attacking this classification and argues that the money always belonged to Airlink and is being withheld unlawfully by SAA’s BRPs.

SAA, on the other hand, has characterised Airlink’s action as an effort by a creditor to jump the queue to get preferential treatment compared with other creditors.

Derek Mans, trade union Solidarity’s representative in the airline industry, reckons SAA will run out of money at the end of the month unless it gets more funding.

The BRPs cancelled almost 100 flights in February to preserve cash and announced the cancellation of numerous domestic, regional and international routes last week for the same reason. Domestically only the Johannesburg to Cape Town route has been retained, on a reduced basis.

Read:
Government calls for review of SAA route cuts 
SAA business rescue team defends plan to cut airline’s routes

This was slammed by President Cyril Ramaphosa, and Public Enterprises Minister Pravin Gordhan said government would take the matter up with the BRPs.

Mans says banks are unwilling to put their hands deeper into their pockets for SAA, and that having to pay R500 million if the court so orders could be devastating for the embattled airline.

If the application fails and the money is ruled to be pre-commencement debt, Airlink’s claim would be unenforceable in terms of the Companies Act, which gives companies in business rescue a reprieve from creditors to give them time to execute a turnaround.

Should this happen, all eyes will be on Airlink and Comair when the business rescue plan is tabled.

The plan will set out the total amount owed to creditors, along with the voting rights of all creditors and affected parties as well as the weighting attached to each, says Louis Klopper, BRP at Coronado Consulting.

Voters’ options

Voting will take place ten days later at a meeting of creditors, probably early in March.

They can reject the plan outright (which would lead to liquidation), accept it, or request that the BRPs make amendments and resubmit the plan.

According to Cloete Murray, who chairs the business rescue labour committee (representing workers’ interests), the votes of the independent creditors, thus excluding National Treasury for example, will determine the outcome.

Murray says there could be a reasonable expectation that both Airlink and Comair will vote against the plan. He says if they can prove that the votes were cast for an “inappropriate reason” – such as getting rid of competition – the BRPs could, however, get a declaratory order from the High Court to have the votes nullified.

Creditors can also build voting blocs by buying the debt of other creditors to obtain their voting rights.

Read: SAA rescue supremo faces long to-do list

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This is going to get very interesting. The logical conclusion is that SAA gets liquidated. If this happens SAA and government can shift the blame to Comair and Airlink.
It looks like the wolves are at SAA’s door?

Harsh reality is eventuality overtaking Governments years of inaction / inability and exposing their latest chameleon-like game of not giving SAA the money it promised, yet opposing BRP’s survival measures.
We would respect Government more if they comprehensively & unambiguously put their hand up about what they truly want with SAA, but you cannot say you want sacred cows untouched (flights, jobs, the corrupt cabal within) in order to gain the applause of the people but also expect someone else to make it work for you.
You can use might to keep ruling over things that you aren’t capable of running, but you can’t prevent their eventual economic collapse. I think the ANC administration have realized that if you keep pumping tax payer money into it, you will eventually run out of that and face collapse yourself. So now they are just throwing SAA’a fate into the wind, yet still shouting the odds from the sidelines in order to try to stay popular with the “voting cattle”, to coin a phrase from Mr Malema.

Tito wants rid of the airline, so he probably suggested business rescue, knowing full well what would happen. The rest of the ANC, having no clue whatsoever what business rescue entails, agreed, and now they are just figuring out what they agreed to.

Government does not want to be the ones closing SAA. Scared of the Unions and the votes, they want to blame the business rescue guys. Watch this space the moment they recommend closure government will be up in arms but will allow it.

The perfect storm has arrived. Which one will the Unions back ? SAA or Airlink ?

How on earth did Cloete Murray get involved in the Business Rescue process of SAA?

Based on his actions in the liquidation of Bosasa, which I believe was hurried through, before the liquidators were appointed as “FINAL LIQUIDATORS” and which the Watson family objected to, I am of the opinion that he may not be a suitable person for the job. Time will tell.

Probably he will bulldoze the liquidation process through except this time he will be contending with more formidable opponents, the unions. Whatever the case, there must be no bungling of this process lest it comes back to bite the taxpayer in the behind.

Simply amazing that Comair for example can operate profitably (for 71 years and counting) WITHOUT Govt handouts.

What did Richard Quest state about SAA (in his DAVOS interview) about SA Airways?

“…govt must hands off the airline….”

How about this:

Behind the scenes (secret talks) Comair approaches Airlink & makes a deal to fund them over time the R500mil, persuade them to vote to have SAA liquidated.

With SAA away, Comair gains sufficient market share to make up the R500m cost over next few years (by upping tariffs due to lower competition & increased capacity by acquiring and cherry-picking the best of SAA’s fleet, at give-away cost)

Timing is important. The deal with Airlink only happens after voting to liquidate SAA, then BRP cannot argue the vote must be nullified by the court….as at the time, Airlink is in dire straights without the R500mil…..i.e. Airlink will not have motivation to see SAA be liquidated.

It’s time for ‘alliances’ in this Survivor game…

I suspect the Airlink money is held by SAA in a fiduciary capacity – it never belonged to SAA. If so, there is only one way the court should rule – for Airlink. But, we only know what was reported, so the real nature of the agreement between Airlink and SAA is unknown. As for the unions deciding who to support, they’ll go for supporting the big one – SAA.

SO WISH we the taxpayers had a big chunk of Comair shares to use as vote…..

ALL of this above assumes that the SA government is in fact not by far the largest creditor on the back of the massive loans and guarantees given to SAA over the years.

People need to distinguish between equity funding and loan funding….

Government will just start a new airline once SAA is liquidated. They already have plans for a new VBS scenario with their new bank idea. Then they have already floated the idea of another power company. This is Africa, it’s sensible to think. If one cannot manage one business successfully started another one is only the logical thing to do.
Everyday I’m happy I never bought property in SA. The ice erg isn’t far away anymore.

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