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.
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.
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.
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.