The business rescue practitioners (BRPs) appointed to steer the survival plan for SA Express are throwing in the towel and will file to liquidate the airline, after failing to secure post-commencement funding (PCF) from the state.
The adversarial relationship between BRPs Phahlani Mkhombo and Daniel Terblanche and the Department of Public Enterprises (DPE) is no secret, as the two race towards either saving the airline or liquidating it.
In a letter sent to employees on March 21, the practitioners explained that they had not been able to secure the necessary funding required to keep the airline in business while they worked on a model for a more sustainable business.
Can’t pay salaries
From Wednesday to Friday last week the practitioners were in meetings with the SA Express creditors committee, the DPE and the SA Express board and made no progress in support from government or any other financial institution.
As a result, the airline will not be able to pay salaries and other employee statutory obligations such as income tax, the unemployment insurance fund, pension and provident funds.
SA Express has already failed to make these statutory employment payments for the month of February.
At the same time, the practitioners say that the majority of the aircraft lease agreements have been terminated by the lessors, because of the non-payment of post-commencement lease amounts.
These leases had not been paid for over three months when the company was placed under business rescue in February.
Mkhombo and Terblanche say that the current disruptions to the aviation industry caused by the global spread of Covid-19 have also added to the airline’s challenges.
“Without funding or PCF which unfortunately cannot be quantified with certainty at this stage due to the recent outbreak of the Covid-19, the business rescue will not succeed,” the BRPs said.
Airline can’t be saved
The Companies Act requires practitioners to inform the courts and all affected stakeholders on whether a company has reasonable prospects to be rescued, after undergoing an investigation of the business and its financial situation.
Mkhombo and Terblanche said that considering the current challenges with securing funding and “based on their objective assessment of the plethora of challenges faced by the company”, they’ve determined that the airline can no longer be saved.
The BRPs informed employees that they would begin the process of converting the rescue processes into liquidation with immediate effect.
“Should the government be able to secure funding or PCF before the conversion application is heard in court, this application will be withdrawn,” said Mkhombo and Terblanche.
SA Express, which serves as a feeder airline, was placed under business rescue by the High Court in Johannesburg at the start of February, with Mkhombo and Terblanche appointed as the airline’s BRPs.
The tension between the department and the practitioners came to light at the beginning of the month, when the department issued a statement cautioning them against grounding flights due to liquidity issues.
The department went on to criticise the draft plan that was placed before its acting director-general, Kgathatso Tlhakudi and the Aviation Division, calling it “wholly inadequate” and that it could not be taken to National Treasury to be approved for funding.
A report by Daily Maverick states that the department drafted its own business rescue plan that was presented to Treasury over a week ago, outlining that the business required between R438 million and R691 million in PCF.
The practitioners told the publication that the government’s refusal to release the funding has frustrated their efforts to rescue the airline.
Should SA Express be liquidated it will result in a loss of jobs for all of its employees.