Embattled state-owned low-cost airline Mango is currently operating only two aircraft. It’s using these for return flights on three routes daily, in other words for six flights a day. These flights are between Johannesburg, Cape Town and Durban. While Port Elizabeth, East London, Bloemfontein and Zanzibar exist as options on its website, there are no scheduled flights to these destinations.
Therefore, news that the board and shareholders have agreed to place the airline into business rescue should not come as a surprise. What is surprising is that the three labour unions at Mango forced the government’s hand by filing papers at the South Gauteng High Court. Numsa and Sacca (South Africa Cabin Crew Association) confirmed this to Moneyweb’s Fifi Peters on Monday evening.
At the end of June, government approved the release of funds for three South African Airways (SAA) subsidiaries. Of the R2.7 billion ‘diverted’ from the R10.5 billion allocation of funds for SAA, Mango was to receive R819 million. It is unclear whether these funds have flowed to Mango or not.
Mango says “operations are not affected by this decision and further updates will be made available as soon as possible”. It has referred queries to SAA and the Department of Public Enterprises (DPE).
It is likely that the injection of the R819 million in funding and a formal business rescue process which affords the airline protection from creditors are linked.
Mango has had a tumultuous few months, with leaked letters, confirmation that staff were not being paid full salaries and grave uncertainty as to whether the airline would even be able to trade beyond May 1.
On April 28, flights simply did not take off. Later that day, it emerged that Acsa (Airports Company South Africa) had barred the airline from taking off as it had not kept up with a payment plan to settle outstanding debts. Flights resumed late that evening, following meetings between the DPE, Acsa and the airline.
Mango’s decline over the past two years has been downright astonishing.
When SAA effectively withdrew from the domestic market, save for a few return flights to Cape Town, it handed all that demand to Mango.
Since then, the airline has cut routes and flights to the point where it is now barely operating at all.
By May it was operating three daily return flights (from Johannesburg) to Cape Town and two to Durban with roughly daily service to Port Elizabeth and five flights each week to George. It assured travellers that it would resume the service to Zanzibar “soon”. That was three months ago.
In May, the airline said it was operating three of its fleet of aircraft. Of the rest of its fleet, it said that four aircraft were in storage maintenance, five were undergoing “heavy check maintenance” and two had been returned to their lessors.
The challenges with having its aircraft maintained by SAA Technical (SAAT) are well-documented. It has been unable to procure spares in advance and relies on prepayment or partial prepayment of work in order to buy spares. But Mango itself has faced severe liquidity constraints, and has hardly been in any position to pre-fund maintenance.
There has been ample speculation that some of Mango’s leased aircraft in ‘storage’ are not in a position to fly before outstanding maintenance is completed. It is effectively flying with the only planes that are able to operate.
Drastic market share loss
A presentation to the portfolio committee on public enterprises in June revealed how drastic Mango’s market share loss has been.
In January 2020 (before Covid-19), airlines ranked by domestic market shares were as follows: Kulula.com (35%), Flysafair (23%), Mango (22%), SAA (13%), British Airways (5%) and Airlink (2%).
By April 2021, this picture looked starkly different, with Kulula.com and Flysafair both at 32%, Mango at 14%, Airlink at 11%, BA at 7% and new entrant Lift at 4%.
With its recent operational challenges and a flight schedule that has shrunk to just two aircraft, it is likely that Mango now holds less market share than BA.
Quite why parent SAA was placed into business rescue and three operating subsidiaries, Mango, SAA Technical and Air Chefs, were ‘allowed’ to continue trading remains a mystery.
All four entities should’ve been dealt with collectively as, never mind the shareholding, there were and are many interdependencies (SAA Technical is owed money by SAA and Mango, for example, while the bulk of SAAT’s and Air Chefs’ revenue used to come from SAA).
Instead, we have a mess where SAA’s historical debt and issues have largely been dealt with, but the issues in the subsidiaries have been allowed to fester, with debts and liabilities in these ballooning over the past two years.
Mango itself is far worse off than it would’ve been had it entered a business rescue process at the same time.
What may be dawning on the DPE (and National Treasury) is that the R819 million due to Mango is simply not going to be enough to stabilise the airline and ensure it is able to operate sustainably.
Recall that last year, Mango itself said it needed recapitalisation of R1 billion (arguably too low, even then). According to Fin24, the court papers reveal Mango’s current debt is R2.5 billion, with R718 million owed to SAAT, R156 million owed to Acsa and R57 million to Air Traffic Navigation Services (these are all state-owned entities!).
It is still unclear how Mango and the state’s other aviation assets will be separated from the ‘new SAA’.
Thankfully the government’s long-running plan to ‘consolidate’ and ‘simplify’ its aviation assets was never completed. Were that the case, all these entities would’ve collapsed into the SAA business rescue mess.
Business rescue cannot come quickly enough for Mango if it is to have any chance of being around in a year.
Perhaps at the same time, government will resolve the shareholding structure of the airline (as well as SAAT).)
Listen to Fifi Peters’s interview with Numsa’s Phakamile Hlubi-Majola and Sacca’s Zazi Nsibanyoni-Mugambi (or read the transcript here):