Airline’s rescue plan

2012-03-08 00:00

DESPITE debts totalling more than R100 million, low-cost airline Velvet Sky Aviation could turn its fortunes around with the aid of a foreign investor and by introducing flights to two African countries.

This is according to submissions before the high court in Pietermaritzburg by Velvet Sky CEO Dhevan Pillay, who said the company had concluded a preliminary agreement yesterday with a “world renowned equity fund” which was prepared to invest $50 million (R381 million) if Velvet Sky was not liquidated.

He said the agreement could not be made public until the equity fund had complied with the regulations of the Singapore Stock Exchange. This would be done by March 8.

In addition, he said, Velvet Sky had negotiated with two neighbouring African countries for the rights to fly to destinations there, but because of non-disclosure agreements he could not name them.

“I can state that an agreement has been signed in the last few days with one such country,” Pillay said.

He said the additional route will be dollar-based and “comprehensively more profitable than existing domestic routes” flown by Velvet Sky over the same distance.

Velvet Sky, which was facing liquidation yesterday, was thrown a last-minute lifeline by one of its creditors, Umzamo Transport Services (Pty) ltd, which lodged an application for the airline to instead be placed under supervision in terms the Companies Act in order to commence “business rescue proceedings”.

After hours of negotiation in the corridors of the high court between the various legal teams yesterday, a consent order was granted by Acting Judge Kobus Booyens.

In terms of the order, the application by BP Southern Africa to wind up Velvet Sky and the proposed “business rescue application” by Umzamo Transport Services were adjourned without a date being arranged.

Umzamo must file supplementary papers in support of a business rescue plan by April 10, failing which BP will be entitled to return to court and apply for a preferential date to relaunch winding up proceedings.

All creditors of Velvet Sky have the right to participate in the business rescue application.

Legal consultant for Velvet Sky Aviation Arvind Kissoon-Singh told the media after the hearing its aircraft would “definitely” take to the skies again as soon as it had reorganised its flight schedules, but he could not say exactly when this would happen.

“I can’t tell you it will be today or tomorrow, but certainly as soon as possible,” he said.

Kissoon-Singh also proffered an apology to members of the public who have been inconvenienced by the grounding of Velvet Sky’s aircraft.

Alex Elliot (for BP) said that as a creditor of Velvet Sky, BP Southern Africa was also participating in the application for business rescue and would wait to see exactly what is being proposed.

If the application (for business rescue) was granted a business rescue practitioner must be appointed and would put forward a rescue plan which would then be voted on by all the creditors, he explained.

In his affidavit Pillay detailed a variety of measures being taken to increase profitability, including the rationalisation of flight schedules to achieve optimum loads on all flights.

He said that although Velvet Sky Aviation had budgeted for a loss in the first year of operation, its actual losses up to December 2011 were double those budgeted for.

The reason was that the company had started with a business model designed to operate three aircraft, but only one was operational up to October last year.

Some other factors were the dramatic increase in the fuel price from R4,50 per litre to around R8,20 per litre; increases in airport taxes, insurance and security fees; the high level of competition; and the introduction of a non-profitable route to Polokwane.

In support of the business rescue application, the CEO of Umzamo Transport Services, Lingam Peter, said that if Velvet Sky was wound up a “negligible dividend” would be declared to creditors, but if a new investor could provide working capital, Velvet Sky would be able to meet its daily expenses and, in time, operate profitably.

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