Public Enterprises to study liquidation application by SA Express business rescue practitioners

Allegations by the business rescue practitioners of SA Express that the government deliberately withheld financial support from them, and that the state's approach to the business rescue process was unconstructive are baseless, the Department of Public Enterprises has said. 

The department on Sunday issued a statement in reaction to an earlier court application by the business rescue practitioners (BRPs) to have the state-owned regional airline liquidated. The state-owned airline's business rescue practitioners on March 25 lodged an application in Pretoria High Court for SAX be placed in provisional liquidation.

The BRPs have indicated to the Department that R350 million will be required to save the airline. They had not received an answer at the time of the liquidation application.

The department, meanwhile, has said it will determine its course of action after studying the liquidation application.

SA Express was placed under business rescue last month due to financial pressures that resulted from years of poor management and state capture, the department said. The application to place it into business rescue was brought by ZieglerSA, a service provider to the airline.

The state has provided more than R1.2 billion in urgent financial support to SAX for the 2019/20 financial year, including R300 million released last October. Before SA Express was placed under business rescue, government mandated the board and management to investigate and terminate a number of irregular contracts as a way to save money and root out corruption, according to the department.

In response to the BRPs claims in their liquidation application that they were not getting very far in their attempts to get financial support and feedback from government, the department said it had to follow rigorous legal public finance procedures.

The department said that, although it considered an initial funding proposal from the BRPs, it felt the plan did not meet certain basic requirements and did not set out a credible business case to allow the necessary funding to be unlocked so that a long-term rescue plan could be developed.

Such a long-term business rescue plan needs to take into consideration the commercial viability of the airline "in a competitive and volatile South African aviation sector", the department pointed out. The plan also needs to take into consideration the impact of the coronavirus pandemic on the airline and the aviation industry.

Earlier this month SA Express had to suspend operations due, in part, to the impact of the Covid-19 pandemic.

Fin24 reported last week that the business rescue practitioners for struggling airline SA Express wrote a letter to staff to say that salaries will not be paid on time for March due to "adverse operational challenges" like the impact of the coronavirus pandemic on the market.

"It is in this context that the department needed to see a business rescue plan that is resilient so the proposition could withstand a whole new business environment," the department said.

"The damage done has turned out to be graver than initially assessed. As a result, the government is not in a position to give further fiscal comfort especially in these difficult economic times and considering the competing priorities."

It added that the government has, however, initiated steps to assist the airline with the payment of salaries. A formal application has been launched with the UIF in this regard.

Fin24 has requested comment from the business rescue practitioners.

UPDATE: The board of SA Express announced on Monday afternoon that interim CEO Siza Mzimela will be leaving the airline to pursue other opportunities. Thuli Mpse has been appointed as acting CEO effective 1 April 2020.

The board said in a statement that it had already put forward a recommendation of three names to government  12 months ago and is still awaiting a response.

FURTHER UPDATE: Update: The National union of Metalworkers of South Africa (Numsa) and the South African Cabin Crew Association (Sacca) said in a statement on Tuesday that they have noted the statement issued by the Department of Public Enterprises on Sunday on the situation at SA Express.

"Most of our members have not received their salaries for the month of March, and they were unable to prepare for the lockdown. They are suffering as a result of the mismanagement of [the airline]," the statement says.
 
"Meanwhile, whilst the two sides [the DPE and the BRPs] bickered, the eventual stalemate between the two parties worsened the situation and now SA Express is on the verge of liquidation. Workers and their families' will suffer the most during this Lockdown simply because government the board and the executives failed in their duties as leaders."

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