SAA uncertainty: What you need to know if you have a ticket or intend to buy one

A question frequently asked since South African Airways was placed into business rescue in December last year is what would happen if the embattled state-owned airline were liquidated. 

In the event of liquidation, an airline is obliged to move passengers to alternative airlines. And if there is low availability on alternative airlines, the carrier will reimburse passengers for the cost of the unflown tickets, according to Jerome Touze, managing director of African online travel booking website Travelstart.

Passengers would then need to rebook on other airlines at their own expense. "In general, travellers are advised to always take out comprehensive travel insurance with airline insolvency cover. In addition, travellers are advised to protect themselves by buying flights tickets with a credit card," suggests Touze. "This way, if the service is not delivered, the cardholder can claim their money back under the local 'charge back rule'."

A legal expert who specialises in business rescue, but asked not to be named due to the delicate nature of his work, told Fin24 that to understand the question in these kinds of circumstances, travellers need to understand that when they buy tickets they enter into a contract with an airline. The contract is that you pay for the ticket and the airline will provide you with a particular flight.

"So, just by having bought a ticket, it does not mean you immediately have a claim against the airline. It is only if the airline cannot perform by providing you with that flight, that you can - due to the cancellation - claim against the airline to get your money back," he said. 

"Therefore, if SAA's business rescue practitioner intends to continue trading, then whoever is holding SAA tickets do not have claims at this point. However, if the business rescue is converted into a liquidation, the likelihood would be that the liquidator would simply, due to a lack of funds, cancel or elect not to proceed with agreements. This would then mean that a ticket holder's contract with the airline is terminated and then that ticket holder would have a claim against the airline whether you had insurance or not."

If a ticket holder also had insurance cover, this would be an alternative remedy.

The legal expert said that, under business rescue, the likelihood of a ticket holder being able to "proceed with the contract [he or she] has with the airline" and end up actually taking the flight, is higher than if the business rescue status is converted into a liquidation.

Another difference between the position of a ticket holder as a creditor of the airline in a business rescue scenario compared to a liquidation, is that under business rescue the business plan of the business rescue practitioner must be approved by 75% of all creditors, including 50% of independent creditors. The business rescue plan would then describe if ticket holders would get their money back or not.

In the case of a liquidation, however, the decision would not be up to creditors. Under liquidation, a liquidator would simply dispose of assets and use the funds recovered to distribute to creditors in accordance with a legally prescribed ranking. Secured creditors would be paid first and ticket holders who had their tickets cancelled would be seen as so-called concurrent creditors, who would be last in line.

"Business rescue is a process to try and save the airline, its brand and its future. In business rescue the likelihood is greater that the airline would continue with its contract with ticket holders," said the legal expert.

"I guess it is now just a case of wait and see what happens to SAA. In any event, it just shows again the importance of having taken out travel insurance when you bought the ticket. Of course, one still hopes for the best for SAA."

Fin24 did approach SAA as well as the business rescue practitioners to provide clarity on what could happen to tickets in future. SAA did not respond and, the business rescue practitioners indicted that they are not able to comment at this stage.

In a joint statement on Thursday morning, SAA's business rescue practitioners Les Matuson and Siviwe Dongwana denied claims of imminent liquidation, saying that there are typically liquidity constraints for companies into business rescue. They added that government is still supportive of the process. "Government continues to indicate its support for the business rescue process and together we are considering various scenarios to keep the entity operational," they said. 

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