As the South Gauteng High Court delivered a final liquidation order on embattled regional airline SA Express, lawmakers deliberated the future of another struggling carrier, Mango.
Addressing the portfolio committee on public enterprises on Wednesday (14 September), the department provided an update on the state of Mango’s business rescue.
The airline was placed in voluntary business rescue on 28 July 2021, with business rescue practitioners appointed in August that year. The group was allocated R819 million to execute a rescue strategy, which involved reducing operations and cutting staff. Ultimately, all staff were either given severance packages, retrenched, or resigned.
Of the R819 million, the airline received only R734 million after “protracted discussions” between Mango, South African Airways (SAA) and the Department of Public Enterprises. Following the various legal fees and other costs, R256 million remains.
In November 2021, SAA proposed that the business rescue plan be amended to exclude the resumption of operations at Mango until an investor for the group was found.
Under this new plan, Mango would have to find an investor who would foot the bill for the airline’s return to operation, including hiring new staff and leasing new aircraft. R2.8 billion would also have to be set aside to pay creditors.
Meanwhile, the Air Services Licensing Council (ASLC) – which suspended SA Express’ licences, effectively signing its death warrant – has also suspended Mango Airlines’ air service licence, though this is for up to two years while the business rescue process plays out.
Mango received interested bids from investors in April 2022. According to the department, prospects for Mango’s survival now appear to be far more positive than those of its fallen competitors.
It said that a so-far unnamed preferred bidder has provided the necessary confirmation of funds needed to secure its investment in the airline, with September and October 2022 set aside for the finalisation of the deal, and for the various regulatory and competition approvals to take place.
The department warned, however, that the airline is not out of the woods yet, and that the government still needs to carefully consider the offer and complete its due diligence.
“We have been informed by the business rescue practitioner that an investor has been identified – but this is subject to approval by the shareholder, government. We are waiting for the business rescue practitioner to submit an application through the Public Financing Management Act (PFMA) for the approval of the investor, so we know who that investor is,” it said.
“We can then determine whether what they are putting on the table is something we can accept as government – whether it is something that is viable. We will have to do our own due diligence and make sure that whatever offer is there makes commercial sense.
“Once we have done that determination, we can come to the committee and explain the assessment of what the business rescue practitioner has put on the table and whether we are able to approve that. If we are not able to approve that, then (we need to determine) what happens going forward.”
Regarding the investor process, the department said that after going through the expression of interest, securing funding, providing proof of funding and drafting transaction agreements, the government is now waiting for the PFMA application, which it expects soon.
Airlines under pressure
South Africa’s airlines have been under extreme pressure following years of thin margins, and riding out the Covid-19 pandemic.
The liquidation of SA Express on Wednesday was the latest blow to the sector and follows the closure of local airline Comair in June.
SA Express had been grounded since the airline went into provisional liquidation in April 2020 after failed attempts to rescue the business. Multiple attempts have been made over the last two years to sell the business, but these fell through. Its liquidators indicated in August that there was no way to save the business.
Comair, meanwhile, shut down for good in June 2022 after failing to secure the necessary funding to pull it out of financial straits, leading to its business rescue practitioners saying there was no longer any reasonable prospect that the company could be rescued.
The local aviation industry was left scrambling in the wake of the closure, contending with a loss of around 40% capacity and rising fuel prices at the same time. The combined effect saw ticket prices shoot up by as much as 50%.
While the sector has stabilised slightly in the last month, ticket prices remain elevated in South Africa.