The Department of Public Enterprises (DPE) has expressed, in a statement, its concern about the direction that the business rescue process for State-owned regional airline SA Express is taking. “[T]he business rescue practitioners (BRPs) are planning to ‘ground’ the airline without first presenting the shareholder and stakeholders with a comprehensive and feasible business case for the immediate stabilisation of the airline,” it said.
The BRPs presented their business rescue plan to senior DPE officials, including the acting director-general, during the week ending Friday, March 6. “The Department informed the practitioners that the BRP presented was wholly inadequate and did not include key commercial elements that would enable the department to make a business case for the provision of postcommencement finance (PCF) to the National Treasury.”
The DPE was engaging with the National Treasury to obtain the PCF, either in the form of cash or as a government guarantee. The DPE had informed the BRPs of this. This was because the business rescue process needed the PCF to be completely operational.
The DPE stressed to the BRPs that government funds were “constrained”. But the National Treasury was “fully engaged” with the issue and comprehended the “severity” of the circumstances. It urged the BRPs to “vigorously” pursue the option of a strategic equity partner for the airline, should any potential partner show interest in taking a stake in SA Express.
The department advised the BRPs to hold talks with the airline’s board, its management, and the unions and all stakeholders, and make use of their skills to “elaborate” a business case that could be submitted to possible sources of PCF, including the National Treasury. The DPE statement affirmed that the BRPs had agreed to this and further said that they would return some strategic and operational responsibilities to the board and management of the airline.
The DPE urged the BRPs to include five elements in their interim restructuring plan. These included options for restructuring; implications for the airline’s assets, staff, fleet and routes, as well as regulations and costs; the financial model; funding options; and a brand recovery plan. “The department is of the view that there is still a rationale for SA Express to play a critical role as a feeder airline to service secondary routes and key cities in the Southern African region; however, the BRPs , working with the board and management, need to firm up the commercial case to enable funders to provide PCF.”
However, news website Daily Maverick subsequently reported to the High Court in Johannesburg that the BRPs had accused the DPE of trying to undermine and interfere with their attempts to restructure SA Express. The DPE had shown, in the words of the report quoted by the Daily Maverick, “open hostility and aggression” to them. The department had engaged in various manoeuvres to have them removed as the BRPs for the airline, but these manoeuvres failed. Neither the DPE nor the National Treasury had provided the R438-million required for the PCF.
According to the report, the BRPs had, since February 12, several times requested meetings with the DPE regarding the PCF for the airline. These requests “fell on deaf ears” and the “department did not bother to respond to the BRPs’ requests”.
On paper, SA Express operates a fleet of 24 aircraft. All of them are twin-engined aircraft built by Canadian manufacturer Bombardier. This fleet is made up of both regional jet and turboprop airliners. The jets comprise ten 50-seat CRJ200s and four 70-seat CRJ 700s. The turboprops comprise ten 74-seat Q400s. However, it is not clear how many of these aircraft are still operational and how many have been grounded for lack of finance.