30 Mar Media Statement on SA Express Business Rescue Process
29 MARCH 2020 – The Department of Public Enterprises has noted a Court application from South African Airways Express (SOC) Limited’s (SA Express) Business Rescue Practitioners to liquidate the airline.
The company was placed under Business Rescue last month due to financial pressures that resulted from years of poor management and state capture. The application was brought by ZieglerSA, a service provider to SA Express.
Before SA Express was placed under business rescue, the 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.
The Ziegler SA contract was one of these. The contribution of some members of previous leadership teams in the poor management of the airline needs to be investigated, and where appropriate, for justice to take its course.
The allegations that the government deliberately withheld financial support to the rescuers and that the Department’s approach to the process was unconstructive, are baseless.
Government’s support to such a process is governed by rigorous public finance prescripts outlined in both the Public Finance Management Act and the Companies Act.
The government considered an initial funding proposal from the rescuers. This unfortunately did not meet the basic requirements as it lacked a credible business case that could enable the unlocking of the required post commencement finance (PCF) that would allow the rescue process to proceed and for a long-term plan to be developed.
The long-term plan (business rescue plan) needed to take into consideration the commercial viability of the airline in a competitive and volatile South African aviation sector. The advent of the Corona pandemic quickly compounded our economic situation as it introduced unprecedented risk to humanity and exposed our economic fragility as a nation. Therefore, considering the reduction of passenger traffic in the market, the business rescue plan had to take into account the recent changes in 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 government has provided more than R1.2bn in urgent financial support to SA Express for the 2019/20 financial year, including the R300m released last October. This was in an attempt to restore the damage done to the airline by corruption and mismanagement perpetrated by previous leadership teams of the airline. Evidence of that has been ventilated at the Zondo Commission of inquiry into state capture. 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.
Mindful of the company’s responsibilities to staff in the context of a cash crunch worsened by the Corona Pandemic’s impact on the aviation sector, the government has initiated steps to assist the airline with the payment of salaries. We have approached the Unemployment Insurance Fund to ensure workers receive support during this time of hardship and uncertainty. A formal application has been launched with the UIF and we have asked that it be expedited.
The Department will determine its course of action after studying the liquidation application.