SA Express fast reaching end of the line as government says no to funding
SA Express is nearing the end of its 26-year existence and is set to be the first state-owned enterprise (SOE) to be abandoned by a cash-strapped government that has run out of fiscal room for bailouts.
The airline, which owes creditors more than R2bn, was placed under provisional liquidation at the high court in Johannesburg on Tuesday after its business rescue practitioners, Phahlani Mkhombo and Daniel Terblanche, argued that it had no prospect of survival.
A final liquidation of the company could cost nearly 700 employees their jobs.
SA Express, one of the stateowned companies decimated during the decade of state capture, was put into business rescue, a form of bankruptcy protection that seeks to rehabilitate a financially distressed company, after one of its creditors had brought a successful court application in February.
The rescue practitioners applied for liquidation after the government had denied them further funding.
SA Express’s demise, which has been accelerated by the Covid-19 pandemic that has grounded the global aviation industry, may be a sign of what is in store for SAA, whose future also hangs in the balance.
Public enterprises minister Pravin Gordhan has persuaded SAA’s business rescue practitioners to hold off on liquidation, with a view to devising a plan that may result in the formation of a new, “viable” airline.
The government, which did not file papers to oppose the SA Express liquidation, said on Tuesday it was reviewing its options for state-owned airlines.
Moody’s Investors Service said in a report last week that the government’s fiscal position had reduced the space for providing further support to SOEs.
Previous bailouts were cited as one of the major drivers of the sharp deterioration in the government’s fiscal position, culminating in the country losing its last remaining investmentgrade rating in March.
Moody’s expects SA’s economy to contract 6.5% in 2020 while debt is set to surge to more than 84% of GDP.
This will leave little room for the government to support SOEs at a time when it needs to secure funding to shield the economy and the most vulnerable in society from the coronavirus outbreak.
In an affidavit to the court on behalf of the practitioners,
Terblanche said there was no “reasonable prospect for SA Express to be rescued”.
Unlike SAA, which has been provided with R5.5bn by the Treasury, SA Express has not received any assistance to finance the rescue process.
SA Express suspended operations in March as the country entered into a national lockdown to contain the coronavirus which closed the country’s skies. The resultant lack of revenue is likely to prove to be the death knell for struggling airlines.
SA Express was unable to pay staff salaries in March.
In his affidavit to the court Terblanche said he and Mkhombo had approached commercial banks and other development finance institutions to secure financing. This was refused even with the support of a government guarantee.