Smaller creditors not happy as vote on SAA rescue deal looms

● All eyes in the aviation sector will be on Tuesday’s crucial meeting where creditors will decide the fate of stricken state-owned airline South African Airways.

A 75% vote in favour of the business rescue plan will be enough to pass it. Bigger creditors, such as the banks, hold the majority of the voting rights and if they all vote in favour of the plan, it should pass.

But these lenders will be paid out regardless, because the loans are guaranteed by the government.

Linden Birns, MD of Plane Talking, said banks “shouldn’t be voting because they have guarantees and will be paid out no matter what happens. They shouldn’t be treated like other creditors and even have a vote.”

Opposition to the plan could come from smaller creditors, who have been told they will get only 7.5c in the rand, within a threeyear period — if SAA can afford it.

Rodger Foster, CEO of SA Airlink — owed R500m by SAA — said the private airline is “considering its options given that we are damned if we do and damned if we don’t”.

“The choice we are being given is, you can either have zero if you don’t vote for it, or you can have 7.5c in the rand some time between now and three years from now if the company can afford to pay you. But if it can’t, you are still going to get zero. That is what we are going to vote on.”

Foster said one of Airlink’s issues with the plan is that the creditors and their voting interests have “vastly changed over the three iterations of the plan that we have seen”.

“For example, the list of creditors on the first iteration was R28bn, while the list of creditors on the second iteration was R38bn. That’s an increase of R10bn.

“And the most recent iteration of the plan on July 8 shows R21bn. So what happened to the R17bn? Where did it go and how come it is not there any more?

“And how come the voting interests have been so dramatically changed? In the most recent iteration the sum of the secured lenders, the [state-owned enterprise] creditors and the lessors together amounts to 81% of the voting interest. Therefore the rest of the creditors’ vote doesn’t matter,” said Foster.

The joint business rescue practitioners said in a statement on Friday that the difference in the amounts is “largely due to the agreement with lessors to limit their damages claims to only six months instead of the full period of the contract”.

Foster said the plan lists his airline as being owed R277m, and it has not been explained to Airlink why there is a R223m difference between this figure and what Airlink believes it is owed. Otto de Vries, CEO of the Association of South African Travel Agents, said travel agents are owed money by SAA but it is “unclear exactly how much” because it has never been able to get a “breakdown”.

De Vries said there is a “bit of frustration” because when the business rescue plan was initially released, it separated R3.2bn in “unflown ticket liability” from the creditors list, thereby reducing the voting rights of travel agents.

“They separated unflown ticket liability, which is tickets purchased and not yet flown. That could be unflown ticket liability owed directly to customers by the airline or that could be unflown ticket liability owed to travel agents. It makes it very difficult for us to get a picture of how much is owed to the travel agency community.”

Another complication, said De Vries, is that each travel agent that believes it is owed money by SAA will have applied separately to be identified as a creditor.

De Vries said the argument is that if the plan is approved and business rescue practitioners receive funding, R3.2bn will be made available in the hope that it will cover any refunds customers want or cover the costs of operating those flights that were booked.

“So we are also damned if we do and damned if we don’t. While right now there is little chance of getting the money owed, if we don’t approve the plan there is no likelihood of the R3.2bn being put aside specifically to cover unflown ticket liability.”

Even if all creditors vote in favour of a revised business rescue plan it is still unclear where the funding for its implementation will come from.

The Treasury has said there will be no further bailouts for the airline. The department of public enterprises said on Friday that it “believes … a positive vote to finalise the business rescue process would be the most expeditious option for the national carrier to restructure its affairs, its business, debts and other liabilities, resulting in the emergence of a new, viable, sustainable, competitive airline …”.

‘You can either have zero if you don’t vote for it, or you can have 7.5c in the rand later. Maybe’