Comair's challenge to the legality of government's bailouts of South African Airways (SAA) will continue in the North Gauteng High Court in Pretoria on Thursday.

Comair, which is a franchise partner for British Airways, argued on Tuesday that instead of going into business rescue, the technically insolvent SAA opted for the bailouts.

''It is a classic position of a company that simply can't meet its ongoing obligation,'' said David Unterhalter SC, for Comair. 

Unterhalter said that last September SAA wrote to the minister of public enterprises and said that its previous R5-billion loan guarantee would only be available for one more month and this might have an impact on its liquidity.

In October 2012 the government granted SAA a R5bn guarantee for a period of two years. SAA told parliament in February 2012 it needed between R4-billion and R6bn-billion for a recapitalisation programme.

One of the conditions for the R5-billion guarantee in 2012 was that SAA's board had to develop a turnaround strategy. In October 2014 SAA was again seeking government support, two years after it was granted the R5-billion in loan guarantees.

Second injection

In January 2015, Finance Minister Nhlanhla Nene said SAA will receive another R6.5-billion injection from state coffers, even though he had said in the previous October that there would be no more bailouts and that the airline would have to restructure.

Unterhalter commented that using the words ''impact on liquidy'' was simply a ''nice way of saying 'we can't pay it back'''.

At that stage, it was already unable to repay a portion of the previous loan.

Unterhalter said that ''from the mouth of SAA'', their auditors were not able to sign off financial statements because they could not certify that the airline was a going concern.

A company in that position would either get an equity injection from the shareholder, or file for business rescue.

‘Technically insolvent’

''But under the circumstances, the chair of SAA writes to the minister of public enterprises, explains the difficulty, and asks for an extension,'' he said.

''So that they can roll over the debt. All that you are doing with a company that is technically insolvent, is incurring further debt and has no resources to meet those obligations.

''They have gone through their working capital and they don't have the means to repay the loan. They are in difficulties. They are now concerned about technical solvency. So there is a recognition that SAA is technically insolvent.''

He said that there were policies that supported commercial and competitive air transport in South Africa, and by organising loans for SAA, the ministers of public enterprise and finance had had no regard for these.

''If you are going to effectively prop up an insolvent company, you at least have to have a regard for what is the basis of the policy, and in what measure."

He said the only basis under which Standard Bank, CitiBank, and Nedbank lent money to SAA was because of a government guarantee.

The three banks, the departments of finance, public enterprise and transport, and SAA, were expected to submit arguments.

News24.com