Capital markets and financial services research company Intellidex reported on April 14 that State-owned national flag-carrier South African Airways (SAA) was now set for liquidation. Intellidex head of Capital Markets Research Peter Attard Montalto affirmed that liquidation had been “inevitable” but its timing had been unclear because the Department of Public Enterprises had tried to keep the airline alive while the National Treasury (NT) had sought to “kill it off”.

“NT has won and this is a rare piece of positive news,” he wrote. “Government (i.e. NT) has denied all requests by the business rescue practitioners [BRPs] for more money and permission to borrow (including in hard currency). There are simply no other options left with banks also saying no, and guarantees not available for other forms of lending.”

He noted that the BRPs had been expected to submit their report by the end of May. That deadline now seemed too far away. A complication was that SAA was currently carrying out repatriation and cargo flights. Consequently, Montalto expected the BRPs to delay liquidation for a brief period, but that they would in the end “be forced” to start the liquidation process, through an application to the court. “This if leasing companies don’t ground the fleet first on a view the situation is not rescuable.”

Estimates of the cost of liquidating SAA ranged from R2-billion to R60-billion. However, most of the outstanding guaranteed debt repayments had already been provided for in the budget. Basically, what was left was the unguaranteed debt, the major part of which was held by the leasing companies. The government could decide what to repay these creditors. Intellidex believed that these costs would only be around R2-billion.

The aircraft leasing companies should get the minimum repayment, he argued. This was because the government should not seek to, in due course, create a new national flag-carrier.

“Banks are fully guaranteed in terms of loan exposure but do have a certain amount of credit card exposure,” pointed out Montalto. “The other main creditor is Comair which has already largely written off its court award against SAA”. Comair had received part of that award but he believed that R700-million of it was still outstanding. “The other key grouping then is travel agents with outstanding bookings.”

In his report, Montalto made no mention at all of the SAA Group’s dedicated air freight division (SAA Cargo) nor of its subsidiary companies. The main subsidiaries are maintenance, repair and overhaul business SAA Technical and low cost airline Mango.