Mango rivals condemn plan to bail it out as part of SAA rescue

21 June 2020 - 00:04 By NICK WILSON

SAA's latest business rescue plan has sparked further controversy, with rival private airlines saying it effectively offers a R1bn bailout to state-owned low-cost carrier Mango.According to the final business rescue plan by business rescue practitioners Les Matuson and Siviwe Dongwana, Mango required a recapitalisation of R1bn based on "pre-Covid-19 estimates".The document said Mango's "financial position and liquidity remains challenging". Mango CEO Nico Bezuidenhout says he is "not in a position to comment on SAA's business rescue plan", but Matuson and Dongwana say: "Mango is a subsidiary of SAA, so it is in the interest of the state to fund it, so that it can continue serving the SAA clients that are reaccommodated because of cancelled SAA flights."Although Mango is an SAA subsidiary, it operates as a separate airline. Hence, competitors say, it should go through its own business rescue process if it is in trouble. They say the lockdown has crippled all airlines and therefore they should also be supported by the government. "It's just interesting to note that Mango is in this much trouble while we see other competitors in similar positions already in business rescue," says Kirby Gordon, chief marketing officer for Safair, which owns low-cost airline FlySafair. "It begs the question, should Mango not perhaps be in business rescue independently?" Safair CEO Elmar Conradie voiced his concerns on Twitter: "So the SAA BR plan is to use the taxes FlySafair pays to bail out its competitor - Mango. If Mango needs R1bn then surely they should go into business rescue themselves. Still no support for private airlines. Government should help all airlines."Conradie asked if the law allowed financing provided after business rescue had commenced to be used to recapitalise a subsidiary. "Surely subsidiaries should be recapitalised as a separate process and not hidden in the SAA rescue plan."Miles van der Molen, CEO of CemAir, which operates smaller aircraft flying to niche destinations in SA and the region, calls the plan a "sneaky way of trying to bail out Mango without it going into a business rescue process or changing anything"."They try and sneakily remove Mango's debt from the equation and roll it up in someone else's [SAA's] business rescue process, which legally can't be correct," he says. Aviation economist Joachim Vermooten says it is "totally unacceptable" that other private airlines are not receiving state aid while the government prepares to offer financial support to both SAA and Mango.Vermooten says most countries with a vision of a modern post-Covid economy want to nurture a competitive air travel market."Those governments that have provided state aid to airlines have done so on a nondiscriminatory basis. "All airlines are grounded by government regulatory intervention. But in this case, it's evident that state-owned airlines would be provided with a competitive advantage, as there has not been any mention of state aid to all the airlines, including the private sector," says Vermooten.He is also critical of SAA's business rescue plan, saying it assumes market demand will rise immediately once the lockdown ends. But, Vermooten says, average load factors are expected to peak at 61%, too low to be profitable. He says the plan envisages sustaining Mango's fleet at its existing level, but private-sector airlines will have to scale down operations due to greatly reduced demand. The mismatch between demand and fleet size will lead to losses for Mango. In contrast, Vermooten says, Comair's business rescue plan is considering a 50% cut in the size of its fleet.The SAA business rescue plan, which was circulated this week to creditors, the government and labour, has also angered unions with its proposal that only 1,000 of the 4,576 employees be retained at the "new" airline that is expected to emerge from the business rescue process.The National Union of Metalworkers of SA and the South African Cabin Crew Association, which together represent about 60% of SAA's workforce, slammed the business rescue plan as likely to unleash a jobs "bloodbath". They said they "reject with contempt" the plan's intention to retain only 1,000 employees. They also criticised the department of public enterprises for its role, accusing it of collaborating in "a sinister agenda". The unions say they have a viable plan to save SAA and retain many jobs without the airline being a burden on the state.

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