CAPE TOWN, December 17 (ANA) – An internal South African Airways (SAA) document a court ruled on Thursday the media could publish, has warned the board that the airline could not meets its commitments to Airbus and its creditors and implored it to file for business rescue or face liquidation.
“Should Airbus issue a notive of default or seek to terminate the purchase agreement for breach, this may trigger an event of default allowing lenders and lessors to accelerate their debts, terminate leasees and take other enforcement actions,” the November 6 memorandum from the carrier’s executive team to the board warned.
“All could trigger financial distress and/or insolvency for SAA.”
The document was penned to advise the board of the urgency in addressing correspondence from Airbus and set out the ramifications of failing to do so.
It reiterated that SAA did not have the money to meet the newly imposed obligations to Airbus and cover its other debts, and forecast that it would run out of cash by the end of last month.
Since the carrier was trading under insolvent circumstances, continuing to do so would constitute reckless trading in terms of section 22 of the Companies Act. Therefore, the board had to apply for business rescue or the directors would be obliged to file for liquidation.
“The decision by the board to pass a resolution for business rescue needs to be done urgently to enable a business rescue practitioner to take control for the purposes of having a business rescue plan approved and thereafter implemented,” it stated.
“If the board decides that there is no prospect for business rescue, the directors are obliged to file for liquidation on an urgent basis.”
Airbus, in a letter dated October 2, informed SAA that predelivery payments were outstanding in terms of its contract to purchase the remaining ten of an initial order of 15 A320-200 aircraft from the European manufacturer.
At the end of October, chief financial officer Wolf Meyer — who has since left SAA — made plain that the airline’s “current financial position is such that SAA does not have sufficient cash resouces to pay the PdPs as requested by Airbus in the correspondence as well as paying all its other debts currently due and payable”.
The memorandum indicated that Airbus insisted on these payments, after the board failed to approve a tacit swap agreement between Airbus and the airline — and approved by former finance minister Nhlanhla Nene in September — which would convert the sale to a lease agreement.
“Instead the board proposed a different transaction structure directly to Airbus during various meetings which with and correspondence to Airbus representatives.”
Nene earlier this month vetoed these attempts by SAA chairwoman Dudu Myeni to amend the deal and confirmed this in a step widely seen as having contributed to President Jacob Zuma’s decision last week to remove him from Cabinet.
“The minister of finance has not approved the proposed amendment to the transaction structure and has instructed SAA that they must implement the transaction structure in line with the approval that had already been granted, i.e. conclude the agreement to swap the purchase of ten A320s for a lease of five A3302 from Airbus,” National Treasury said on a fortnight ago.
The memorandum from the airline’s executives had warned clearly that as long as the swap agreement was not concluded by the board, Airbus had a right to apply debilitating remedies.
– African News Agency (ANA)
