December 26, 2019: By the end of February 2020, the business rescue practitioners (BRPs) overseeing the South African Airways (SAA) have to present their turnaround plan for the bankrupt state-owned carrier.

Earlier this month, the airline has entered a business rescue process to allow a "radical restructuring" under which the carrier will receive 4 billion rand ($274 million) in funding, public enterprises minister Pravin Gordhan said.

During the first meeting of creditors on December 20, BRPs’ Leslie Matuson and Siviwe Dongwana said the state-owned carrier stands a "reasonable" chance of exiting business rescue notwithstanding the inevitable risks and challenges.

"Our primary objective of the business rescue process is to either rescue SAA through restructuring its affairs, business, property, debt and other liabilities and equity that maximises the likelihood of the company continuing on a solvent basis or develop a plan that results in a better return for the company’s creditors or shareholders than would result from the immediate liquidation of SAA," Matuson said in a statement. "A vast majority of business rescue proceedings in South Africa have followed the second outcome."

The BRPs said a restructuring of SAA was a more desirable path to take in contrast to the only other option available - immediate liquidation. In that case, as SAA leases the bulk of its fleet, there would be limited assets to dispose of thus severely affecting creditor returns.

"The preliminary view is that after the allocation of the Distributable Proceeds to preferent creditors (comprising post-commencement financiers, preferent claims of employees, post-commencement unpaid lease payments) no funds will be available for distribution to concurrent creditors. The contingent and damages claims will crystallise on a liquidation which will increase the quantum of the concurrent claims which reinforces the preliminary view that the estimated dividend for concurrent creditors is zero cents on the Rand," Matuson added.

The two BRPs, therefore, sought an extension to the January 13, 2020 deadline to present their final plan given the need to draw up various turnaround scenarios, and establish their respective costings and appeal to all affected stakeholders. All creditors present at the meeting voted in favour of extending the deadline to February 28, 2020, at the latest.

As requested by SAA's lenders, Alvarez and Marsal LLP, a New York-based firm specialising in the turnaround and performance improvement of large companies including airlines, has been mandated to provide an "objective, impartial insight" into the operations of SAA.

SAA's financial woes have had a domino-effect with Adrian Voos, the chief executive of its wholly-owned MRO subsidiary, SAA Technical (SAAT), having warned suppliers that it may experience delays in the settlement of debts. SAAT is a subsidiary that is currently not under business rescue. However, SAA's financial situation impacts the cash flow position of SAAT as a fully-owned subsidiary.

Moreover, Comair's management is planning to meet SAA’s business rescue practitioner Matuson, to discuss the more than ZAR1 billion rand ($69 million) settlement won against SAA in February.

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