Velvet Sky’s liquidation postponed indefinitely


The liquidation application brought against low cost carrier Velvet Sky has been adjourned indefinitely as one of its creditors launched an application for a business rescue plan, potentially paving the way for a resumption of flights.

Velvet Sky said on its website that liquidation proceedings have ended and that it will announce its plans to resume flights as soon as possible.

Velvet Sky said it had reached a settlement over the BP court application to have the airline liquidated and would be back in the air shortly.
“A revised flight schedule is being put in place and we are looking forward to welcoming passengers on board. We would like to thank passengers for their patience and apologise once more for the inconvenience caused to those who have supported us during this unfortunate period,” said Dhevan Pillay, Velvet Sky’s Chief Executive Officer.

Yesterday in the Pietermaritzburg High Court, legal representatives for BP and Velvet sky agreed that the liquidation application be adjourned indefinitely, while creditor Umzamo Transport Services, which is owed nearly R4 million, launched an application to compile a business rescue plan to save the airline.

Last month Velvet Sky was given until March 5 to respond to an application brought before the Pietermaritzburg High Court by BP Southern Africa to provisionally liquidate the carrier due to the non-payment of fuel. Velvet Sky owes BP R28.7 million for aviation fuel. BP’s counsel Gerrie Roberts SC said the airline had broken its promise to pay arrears by February 17 and had not kept up to date with current fuel payments.

Flights were cancelled due to the unavailability of fuel, with the airline saying that flights would be suspended from February 27th until March 5th. However, the carrier’s aircraft are still grounded.

Acting Judge Kobus Booyens said that Umzamo had until April 10 to file supplementary papers in support of its rescue plan application.

BP’s advocate Anna Annandale SC, said that BP had decided to participate in the business rescue application plan and suspend its liquidation application. If Umzamo does not file its supplementary papers by April 10, BP will re-launch its liquidation application bid.

BP’s legal adviser Thulani Mciwa said that Velvet Sky has around R100 million worth of debt and its only assets were office furniture and computers as its aircraft are leased.

Pillay said that Velvet Sky expected US$50 million from an equity fund and that the carrier had been exploring the option of flying to neighbouring countries in an effort to generate extra revenue. He said that one country had agreed to allow Velvet Sky in. Other turnaround measures would be to change service providers (saving R2 million a month), adding in-flight advertising, maximising cargo carriage and charging for meals, which could increase revenue by R2.5-3 million per month.

Velvet Sky launched on March 22 last year with an inaugural flight between OR Tambo International and King Shaka International. The carrier’s main route is the ‘golden triangle’ between Johannesburg, Durban and Cape Town. This route is already served by all of South Africa’s biggest existing airlines, including, Mango, 1Time, South African Express, South African Airlink and British Airways.

Velvet Sky was sold to Excalibur Aerospace by parent company Macdonald Holdings only three months after the airline first took to the skies.

In August last year Velvet Sky leased two more Boeing 737s, in addition to its DC-9 and first 737. Velvet Sky said it had a bumper festive season, enjoyed high load capacities and aimed to open up new routes in Africa.

However, domestic airlines have been facing tough times recently – Comair, which operates British Airways and in southern Africa, posted a loss for the second half of last year. The company cited a 24% increase in operating costs, mainly driven by the highest average fuel price seen to date. Other factors that resulted in the loss included the weak economic climate and 70% rise in airport tariffs.

Comair said that prevailing high oil prices and a weak global economy prevailing into the foreseeable future will result in a tough environment for airlines. “Airlines that do not substantially reinvent themselves will not survive in this new environment, as demonstrated by the failure of a number of airlines globally in the first weeks of 2012,” the group warned.
“The weak economy and poor consumer spend, high oil prices, excessive Acsa charges, a weakening local currency and increased competition, all threaten the growth of local air travel. Worldwide, the airline industry has been forced to recognise the need for radical change to ensure sustainability and profitability,” said Comair’s CEO Erik Venter at the end of January.

Pic: Mark D Young.