State-owned airlines owe government R850 million

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State-owned airlines South African Airways (SAA), Mango and SA Express owe government entities R854 million, OUTA has revealed, as it warns that government and the SAA debacle is collapsing South Africa’s aviation sector.

According to SAA and Mango business rescue creditor’s schedules and SA Express’ liquidation application, SAA, Mango and SA Express owe Air Traffic and Navigation Services (ATNS) a total of R175 million; the Airports Company of South Africa (ACSA) R321 million; SA Civil Aviation Authority (SACAA) R5.7 million; South African Revenue Service (SARS) R335 million, the SA Weather Services R3 million, and Auditor General of SA (AGSA) R12.9 million.

This was revealed by the Organisation Undoing Tax Abuse (OUTA), which was responding to news on Monday that Mango was being placed into business rescue. “This not only has serious implications for the R819 million syphoned from SAA’s business rescue allocation, but also raises concern about the fiduciary responsibilities and conduct of the SAA and Mango boards, and the Department of Public Enterprises (DPE),” OUTA said.

The issue of Mango needing to go into business rescue was raised by the airline’s executive management in May 2020 – a few months after the coronavirus began to wreak havoc on the aviation industry. According to information provided to the DPE, Mango was effectively bankrupt, yet its management were told to be patient and continue operating.

Nearly a year later, on 16 April 2021, (according to an affidavit presented to court by Mango’s labour unions on 24 July 2021), Mango’s board resolved to put the airline into business rescue. This was supported by SAA’s board, which forwarded the resolution to DPE for approval.

“Had the SAA board and DPE taken prudent steps in April-May last year, when it was obvious to them that Mango was bankrupt, they could have spared Mango’s staff months of unnecessary anguish over receiving partial or no salaries since then. DPE knew Mango was in severe distress when SAA’s equity partner was announced,” OUTA said.

DPE’s motivation to Parliament’s Standing Committee on Appropriations (SCOA) in May 2021, for the approval of R2.7 billion of the SAA’s already approved R10.5bn business rescue package bailout to be diverted to SAA’s subsidiaries – of which R819m was destined for Mango – was done on the basis that Mango was crucial to SAA’s wellbeing and must be saved, OUTA noted.

“Yet, on 11 June, despite the fact that the authorisation of that reallocation (in the Special Appropriation Bill) was well underway in Parliament, when Minister Gordhan announced Takatso as SAA’s equity partner, he indicated that ‘as part of the due diligence process, the DPE and the Consortium will carry out a joint assessment on the future of the subsidiaries’. This raises more concern about whether the R819 million earmarked for Mango was ever going to reach its destination, which had this happened very soon after the Special Appropriation Act was signed and gazetted on 28 June, may have averted the liquidation application.”

State airlines, a burden to the taxpayer and the aviation industry

OUTA pointed out that the three state-owned airline companies (SAA, Mango and SA Express) were granted extraordinary credit by racking up outstanding bills to other state-owned entities, to the value of R855 million. “The write-off or impairment of such debt and the recapitalisation of such state-owned entities effectively implies that the unpaid debt is funded by the taxpayer. This excludes a further R718 million owed to SAA Technical for aircraft maintenance, which is another SAA subsidiary that is being bailed out by the taxpayer.”

OUTA said, “these defaults are a result of the state’s systemic mismanagement of the domestic aviation sector, providing discriminatory advantages to state-owned airlines instead of treating all participants in the market on equal terms. Such leniency displayed by these air services organisations are never afforded to the private sector airlines, where payments even one day late have led to threats of immediate grounding. Private sector airlines could argue that they are cross-subsidising the state-owned airlines, while at the same time, the taxpayer is being squeezed to bail out these SOEs.

“This uneven treatment encourages the failure of the state’s own companies that provide services to the entire aviation industry. These entities may themselves need bailout or pass on their higher costs to the remaining aviation industry players, making South Africa uncompetitive.”

OUTA believes that international aircraft lessors are now reluctant to transact with South African private airlines, on the basis that the government poses the biggest risk to private airlines who are disadvantaged by the perpetual bailouts to state-owned airlines. The ultimate losers in the collapse of the aviation industry will be the public.

“Now is the time for the Presidency to intervene with urgency and for ministers, directors-general and SOE executive management to acknowledge their part in this atrocious situation, and to adopt a neutral regulatory and fair-competition approach towards air transportation in South Africa,” OUTA concluded.