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SA Airlink Plans To Sue South African Airways (SAA) For R700 Million Over An Outstanding Air Fares


SA Airlink on Tuesday approached the High Court in Johannesburg for special permission to sue South African Airways (SAA) and its business rescue practitioners (BRPs) for more than R700 million in outstanding Airlink air fares.

SAA has been in business rescue since December 5 last year, which by law places a general moratorium on litigation and enforcement of claims against a company.

Interesting to see if the court will grant SA Airlink request as it would be giving SA Airlink preference over other creditors whilst the company is under business rescue.

In terms of the Companies Act, a litigant requires written permission from the BRPs to proceed to court – but Les Matuson and Siviwe Dongwana, who have been appointed to rescue SAA, have not responded to a formal request for such permission, Airlink CEO Rodger Foster says in his founding affidavit.

He asks for access to the court and urgent intervention in a matter that is putting Airlink’s operations at risk. He asks the court to order the BRPs to pay the outstanding money over within five days.

Foster explains that SAA and Airlink have been in a long-standing alliance which entailed, among other things, that SAA sell Airlink flight tickets on the SAA platform using SAA’s computer system.

SAA merely acts as an agent for Airlink, selling tickets and collecting revenue on its behalf.

Airlink operates its flights independently, Foster explains. It has paid for a licence to use the system and SAA earns a commission on all ticket sales.

The ticket revenue and certain related charges that flow through the SAA system, however, belong to Airlink, and cannot therefore be classified as debts owed by SAA, Foster argues.

SAA used to produce statements on Airlink’s behalf and pay the amounts over, after certain deductions, at regular intervals as agreed between the parties.

It’s ‘debt’, say the BRPs

The BRPs, however, consider the amounts to be pre-commencement debt, which means they are classified with other debts SAA incurred shortly before going into business rescue. Such debts are put on hold while the company remains in business rescue and creditors are precluded from enforcing claims to them.

According to Foster, the BRPs are currently withholding:

Airlink was able to reach an agreement with the BRPs about the revenue earned from December 6 onwards and it is currently being paid over on a daily basis.

Foster tells the court that SAA’s failure to pay over more than a month’s revenue to Airlink has placed the regional airline that employs more than 1,700 people in a precarious financial situation.

“Without this cash being paid, Airlink may not be able to continue operations in the very near future,” he states. “The airline business is a low margin one. Airlink relies on high turnover and consistent cash flows to fund its business on a month-to-month basis.”

He says the flown revenue due to be paid by SAA “has been earmarked, and is in fact necessary, for payment of SAA’s creditors as they fall due in the ordinary course of business”.

Airlink incurred R389 million in operating expenses in November, and due to SAA’s refusal to pay over its revenue, had to use working capital reserves to fund these expenses, Foster says.

“SAA’s default has already caused Airlink to breach one of its aircraft debt finance covenants with Investec Limited.”

Foster says there is “reasonable apprehension” that SAA’s default may cause Airlink to run out of working capital sources within six to eight weeks, which “may imperil the business of Airlink”.

He says unless the court orders SAA to pay the money to Airlink, the jobs of its 1,739 staff members “may also be placed in jeopardy”.

Foster says the BRPs have in fact indicated that if their classification of the outstanding amounts as pre-commencement debt stands: “Airlink is unlikely to recover any substantial amount. This indicates that there will likely be little to no available cash in SAA to pay over the flown revenue in future.”

SAA last week obtained a controversial loan of R3.5 billion from the Development Bank of Southern Africa, of which R2 billion was made available right away. This after an initial R2 billion of post-commencement finance funded by a consortium of banks has seemingly been depleted and government failed to provide the R2 billion it promised when initiating business rescue.

In the meantime SAA’s own revenue is drying up as travel agents and the flying public respond to the uncertainty by booking with other airlines. This contributed to SAA’s announcement last week of the cancellation of almost 100 flights in February.

Foster has asked for the application to be determined urgently in the next two weeks, before the finalisation and vote by creditors about SAA’s business rescue plan at the end of February.

He says if the money SAA owes Airlink is indeed classified as pre-commencement debt, Airlink would be one of SAA’s biggest creditors and would therefore be entitled to vote for or against the adoption of the plan.

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