Embattled South African Airways (SAA) has been dealt another blow in its troubled history.
This time, the Air Services Licensing Council, has given the airline a 90-day deadline to provide them with the necessary documentation required to avoid existing licenses being suspended or cancelled.
The Air Services Licensing Council said in a letter that it has issued a directive in terms of the Air Services Licensing Act, to South African Airways (SAA) informing it that the airline had failed to comply with the Air Services Licensing Act, which warranted the suspension and/or cancellation of its existing licences.
“It has 90 days to provided the correct documentation or face the consequences,” the council said in a letter seen by Business Report.
In a letter sent to Rosemary Ramakgapola, the Aeropolitical Affairs Manager at SAA on August 3, which Business Report has a copy of, the Council said it suspected on reasonable grounds, that SAA had failed to comply with the Air Services Licensing Act.
The council was advised that SAA was at the pre-closing stage of the transaction and would commence with concluding the regulatory processes.
However, the council placed on record the material breaches of the provisions of the Act.
Ramakgapola had attended a meeting with the Council on August 3 to address the Council with representations regarding its concerns.
SAA had told the Council that the airline had struggled financially over the past decade which resulted in persistent financial losses, where challenges were further exacerbated by the Covid-19 pandemic.
SAA said the South African government through the Department of Public Enterprise (DPE) chose the path of restructuring through business rescue instead of liquidation, which in turn had resulted in SAA electing to restructure through the disposal of 51 percent of its shareholding to a strategic equity partner, which partner would be able to operate and fund a “New SAA”; that financing for operating the “New SAA” would come from a preferred strategic equity partner, Takatso Consortium.
Takatso is made up of local aircraft wet lessor Global Aviation and Harith General Partners.
Takatso would provide R3 billion in working capital to the “New SAA”, while the government, through the DPE would make no contribution to the working capital.
The government has negotiated a preference share in the “New SAA”, meaning that the DPE would be the preferred shareholder to receive dividends and get the “golden share” in the Shareholders Agreement, allowing it to outvote all other shares on reserved matters, like the name, and veto rights on matters of national interest amongst other reserved matters.
Material breaches included the failure to notify the Council of the transaction.
“Council wishes to place on record that SAA did not and has not, prior to the meeting undertaken today, advise Council formally in writing and/or in person of the transaction ..To this end, SAA has failed to fulfil its duties.“
It said furthermore the transaction which it had engaged in, which would result in SAA not being actively in control of the air service was a direct breach of the Act.
It said the failures were a material breach of its duties and an offence had been committed. The Council told SAA that it had 90 calendar days to submit the subscription and shareholders agreement.
It also needed the shareholder approval in terms of the Public Finance Management Act so that the Council was afforded an opportunity to ascertain SAA’s compliance and/or non-compliance with the provisions.
“Upon conclusion of the said assessment, Council shall in accordance with Section 16(3) of the Act, communicate in writing, a date for a meeting with yourselves to discuss the findings of the said assessment,” it said.
The second breach was that the guaranteed amount was insufficient.
“Regulation 6A provides that a licensee who operates a Class I air service must submit to the satisfaction of Council, a guarantee for the total sum of cash receipts of tickets which have already been sold, but which have not yet been rendered by it - which guarantee must be a fair representation of its projected cash flow,“ it said.
The council said that the Consumer Guarantee it had received, dated September 23, 2021, was in Council’s reasonable opinion, not a fair representation of SAA’s projected cash flow.
The Council directed that a new Consumer Guarantee must be obtained by SAA and issued in favour of the Air Services Licensing Council.
“Accordingly, Council directs that within 90 (ninety) calendar days of receipt of this directive, that you submit ... a new Consumer Guarantee (Payment Guarantee).“
The third material breach and offence was the changes of “postholders”, namely the CEO and so on.
The Council said SAA had new executive members but had not followed the due process of notifying the Council.
The fourth breach was the management of accounts.
Regulation required that a licensee must ensure that a safe and reliable air service is operated and submit to Council, a set of audited Annual Financial Statement of the most recently completed financial year.
This had not happened.
“Furthermore, the said Management Accounts must be certified by SAA’s Auditor and/or Chief Executive Officer and be in accordance with the provisions of Regulation 6(5)(a),” it said.
The Council asked SAA to ensure the timeous submission of the documents requested, all of which were mandatory for the continued compliance with the current licence conditions.
“Council further wishes to place on record that failure to provide the above requested information will warrant the immediate initiation of the provisions of Section 11 of the Act, which process Council would deem as a last resort.
SAA is expected to respond to the matter soon. This article will be updated with SAA’s comment when made available.
BUSINESS REPORT