Air Mauritius went into voluntary administration on Wednesday due to the debilitating impact of travel bans to curb the spread of the coronavirus pandemic.
Administration is similar to SAA’s business rescue process.
With state-owned airlines South African Airways (SAA) and SA Express already in business rescue, and Comair busy restructuring, it raises the question as to how long airlines in the Southern African region would be able to hold out before any – or all – are liquidated.
Air Mauritius expects not to be able to meet its financial obligations “in the foreseeable future”. The board hopes that going into administration will safeguard the interest of the company and that of all its stakeholders. Two administrators have already been appointed in terms of the Insolvency Act of Mauritius.
The primary aim of administration is to try and salvage a company’s business, but if there are no reasonable prospects for this to succeed, an administrator may decide “to terminate or dispose of all or part of the company’s assets, in the interests of creditors, employees and shareholders”, according to the Global Restructuring Review.
Erosion of revenue
“Unfortunately, travel restrictions (due to the pandemic) and the closure of borders in all our markets and cessation of all international and domestic flights in an unprecedented crisis, has led to a complete erosion of the company’s revenue base,” the company secretary of Air Mauritius, Roodesh Muttylall, said in a statement.
“Furthermore, there is uncertainty as to when international air traffic will resume and all indications tend to show that normal activities will not pick up until late 2020.”
The International Air Transport Association (Iata) estimates that the impact of the coronavirus pandemic on the South African airline industry could amount to 10.7 million fewer passengers transported and a loss of about R40 billion ($2.29 billion).
Fin24 reported earlier on Wednesday that, according to a leaked draft discussion document prepared by the Presidency, it is estimated that SA’s aviation industry will only be able to pay 5% of their staff at the end of May if the nationwide lockdown is extended.
Iata made the projections presuming the coronavirus restrictions are not prolonged and airlines are allowed to start flying again.
The business rescue practitioners (BRPs) of SAA confirmed on Wednesday that they would be able to pay SAA salaries in April, as they have also done each month since the airline went into business rescue in December last year.
But the Department of Public Enterprises (DPE) has informed unions and the SAA BRPs that they can no longer depend on financial support from government. A request by the BRPs for an additional R10 billion in funding was recently refused by the DPE and they were told that they would have to continue with the business rescue process with whatever resources are available.
As for SA Express, its BRPs have already indicated that the airline will not be able to pay salaries for April unless it obtains financial support from Covid-19 relief funds. It has also not yet been able to pay March salaries.
In fact the SA Express BRPs brought a court application in March to have the airline provisionally liquidated. The DPE is still studying the contents of this application, it said.
Once the flight bans due to the coronavirus lockdown are lifted, however, South Africans could see a rush of cheap airline tickets becoming available, especially in the domestic market, Elmar Conradie, CEO of low-cost airline FlySafair said during a recent webinar on the impact of the pandemic on the tourism industry.
This is because supply is expected to be much larger than demand at that stage and airlines cannot just have their aircraft stand on the ground.
Iata estimates that every job created in the aviation industry supports another 24 jobs in the wider economy. Based on this estimate, the industry body believes 186 850 jobs could be at risk in SA, and the industry’s contribution to the SA economy could plummet by about R68.4 billion ($3.8 billion).