The Business Rescue Practitioners (BRP) charged with overseeing South African Airways (SA, Johannesburg O.R. Tambo) have been given until the end of February 2020 to present their turnaround plan for the bankrupt state-owned carrier.

SAA entered into Business Rescue, the South African equivalent of US Chapter 11 bankruptcy protection, on December 5 given the strong likelihood that it would be unable to meet its financial obligations coming due within the next six months.

During the first meeting of creditors on Friday, December 20, BRPs Leslie Matuson and Siviwe Dongwana said the state-owned carrier stands a "reasonable" chance of exiting business rescue notwithstanding the inevitable risks and challenges.

"Our primary objective of the business rescue process is to either rescue SAA through restructuring its affairs, business, property, debt and other liabilities and equity that maximizes the likelihood of the company continuing on a solvent basis or develop a plan that results in a better return for the company’s creditors or shareholders than would result from the immediate liquidation of SAA," Matuson said in a statement. "A vast majority of business rescue proceedings in South Africa have followed the second outcome."

The South African Government has already stated it will avail a total of ZAR4 billion (USD275 million) in financing to SAA to shore up its operations during the course of proceedings. The BRPs said a restructuring of SAA, no matter the pain involved, was a more desirable path to take in contrast to the only other option available - immediate liquidation. In that case, as SAA leases the bulk of its fleet, there would be limited assets to dispose of thus severely affecting creditor returns. According to the ch-aviation fleets module, SAA's lessors include AerCap, Aergo Capital, Air Lease Corporation, Airborne Capital, Airbus Financial Services, Aircastle, Castlelake, CMB Financial Leasing, GECAS, Genesis Aircraft Services, Goshawk, Park Aerospace Holdings, Standard Chartered Aviation Finance, Stellar Aircraft Leasing, and Tokyo Century.

"The preliminary view is that after the allocation of the Distributable Proceeds to preferent creditors (comprising post-commencement financiers, preferent claims of employees, post-commencement unpaid lease payments) no funds will be available for distribution to concurrent creditors. The contingent and damages claims will crystallise on a liquidation which will increase the quantum of the concurrent claims which reinforces the preliminary view that the estimated dividend for concurrent creditors is zero cents on the Rand," Matuson added.

The two BRPs, therefore, sought an extension to the January 13, 2020 deadline to present their final plan given the need to draw up various turnaround scenarios, and establish their respective costings and appeal to all affected stakeholders. All creditors present at the meeting voted in favour of extending the deadline to February 28, 2020, at the latest.

As requested by SAA's lenders, Alvarez and Marsal LLP, a New York-based firm specialising in the turnaround and performance improvement of large companies including airlines, has been mandated to provide an "objective, impartial insight" into the operations of SAA.

SAA's financial woes have had a domino-effect with Adrian Voos, the chief executive of its wholly-owned MRO subsidiary, SAA Technical (SAAT), having warned suppliers that it may experience delays in the settlement of debts.

"SAAT as a subsidiary is currently not under business rescue. However, SAA's financial situation impacts the cash flow position of SAAT as a fully owned subsidiary. Our intention is to honor all financial commitments. However, the impact of cash flow on our business by SAA's business rescue process will affect our ability to settle payments on time near term. We foresee an improved cash flow forecast once engagement with Mr Matuson, SAA's business rescue practitioner, has been concluded," he said in a letter to suppliers dated December 6.