South African Express goes into liquidation

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South African Express (EXY, Johannesburg OR Tambo) has been placed in final liquidation by the South African High Court, with the government accusing the demise of the regional airline of deep-rooted corruption, fraud, years of mismanagement and state capture, exacerbated by the impact of the Covid pandemic.

The move was expected after South Africa’s International Air Services Council (IASC) canceled the stricken airline’s licenses and related route rights in July following a failed second sale attempt. The public regional carrier had not flown since going into provisional liquidation in April 2020, having been under bankruptcy protection since February 2020.

Evidence of corruption and mismanagement at South African Express was revealed in the South African Judicial Commission’s report into state capture earlier this year. During the insolvency investigation, key directors and executives were subpoenaed for financial and operational impropriety, with legal investigations still ongoing, the airline’s liquidator’s legal adviser told ch- aviation.

The Department of Public Enterprises (DPE) has urged law enforcement to expedite corruption and fraud investigations and bring those responsible to justice. “As of 2019, a criminal investigation was ongoing and legal action in the High Court had been initiated. However, by the time the Commission heard evidence from that investigation, in June 2019, the criminal proceedings had not substantial momentum,” he said in a statement.

The Commission’s findings revealed:

  • South African Express wrongly received a five-year contract from a provincial administration for certain routes;
  • The funds were disbursed without any service rendered;
  • Evidence that public funds were diverted from provincial coffers to various people.

The 691 employees of South African Express find themselves without compensation. Criticized for spending billions to rescue South African Airways (SA, Johannesburg OR Tambo), the government said it was unable to provide post-opening funding to rescue South African Express due to “fiscal constraints “. The company’s bailout fell through when the government failed to provide post-launch funding, having already provided the carrier with financial support of ZAR 1.5 billion ($85.4 million) since 2018, of which ZAR 164 million ($9.3 million) in 2020/ 21 budgets.

The airline’s final liquidation order has been repeatedly postponed in hopes of finding new investors. An initial rescue bid from Fly SAX, an ad hoc vehicle set up by former employees, failed in 2020 after their anchor investor, Johannesburg-based investment firm Strategic Investment Group Africa (SIGA) pulled out involving the manager assets of black empowerment Harith General Partners. Harith then launched a failed bid for defunct Comair (South Africa) (CAW, Johannesburg OR Tambo), and eventually became majority shareholder of the Takatso consortium, the successful bidder for a 51% stake in SAA.

Three anonymous parties (not Fly SAX) subsequently expressed interest in a second bidding process for SA Express in March 2022. Yet with all the physical assets up for auction, no buyer was found willing to spitting out a reserve price of ZAR 10 million rand ($583,000) for the airline. The final nail in the coffin was the loss of the airline’s licenses which were its only remaining, albeit intangible, assets. Under the South African Air Services Licensing Act, licenses are only valid for 12 months from the date of issue and operations cannot be interrupted for more than one year.

SA Express began operations on April 24, 1994, founded as a vehicle for black economic empowerment in the South African aviation sector by pioneering investment firm Thebe Investment Corporation, created by a trust associated with the current African National Congress (ANC). They partnered with Canadian businessman Bill Deluce, who co-founded Austin Airways, Air Ontario and Air Alliance (Canada) in Canada and Global Airlift in Kenya. Brother Robert J. Deluce is President and CEO of regional airline Porter Airlines (PD, Toronto City Centre).

SA Express later became a state-owned company and operated as a regional carrier for SAA, first with DHC-8-300 turboprops and finally with a fleet of seven CRJ200ERs. It was part of a three-way alliance with SAA and its then franchise partner SA Airlink (now Airlink (South Africa)), each feeding the other. The pattern disintegrated when SAA launched a commercial bailout on December 5, 2019, owing Airlink millions of rand in ticket revenue.

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