Challenging period for Air Seychelles; faced winding-up petition by Etihad Creditors

Tough times began for Air Seychelles in August after a standoff over outstanding debts as bondholders at Etihad Aviation Partners II filed a petition against the airline.

The committee of creditors at Etihad Airways parent company’s SPV made this move when Air Seychelles-the state-owned airline in Africa, failed to repay the debt of $71.5 million portions of EA Partners’ debt. The petitioners asked for winding up the African airline to pay back in full for the 40% stake owned at the time by Etihad in consortium along with Gulf airline and other carriers.

EA Partners bondholders had filed the court petition against Air Seychelles to wind it up on August 19. The Noteholder Committee issued a press release stating the petition was served and acknowledged by the flag carrier of Seychelles.

Unpaid debts

The escalation came three months after Abu-Dhabi-based Etihad Airways opted to divest its 40% share in Air Seychelles as it shifted its strategy away from foreign airline investment. Air Seychelles was a partner with Etihad in 2012 when UAE-based airlines purchased a 40% share of it.  Etihad had invested $20 million to own its stake, including  $25 million loans for further expansion, not to forget leased A330s and A320s to African island airlines. Etihad agreed to cut the debt by 79% to receive $11.34 million rather than the full $72.3 million in April this year. The relinquishment of a 40% stake didn’t include the $71.5 million that Air Seychelles owed bondholders.

In May, Seychelles government officials told that the Island airline would settle for no more than $20 million, citing liquidation proceedings or insolvency as the only options, although the airline said it was working to honor $ 71.5 million it owed EA Partners and had begun restructuring talks with committee July last year. Since the airline failed to pay a total of $ 71 million to bondholders, filing the petition remained the only option for the Noteholders Committee to seek recovery of debts. 

Qries

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Etihad Aviation Group had provided several loans as bonds in 2015 and 2016 to airlines like Air Serbia, Air Seychelles, Alitalia, Air Berlin. But Air Serbia was the only airline to complete the debt repayments. Air Seychelles or the government didn’t show any sense of urgency or substantive engagement to the creditors, thus prompting the legal move.

According to Seychelles News Agency, the President and his cabinet would take all necessary measures to discuss matters by meeting the airline’s board of directors. Supreme Court ordered the airline to appear on September 6, following the petition file to decide the fate of the carrier and restructuring.

EA Partners is a special purpose vehicle belonging to Etihad Aviation Group to finance the airlines in which it holds stakes; established in 2015. EA Partners I and II raised the financing for several air carriers selling bonds worth $1.2 billion.

Government’s intervention in Air Seychelles wind-up petition

In September, the Seychelles government joined the litigation case to support the flag carrier over USD 71.5 million of debt to be paid to EA Partners. The government of Seychelles went fully behind the carrier to resume its operations daily without any disruption.

Air Seychelles faces significant challenges in the wake of the pandemic along with previous significant debt during the stewardship of the airline by Etihad Airways. The government of Seychelles bought the 40% share of the airline to sort out its financial problem, which was the first step in the planned restructuring of the company.

Inability to reach an agreement

Although the government gained 100% ownership of Air Seychelles, both government and carrier couldn’t reach an agreement with representatives of the bondholders of EA partners to settle the financial matter as IMF limited the government’s ability to subsidize the airline.

What’s next?

The joint press statement regarding Air Seychelles published by the Ministry of Transport and Air Seychelles in October stated that the only course of action to solve the debt course is to undergo company reorganization under the insolvency act that is expected to take 3-6 months. The process allows the company to continue operations as before with the same management and Board of Directors and present a rescue plan to creditors to survive the company.

About Air Seychelles

The national airline of the Republic of Seychelles, Air Seychelles, operated inter-island, international, and charter flights owned by its government. It was founded in 1977 and has a fleet of Airbus and Viking Air DHC Twin Otter aircraft. The airline serves countries like Israel, Madagascar, Mauritius, South Africa, the United Arab Emirates, and India, as well as domestic cities.

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