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SAA Staggers On

by David Hopwood

We’ve reported extensively in the past six months on the sorry saga of South African Airways. The carrier hasn’t made a profit for eight years and has consumed $1.6 billion in bailouts. A succession of governments, ministers, and incompetent management has led to the situation where regardless of the devastating impact of COVID-19, there was no reasonable prospect of turning the operator into a profit-making entity. On the contrary, it was making—in the context of a developing country—huge losses.

Few SAA options remaining

©; Delwyn Verasamy/M&G

As a consequence, SAA put itself voluntarily into ‘business rescue’ in December last year. Since it is a state-owned enterprise, this amounted to an admission that the government itself is unable to revive the airline. Nevertheless, the government continued to interfere in the workings of the business rescue practitioners, and after some months announced that the option of going into liquidation was not acceptable. It then said that it wouldn’t further fund the airline during the COVID-19 suspension. Then it decided it would. The Minister for Public Enterprises, Mr. Pravin Gordhan said ‘Winding down is not an option. The purpose of providing R5.5 billion post business rescue commencement funding was to complete the business rescue process, which must end with a cost-effective and streamlined airline.’

Initially, the practitioners had up to 16th March to produce a business plan outlining various options. Amid the coronavirus outbreak and government and while the practitioner initiated some cost-saving measures, no acceptable plan was forthcoming—and the airline was still burning through cash. Unwilling to risk its assets, lessors of the carrier’s aircraft terminated various leases on A320 and A330 aircraft.

Finally, on May 18th, the practitioners were given 25 days to produce a new plan and on June 16th a 110-page document was duly delivered.

The plan acknowledges that the South African government will no longer offer bailouts—at least as a routine—in keeping the airline afloat. The resurrection of the route network begins domestically, moves to a slimmed-down regional network, and ultimately to its overseas destinations.

Domestically the legacy carrier will operate a mix of frequencies between Johannesburg, Cape Town, Durban, and Port-Elizabeth—the four major centres in the country. Regionally it will serve Dar-es-Salaam, Nairobi, and Lagos, and will include five long-haul routes from Johannesburg: Frankfurt, London, Perth, New York, and Washington DC.

Regarding its fleet, SAA intends to gradually add narrow and wide-body aircraft to total 26 by the end of 2021, with a concentration on the A320, A330 and A350 family.

unnamed

©; SAA

While all of that is sensible and unsurprising, the devil (as always) is in the details. It’s hard to see how a full-service carrier can successfully compete in price against LCCs where the longest domestic sector (Johannesburg-Cape Town) is about two hours and Johannesburg and Durban are just 50 minutes apart. Regional flights to Maputo in Mozambique, Harare in Zimbabwe, Lusaka in Zambia, and Gaborone in Botswana are no further.

Even so, it seems that the carrier will still not be in private hands. In which case, even with the massive redundancy programme of losing 3,600 employees, the question remains: what’s different?

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