It is very likely that any person that has traveled to or from Southern Africa has taken a South African Airways (SAA) flight and had a somewhat pleasant experience. The new aircrafts that it had in comparison to other airlines in the region, the mixture of cuisines and a welcoming experience with cabin crew speaking the main languages of the region.
However, things began to take dive October of 2019 when 25 aircraft were grounded because of irregularities and shortly after, worker unions went on strike for around 8 days. The company still daily cancels flights with low bookings and has an increasing daily operational cost it struggles to pay.
The airline, which was placed into bankruptcy protection last month, is waiting for the government to fulfil a pledge to provide it with a $138 m USD lifeline that will enable it to keep flying. The Ministry of Public Enterprises, which oversees SAA, said work is still under way to raise the money. However this was not the first investment the company was set to receive, just a few months ago the company received another $138 m USD that it used to pay for operating costs, late staff payments and even fuel bills. In order to minimize its losses and cover the daily cost of over $70 m Rand, SAA is working close with it’s sister airline Mango by assuring that demand for short-haul destinations is met when passengers are reallocated.
“We are still in talks with government about how and when it will transfer the $2 bn Rand it has committed to,” Louise Brugman, a spokeswoman for the airline’s business-rescue practitioners, told by text message to Michael Cohen and Paul Vecchiatto at Bloomberg Africa.
The issues with the airline are not new however, according to multiple sources, SAA has been filling accounting losses since the financial year of 2012, and the main reason besides the company itself is the South African government. In an email interview to Bloomberg, Democratic Alliance (opposition) lawmaker Alf Lees said: “SAA is bankrupt and has been for a very long time… It is in debt to the extent of some 20 billion rand.” Also in the interview, Mr. Lees states that the company has no cash reserves, and often resorts to bailouts by taxpayers in order to meet the minimum requirements to be functioning. “National Treasury is simply not able to keep the failed public enterprise afloat.”
Recently, the South African Minister of Finance Tito Mboweni had supposedly mad plans to liquidate the airline and create a new airline, or rebrand the current SAA. The government however, thinks it is just a better plan to rebrand the current airline in order to make it “a profitable airline”. The ANC wants this restructure to occur with a funding by the government of $8 bn Rand. This extra 8 billion should come handy with the pending provision of $2 bn Rand part of the company’s business rescue plan. The media outlet Mybroadband received exclusive positioning by an “insider” in the government’s economic cluster. “The state will need money to finance a restructuring. It is not a bailout. If you are starting a new airline under the SAA brand, then you are going to finance it anyway,” said the insider. The estimate loss if SAA was liquidated immediately is of approximately $50 bn Rand. Besides the obvious loss, the liquidation also posses a threat to credit downgrade ratings in South Africa and cause insecurities for investors at other State owned firms.
Another issue that the company faces is the market itself. With major companies like Emirates, Etihad and even the African giant Ethiopian Airlines being named the best airlines in the continent, it is hard for a struggling airline with many debts to meet the demand. When aircraft autonomy was small SAA dominated smaller hubs in central Africa, with a stop for refuelling necessary the airline took advantage of flights coming from Europe and the Middle East offering cheaper flights for a good service back in the day. But now aircraft can fly for a dozen hours without the need to refuel, and major airlines take advantage of that. Now an airplane does not need to stop in a small hub for refuelling, they can simply take-off from a major hub like Dubai or Addis Ababa and go anywhere in the world reliably. Also with technological advancements, aircraft can land in smaller airports, so the need to change from one plane to the other became obsolete. The new Boeing 737 MAX, for example, has a range of over 7,000 km and only requires 1.5 km of runway to land, 300 meters short of the minimum requirement for regional airports.