Debt-ridden South African Airways is in a seemingly hopeless position, with the struggling airline facing industrial action with no clear strategy to turn around its fortunes. The national carrier of South Africa may well be considering the sale of equity in the future, in order to keep the airline afloat. With no such plan in place yet, potential share-holders are waiting for the moment equity-sales take place. Bloomberg has reported that Ethiopian Airlines, Africa’s number one carrier, is weighing up investing in SAA’s future operations.
South African Airways struggling
SAA has been under immense financial pressure for some time, with the national carrier unable to turn a profit since 2011. The airline recently delayed its annual earnings release, with the situation in dire straits. With a debt in excess of US$1.3 billion, banks are withholding further loans, unless SAA can present a clear and viable payback strategy for at least US$611 million.
After announcing his resignation in May, former SAA CEO Vuyani Jarana is yet to be replaced. To add to the airline’s problems, the South African Airways Pilots’ Association (SAAPA) submitted a list of demands that are to be met within a short time period, threatening strike action otherwise. Mismanagement and corruption is proving to be SAA’s biggest threat, and with further cash injections being withheld, the airline may have to consider selling equity.
Ethiopian Airlines to consider a stake
Ethiopian Airlines is Africa’s biggest and most successful operating airline carrier, posting consistent profits and showing rapid growth. In contrast to SAA, the Addis Ababa based carrier has been following a clear strategy to success, with a management team completely focused on further growth and development.
As partners within the Star Alliance, Ethiopian CEO Tewolde GebreMariam already engaged Mr Jarana whilst he was still in office in regard to the potential of the East African carrier buying a stake. Since then, with no CEO in office, a clear strategy is yet to be formulated. Should South African Airways approach Ethiopian Airlines to buy equity, Tewolde said that “we would consider it”. Simple Flying has reached out to SAA on the possibility of sales taking place.
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The move would provide much needed financial assistance to SAA, and enable it to halt the decrease in its serviced routes, something that is happening across the African continent.
Ethiopian Airlines invested in African airline growth
Ethiopian Airlines already owns equity in a number of African carriers. It owns 49% of Malawian Air, 45% of relaunched Zambia Airlines, 49% of the Chadian national carrier, as well as a recent shareholders agreement with the Ghanaian government. It is well placed to invest in African carriers, itself being the continent’s largest and most successful.
Ethiopian Airlines is buying shares in African airline carriers, in an attempt to increase the presence of these carriers over the continent’s air space. In a market that is being heavily influenced by international airlines, especially Gulf carriers, Tewolde has spoken of his desire to help address the decline. In the space of 20 years, African operators went from owning 60% of operations on the continent, to just 20%. This downward projection needs to be addressed soon, or African carriers may become completely irrelevant in the future.