South Africa’s flag carrier, South African Airways, has suspended all operations while its administrators try to raise cash. The move comes despite the government claiming its continuous support for the embattled airline. Meanwhile, the airline’s rescue practitioners have warned of a lack of funds while keeping creditors updated over the deteriorating situation.
To preserve what little money remains, the administrators have immediately ceased all airline operations and put it under “care and maintenance” until crucial funding can be negotiated for restructuring.
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SAA has been losing money for years
Last December, the cash-strapped airline entered into a form of bankruptcy protection following nearly ten years of financial losses. Then along came the coronavirus to pour yet more grief on the troubled carrier.
Things took a turn for the better in June following the publication of the administrators’ rescue plan. Under the program, the South African government and private investors needed to inject 10 billion rand ($590 million) into the state-owned-airline.
The new injection of money was to allow South African Airways to replace its aging fleet for modern fuel-efficient planes. At the same time, the bloated airline would downsize to a sustainable level by shedding jobs.
SAA is still waiting for government money
Now nearly four months later, no money has been forthcoming, forcing the administrators to shelve the rescue plan and cease operations until such a time that money would be available. In a notice to all affected parties carried by the Reuters News Agency, the administrators said,
“The BRPs (administrators) have made a decision to suspend all the airline operations with immediate effect and are pursuing a process to put the airline under care and maintenance until funding discussions are completed.”
They went on to say that some of the parties involved in the restructuring plan were willing to provide money and that they were in talks with the government for the rest. Until the money is available, all the company assets will be stored and kept in good condition with proper care and maintenance.
Airlines are difficult to run successfully
Since the South African government locked the country down in March to stop the spread of COVID-19, South African Airways has not flown a commercial flight. However, they have flown cargo and repatriation flights, which will now cease following this latest news. A spokesperson for the administrators told Reuters,
“All existing cargo and repatriation flights will be undertaken. No new ones will be accepted.”
In fairness to the South African government, they have been supporting a failing airline for years. And while the restructuring plan goes a long way at addressing most SAA’s problems, there are still doubts about its viability. Airline profit margins are small, making them notoriously difficult to run successfully, even for the most prominent private players.
State-run airlines are nearly always vanity projects, which in the case of South Africa, they back-up by saying they need an airline for the tourism industry. If a private venture sees that it can profit from operating an airline in South Africa, it will happen. If not, maybe the country can’t support an airline that flies anything but domestic routes.
What do you think the South African government should do? Start a new state-owned airline or get out of the airline business and spend the money where it is needed more? Please tell us what you think in the comments.