Struggling South Africa Airways has secured a loan as it moves into special protection against bankruptcy.
What is the situation with South African Airways?
We can begin answering this question by being blunt. South African Airways has not made a profit for seven years. This is due to using old fashioned aircraft (such as the Airbus A340 with its four fuel-guzzling engines), dropping domestic demand (and losing market share to several local low-cost carriers) and big international competitors moving in on their routes to Europe and the Middle East.
Not to mention that the airline being entirely government-funded has been allowed to stick its hands deep into the taxpayers’ pockets, so to speak. Thus, the airline finds itself in a perilous spot where it can’t see a way out without going bankrupt or finding a significant loan.
What has happened now?
To try and save the airline, the government has stepped in and protected the carrier from collapsing. This is a very special type of government bankruptcy protection and not one to be dished out lightly.
Because of this protection, South African Airways can now perform what is known as ‘radical restructuring’. This will allow the airline to move positions and assets around in a bid to put it in a more profitable position… and very likely make some much-needed redundancies as well.
“This is the optimal mechanism to restore confidence in SAA and to safeguard the good assets of SAA and help to restructure and reposition the entity into one that is stronger, more sustainable and able to grow and attract an equity partner,” South African Public Enterprises Minister Pravin Gordhan said in a statement this week to Bloomberg.
The government has also given the airline a further loan of 4 billion rand ($274 million) to help it continue to operate. Only half this money will come directly from the government, with the other 2 billion rand likely to come from outside capital who will be receiving bonds from the government in return (rather than investment in the airline).
“This set of actions should provide confidence to customers of SAA to continue to use the airline because there will not be any unplanned stoppages of flights or cancellation of flights without proper notice should that be necessary,”
To make all these necessary business rescue decisions, a team of advisors will be appointed by the board in the next few weeks.
This move has been welcomed by many as it appears to take the pressure of the taxpayer who has been supporting the airline for so long, without letting the airline fall into disarray or collapse. Only time will tell if it is the right move for this airline.
What do you think about this rescue package? Do you think its the right move? Let us know in the comments.