We’ve all joked about how it’s impossible to kill off South African Airways, the Alitalia of the southern hemisphere. But it seems not even SAA can weather the 2020 aviation crisis. The airline had suspended all international and domestic flying in late March, and the South African Government has discontinued financial support, crippling the carrier. But phoenix-like, the government is already busy working to ensure a new carrier emerges from the ashes of SAA.
With a history tracing back to 1934, the South African flag carrier flew to six continents in its heyday. But the government-owned airline has frequently struggled to make a profit. Longstanding government interference, mismanagement, and poor business practices have exacerbated SAA’s woes.
For some time, the airline has relied on financial assistance from the government to keep operating. The South African Government has poured more than USD$1.1 billion into the airline over the past three years.
The South African Government turns off the funding tap
Now, the South African Government has turned that tap off. SAA has been told there will be no more funding from the government, no more lending guarantees, and foreign financing of a rescue plan will not be allowed.
All of SAA’s 5,000 odd employees are due to have their employment terminated by the end of April. The airline’s administrators say this is by mutual agreement.
Adrian Saville, the founder of Cannon Asset Managers in Johannesburg, told Quartz Africa this week;
“For all intents and purposes, [SAA] has already collapsed. As it stands, it is very difficult to come to any conclusion other than its days are done in its current format.”
But Reuters is reporting that South Africa’s Public Enterprises Ministry is saying that the South African Government and various unions will team up to ensure that a “financially viable and competitive airline” rises from the remains of SAA.
It is a sharp turnaround for the South African Government. Earlier this year, the government set aside USD$863 million to repay guaranteed debt at SAA and was expecting a further call for funding.
No airline ready to step into the breach
But Corona is impacting all sectors of the South African economy, not just SAA. It is causing the government to refocus its thinking about SAA. However, the closure of SAA isn’t without its problems. Ogaga Udjo, founder of ZA Logics, an aviation consultancy in Johannesburg, says;
“If SAA were to collapse tomorrow, there would be no other local airline that could immediately take up its place.
“The business case for a strategic equity partner still holds, but the corporate structure and subsequent dynamics will have to be ironed out in order to provide any partner with confidence to invest in the entity. The future of SAA is fully dependent on political will.”
The South African Government is being vague about what it plans to do with South African Airway’s assets. It isn’t keen on outside investment, but even if it was, would anyone tip money into an airline widely regarded as a basket case?
Moving forward, we could be looking at a half baked State-owned airline relying on old SAA assets that lurches from crisis to crisis. It’s a significant fall for an airline that was once the best in Africa.