South African Airways Receives $240 Million Rescue Package

The state-owned Development Bank of Southern Africa has prevented the imminent collapse of South African Airways by giving the troubled airline access to 3.5 billion rand ($239 million), according to the South African Airways business rescue team.

In a statement issued today, the team looking to keep the airline still flying said they would immediately use two billion rand of the facility to keep the airline afloat.

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South African Airways is given a $239 million lifeline. Photo: Bahnfrend via Wikimedia Commons

Earlier in the month, South African Airways canceled several flights in an effort to save money. This followed the government’s failure to meet a promised cash injection that was agreed upon as a part of its bankruptcy protection terms.

South African Airways has been losing money since 2011

The state-sponsored airline has repeatedly failed to make a profit since 2011 and has only kept operating thanks to government bailouts and state-backed guarantees on loans.

A team of business rescue experts has now been put in place to trim the fat and have until the end of next month to come up with a plan to save the troubled carrier. Due to its now exasperated habit of continually asking the government for money, several ministers in Pretoria are saying enough is enough.

Now, according to the team leading the rescue, the priorities are to come up with a restructuring plan that includes an outside partner, while also preserving union jobs.

The Development Bank of Southern Africa (DBSA) is mandated to invest in South African infrastructure projects to help promote economic development. As a part of its sphere of activities, the financier can back state-owned enterprises.

In its present state, it is hard to see how SAA can survive

While speaking to Bloomberg, a lawmaker for the opposition Democratic Alliance Alf Lees said,

“In our view, it would be no better than taking money straight out of the national revenue fund. The DBSA is a wholly state-owned entity.”

With so many things conspiring to bring South African Airways down it is difficult to see how the airline can continue to operate in its present state.

South African Airways A319-132 ZS-SFJ

SAA could use an outside partner to help run the airline. Photo: Bob Adams via Flickr

Firstly like so many state-funded airlines, there has been talk of financial mismanagement and corruption. The airline is employee heavy and is constantly fighting with unions over jobs in a country that has a 29% unemployment rate.

SAAs hub and spoke operation out of Johannesburg means that traveling in Southern Africa has you constantly backtracking through O.R Tambo International Airport. Add to this South Africa’s unfortunate geographical location at the bottom of the world, and you can see why, in its current state, there is no way South African Airways can survive.

SAA needs to scale back routes and modernise

The first step in its restructuring is a reduction of routes. The airline needs to stop flying loss-making routes unless they are deemed by the government to be necessary. In this case, the government should compensate SAA for losses incurred, as is the situation with PSO routes in Europe.

Together with this, the airline needs to overhaul its schedule and not have aircraft sitting at airports overnight being unused. Once this is established, the airline needs to drastically cut staff starting with employees nearing retirement by offering them severance packages.

SAA A350-900
South African Airways needs to cut routes and modernize its fleet. Photo: South African Airways

Now with the routes and employee level reduced, SAA needs to get rid of its gas-guzzling aircraft like the Airbus A340. These are to be replaced by more fuel-efficient twin-engine aircraft, like the A350-900 it has just deployed on its Johannesburg to New York route.

A partnership with one of the Gulf carriers would also go a long way in solving several of South African Airways’ problems. It would give them access to the world with a codeshare agreement.

What do you think about SAA? Will they survive or is it time to pull the plug? Please give us your thoughts on the matter in the comments section.

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