South African Airways is currently at an incredibly low point in its financial history following years of losses. Now, the government is reportedly looking to sell shares in the failing airline to the public. The government hopes that the sales of these shares will prevent the need for future bailouts. This does, however, follow more negative news regarding the airline’s finances from the last few days. The airline currently has around 21Bn South African Rand worth of debt, equivalent to around £1bn GBP.
Previously in October, South African Airways was given R5bn by the South African Government. It has reportedly already spent R3bn of this bailout. The Chief Executive of South African Airlines, Vuyani Jarana, told “R3 billion of the R5 billion has gone into paying arrears. We have the R2 billion (available) and have been working within that limit, helped by better cash flow management, including the fact that Angola started paying us the funds it had blocked.”
Two options have now reportedly been floated by the South African Government regarding the airline’s future. Firstly, Tito Mboweni, the country’s finance minister who authorised the R5bn cash injection, would rather the airline was shut down. Conversely, South Africa’s president, Cyril Ramaphosa, has said that shutting down the unsuccessful airline is not an option.
Stock Exchange Listing
This isn’t the first time the sale of a stake in the airline has been suggested. Now, Bloomberg quotes unnamed sources who say the airline could be listed on the South African stock exchange.
“South African Airways could sell shares to the public as the state-owned carrier seeks ways to end years of losses and reduce the need for bailouts, according to people familiar with the matter.” – Bloomberg
The South African Government has previously sold shares in failing state-owned businesses. In fact, fifteen years ago the South African government used a similar tactic with the state phone provider Telekom. The government initially raised $500 million from initial sales of shares. As a result, only 40% of Telekom is now owned by the South African Government.
Steps Needed Prior To A Sale
The South African President told how selling the airline would not be a process that could happen overnight: “SAA is laden with debt. If you were to say sell SAA today you would not be able to get anything for it. In fact, you would have to pay someone billions of rands to take it off your hands. If we were to shut it down, it basically means that the debt would become payable immediately… In the end, we have to stabilise SAA.”
As such the airline would need to make some significant financial progress. However, a three-year plan is currently in action for the airline to try and break even. Part of this has seen European Airlines taking advantage of the failing carrier who is slowly scaling back operations and dropping routes.
South African Airlines declined to comment to Bloomberg regarding plans to sell part of the airline, however, with this comment from the country’s president it isn’t completely out of the question. Would you buy shares in South African Airways? Let us know in the comments down below!