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Africa|Aviation|Business|Financial|PROJECT|Operations
Africa|Aviation|Business|Financial|PROJECT|Operations
africa|aviation|business|financial|project|operations

Look mommy, there’s no plane up in the sky

22nd May 2020

By: Riaan de Lange

     

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What do the kakapo, the takahe, the weka, Comair, SA Express and South African Airways (SAA) have in common? The first three are flightless birds, and the latter three are on the verge of becoming flightless airlines.

On May 5, Comair, the owner of kulula.com and the South African operator for British Airways (BA), became the third South African airline to go into business rescue. SA Express confirmed on February 13 that it had gone into business rescue, following SAA, which had taken a similar course of action in December. These are the top 3 in South Africa, according to the Afristay Travel Blog. Mango, which is at number 4, is a subsidiary of SAA. Airlink, privately owned, with SAA as a minority shareholder of 2.96%, is at number 5. At number 6 is FlySafair, owned by ASL Aviation Group, which is based in Dublin, Ireland.

Although not a South Africa-based airline, BA does fly domestically. With BA under intense financial pressure in the European Union, it is quite conceivable that it could relinquish its South African operation. Should this happen, this would leave only Airlink and FlySafair, with the perennially lossmaking SAA apparently destined for a process of metamorphosis to become the ‘new’ SAA. You might say that SAA needs to first digest itself. Cast your mind back to your school biology class, where you were taught that, to become a butterfly, a caterpillar needs to digest itself first.

Public Enterprises Minister Pravin Gordhan was cited in a Bloomberg article on May 2 as saying: “Government wants to create a new national airline to take over from SAA. The old SAA is dead – there is no doubt about that. But what will take its place may be some or all of the old SAA and maybe some other airlines too.” He called the metamorphosis a “complex issue”, adding: “South Africa needs a national flag carrier that is a source of pride.” A national flag carrier enjoys preferential rights or privileges accorded by government for international operations.

Curiously, the South African government wants a national carrier at a time when “government ownership of airlines is largely a thing of the past”, as Marc Stewart stated in an article published on November 30. He highlighted that “major flag carriers owned by governments in Europe and North America are a rarity these days”. And on May 4, Warren Buffett, the fourth-richest man in the world, sold his entire stake in four major airlines, questioning the airlines’ future profitability.

As Yinka Adegoke pointed out in an article published in Quartz Africa Weekly on December 6, SAA had been racking up unsustainable levels of debt, topping R57-billion ($3.9-billion) since 1994. “In fact, it last made a profit back in 2011,” Adegoke wrote.

And the South African government news agency wrote on November 13: “SAA has faced numerous challenges over the past few years, culminating in the current situation. The challenges include funding and liquidity challenges; inability to borrow indefinitely without repaying debt; high interest costs on loans; volatile and fluctuating fuel prices; currency volatility; insufficient revenue and cash generation in relation to operating cost; an ageing fleet which is expensive to maintain and is fuel inefficient, making it difficult for SAA to compete in the market place; and aggressive international and regional competition for revenue stimulation and network optimisation. In addition, SAA’s balance sheet has historically been weak and remains so despite recent substantial capital injections from government. Our continued losses and reliance on government guarantees to borrow money from lenders have increased the interest costs, which impacts on the operating cost of the business.”

What will be different with the ‘new’ SAA vanity project?

I borrowed the title of this piece from Goodbye Blue Sky off Pink Floyd’s 1979 album, The Wall.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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