In their business rescue plan for State-owned national flag carrier South African Airways (SAA), published on June 16, business rescue practitioners (BRPs) Siviwe Dongwana and Leslie Matuson proposed a massive downsizing in the airline’s fleet, followed by a slow expansion after it resumed operations and rebuilt its revenues. This would be accompanied by a severe but temporary downscaling of its route network, again to be followed by an expansion as its business built up again during the following months.
In their business rescue plan, the BRPs described SAA, prior to the start of business rescue, as having been “in dire financial distress”. It had “suffered significant losses in each financial year since 2014”, as well as “a lack of adequate recapitalisation which has resulted in severe liquidity constraints”. This situation had been made worse by “governance issues at the company … Inadequate capitalisation of the subsidiaries with increasing dependency on the company to provide them with working capital; and … Increased competition”.
(SAA subsidiaries are the Mango low cost airline; maintenance, repair and overhaul company SAA Technical; aviation catering company Air Chefs and SAA City Centre. The business rescue plan for SAA did not cover these subsidiaries but the BRPs pointed out that SAA Technical would require recapitalisation totalling R1-billion, Mango would also need about R1-billion in recapitalisation, while the required amount for Air Chefs would be R150-million.)
When SAA went into business rescue, it had a fleet of 49 aircraft, divided into 17 narrow-body, 30 wide-body and two freighter aircraft. The narrow-body fleet was composed of seven Airbus A319-100s and ten Airbus A320-200s. The wide-body fleet comprised six Airbus A330-200s, five A330-300s, eight Airbus A340-300Es, seven A340-600s and four Airbus A350-900s. The freighters were both Boeing 737Fs. Of this total fleet, only nine were owned by SAA (five A340-300s and four A340-600s), all the rest being leased. (To reiterate: this fleet does not include Mango’s fleet; the low cost airline operates a fleet entirely made up of Boeing 737-800s.)
SAA operated this fleet over a network of 30 routes. These were divided into eight international routes, 18 regional routes and four domestic routes. Of all these routes, only eight generated a net profit during the 2019 calendar year, one of these being an international route and the other seven being regional routes. During the 2019 financial year the airline’s international routes accounted for 57% of its revenues, but made a total loss of R3-billion, while the regional routes provided 29% of its revenues but lost R315-million, and domestic routes were responsible for 14% of revenues and suffered losses of R868-million.
When business rescue started, SAA (excluding its subsidiaries) employed some 4 708 people. This staff complement was composed of 617 pilots, 1 516 cabin crew, 209 managers, 216 specialists and 2 150 “non-managers”.
The BRPs proposed that SAA should restart operations this month, operating only on domestic routes and with a fleet of just six airliners, all narrow-bodies. During this period, which would last until the end of August, SAA would need only 1 000 personnel. The period September to December would see the airline’s fleet expand to 23 aircraft, as regional and international operations resumed. These 23 aircraft would be composed of nine narrow-body and four wide-body airliners, plus ten small narrow-body airliners (a category never before operated by SAA – presumably either Airbus A220-family or Embraer E Jet or E Jet-E2 family aircraft). In January, the fleet would reach its new planned full strength of 26 airliners, with the addition of a further three wide-bodies.
From January on, this 26-strong fleet would operate from Johannesburg to four or five international destinations (Frankfurt, London, New York, Washington via Accra and, depending on the fleet, Perth); 19 regional destinations (Accra, Blantyre, Dar es Salaam, Entebbe, Gaborone, Harare, Kinshasa, Lagos, Libreville, Lilongwe, Livingstone, Luanda, Lusaka, Maputo, Mauritius, Nairobi, Ndola, Victoria Falls and Windhoek); and three domestic destinations (Cape Town, Durban and Port Elizabeth). Four international routes would be cancelled – Guangzhou, Hong Kong, Munich, and São Paulo – as would one regional route (Abidjan via Accra) and one domestic route (East London). This new SAA would require a total staff complement of 2 892.