State-owned airlines struggling in financial turbulence

21st February 2020 By: Rebecca Campbell - Creamer Media Senior Deputy Editor

Two of South Africa’s State-owned airlines continue to experience tough times as they try to recover from their current deep financial crises. They are national flag carrier South African Airways (SAA) and the completely separate regional operator, SA Express. SAA is now in business rescue, and the Johannesburg High Court recently ordered that SA Express also be put into business rescue.

Regarding SAA, the business rescue practitioners (BRPs) appointed to run it have announced major changes to the airline’s route network.

Domestically, SAA will cease all operations to all destinations except Cape Town from March 1. The destinations that the airline will no longer serve include Durban, East London and Port Elizabeth. And the number of services to Cape Town will be reduced.

Services by the SAA group’s low-cost subsidiary, Mango, will not be affected. Passengers affected by the termination of SAA domestic schedules will be reaccommodated on Mango flights.

Regarding regional and international flights, SAA operations from Johannesburg to Abidjan (via Accra), Entebbe, Guangzhou, Hong Kong, Livingston, Luanda, Munich, Ndola and São Paulo will be terminated, also from March 1. Passengers booked on these cancelled flights will receive full refunds.

SAA is retaining the following regional routes: Johannesburg to Blantyre, Dar es Salaam, Harare, Kinshasa, Lagos, Lilongwe, Lusaka, Maputo, Mauritius, Nairobi, Victoria Falls and Windhoek. The international services that are being kept are Johannesburg to Frankfurt, London, New York, Perth and Washington (via Accra).

“SAA does not intend to make any further significant network changes,” said the media release.

The BRPs also reported that rationalisation programmes were being considered for SAA’s subsidiaries. Also being explored, with possible investors, were “viable investment opportunities” regarding SAA.

They also gave the assurance that they were making “every effort” to minimise job losses at SAA and its subsidiaries. “However, a reduction in the number of employees will, unfortunately, be necessary.” They would be discussing matters with both unionised and nonunionised employees to find a sustainable future path for the airline.

They also expressed their support for the investigation launched by the Special Investigating Unit into some of SAA’s contracts. This, they affirmed, would help in evaluating viable contracts and cutting the airline’s costs.

They reiterated that their decisions were “aimed at improving SAA’s balance sheet, creating a platform for a strong and sustainable airline and ensuring that the company is more attractive for potential strategic equity partners”.

As for SA Express, it reacted strongly to the Johannesburg High Court’s ruling that it be placed into business rescue. A service provider to SA Express, Ziegler SA, brought the application to the court. SA Express reportedly owes Ziegler R11.3-million and the airline is also reportedly technically insolvent.

The airline stated in a press release that it was seeking further legal advice on the matter. “The review of the judgment by SA Express’s lawyers indicates that the court exceeded what was required and granted orders not sought by the applicant,” it asserted. “The court has also not made any order on whether the matter was urgent or not in circumstances when the urgency was specifically opposed.”

The airline also affirmed that it had “disputes with the supplier” and that its board had, in an orderly manner, been “dealing with the malfeasance”. It further noted that it had been “plagued” by suppliers who had overcharged it and applied unfair pricing. These suppliers were now under internal review by the airline.

“The airline states that it would be irresponsible and amount to wasteful and fruitless expenditure to make payment on invoices submitted by Ziegler in circumstances where it was aware of irregularities,” it asserted. “It would be absolutely criminal to allow further misuse of taxpayers’ money to reward a company whose contract has been identified, through forensic investigations, as irregular and in contravention of [the] PFMA (Public Finance Management Act).”

SA Express further averred that “tens of invoices” that had been authorised by the airline’s previous management had been found to contain discrepancies. “[I]t is on this, among a number of other issues, that the airline will appeal.”