At this point it would appear that South African Airways has no path forward except liquidation… unless South Africa’s government backtracks (which they usually end up doing).
SAA is already in business rescue
South African Airways has been losing money for years, and like so many national airlines, has been kept in limbo. For years the government gave the airline enough money to scrape by, but not enough resources to actually turn things around.
Then in December 2019 SAA entered business rescue. With this, the company was taken over by an administrator who was tasked with turning the business around, and if that’s not possible, minimizing the loss to stakeholders.
For a while the argument was made that the current pandemic could help SAA:
- A decrease in international flying by all airlines would decrease the cost to lease jets, making it easier for SAA to renegotiate lease terms on planes
- Oil prices are crashing, which lowers fuel costs, one of the biggest operating costs for the airline
That seems optimistic, and unfortunately increasingly things aren’t looking good for the airline.
The government is cutting off SAA
At the moment we’re seeing governments around the world extend funding to airlines, given the extraordinary circumstances. It seems South Africa is taking the opposite approach — they provided aid in good times, but aren’t prepared to offer any more assistance.
Bloomberg notes that on April 14 the administrators at SAA were told by the government to not expect further funding beyond what has already been promised. Rather the airline is being told to source cash from other available resources.
South Africa’s Finance Minister has long been in favor of cutting off the airline, and notes that with COVID-19 having such a negative impact on the economy overall, there’s simply no way to keep funding loss-making SAA.
At this point it seems like SAA is out of options, with liquidation being the only real possibility:
- The government isn’t providing any more funding
- While SAA could look for private investors, they couldn’t find any during good times, let alone at this time
Bottom line
The government of South Africa is now cutting off SAA, and presumably that means the company’s days are numbered. Maybe the government will backtrack, as it wouldn’t be the first time, as I can’t imagine the airline will find any private investors at this point.
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