South African Airways Receives Another Government Bailout

South African Airways has been losing money for years, and their losses keep getting bigger. The airline has an inefficient fleet, an inefficient route network, and there are also reports of a lot of corruption. The airline has missed several payments to creditors, and in 2017 South Africa’s deputy finance spokesperson said that “essentially they are insolvent and should have filed for liquidation.”

The airline went through seven CEOs in five years, which gives you a sense of the situation they’re in. Last November the airline appointed their first permanent CEO in three years. The guy actually seems to have a strategy for the airline, and wants to shrink SAA into profitability. He thinks he can turn the airline around within three years, which is no small feat when you consider that the airline lost 473 million USD in 2017, not to mention oil prices are rising.

SAA’s strategy was to shrink by cutting money-losing routes, and also to transfer unneeded planes to Mango Airlines, their profitable low cost subsidiary. SAA’s new CEO was so confident the airline will become profitable that in June he bet R100,000 (~8,000USD) of his own money that he can make the airline profitable within three years. Okay, that’s not exactly a huge sum, but I appreciate the idea behind it.

Unfortunately things haven’t improved much for the airline, as SAA is still in massive amounts of debt. Well, there’s some good news for the airline… or something. I’m not sure the government is actually doing anyone a favor here.

South Africa’s finance minister has announced an R5 billion recapitalization/bailout of South African Airways, to settle debt that’s due between now and March 2019. This follows the airline receiving an R3 billion bailout last year.

The finance minister says he’s in favor of a partial or total privatization of the airline, per Times Live:

“(At some point) Swiss Air was not functioning very well and the Swiss decided to close it down and invite those who know how to run an airline to start a new airline called Swiss International. So these things are doable. So in the reconfiguration of SOEs‚ we need to be open minded and be modern enough because the world has changed‚ it has not remained static.”

Bottom line

South African Airways continues to be on life support. I really don’t get what the government is doing. They’re basically just continuing to fund debt as it becomes due, without actually radically turning around the airline. While the current CEO has made promises, I haven’t seen any material shifts in their strategy that will lead the airline into profitability.

On the plus side, if you’re booked on South African Airways over the coming months, at least you know the airline will still be flying… probably.

Comments

  1. Westerners vastly underestimate the levels of corruption in most societies. A non-corrupt system is the exception for the world, not the rule.

  2. @Dakine: Plenty of “Western” nations have deeprooted problems with corruption. It’s not something that Westerners are unfamiliar with.

  3. SAA is not going anywhere – it’s the only viable airline serving all of southern Africa… it will continue to be mismanaged and subsidized.. kinda like Amtrak…

  4. Westerners are just more professional in being corrupt. For example take Lufthansa:
    They are regularly selling old, run-down planes to the German government for a sky-high price that would be enough to buy brand-new planes instead.
    How they cover it? It’s sold as a package where LH Technik is doing some reconfiguration of the old planes.

  5. @Dakine – The US Military spending $1200 on drinking cups (that is not a typo) is just a more skillful slant on corruption… BILLIONS over the years on various items. A rigged stock exchange and in the know whispers are just more sophisticated – or simple forms of corruption. I’ve seen THINGS, I could tell stories….I cant be bothered to, but the West has it down, trust in that.

    South Africa is still controlled by the British. If ever there were a corrupt bunch of parasites…wow, if only people knew the TRUTH!

  6. I totally agree with many comments here… and actually have railed against the massive corruption in the U.S. military industrial complex for years; probably far more so than anyone here. I stand by my statement and yes I agree many of our systems of corruption are more complex, and that is at least a positive that we can move beyond the crude corruption and therefore beyond crude organizations.

    Another positive is that we have an understanding of the workings of the market and would have already floated this airline as a private company long ago. Even in semi-socialist Europe they will float a key company and hold some “golden shares” so its harder for it to become just a piggy bank for the political system; largely because motivated investors and managers are overseeing it.

    But yeah, proving my point here… most westerners are clueless as to the constant corruption through most parts of the world. They are not clueless as to self-criticism though… they are excellent at that!

  7. Having until very recently lived in SA for over 20 years. I like many others refused to fly with them under their previous Chairperson Dudu Myeni who attempted to lease aircraft then rent them back to SAA She was also a close ally to the then President Zuma
    Like so many government owned entities corruption has become endemic and the previous government were happy to place people in top positions that had neither experience or skills in running an airline. I’d love to see SAA turn around and become profitable as it used to be a lovely airline

  8. That’s what happens when you have a party focusing on enriching their own cronies, rather than letting skills & competence decide who gets jobs.

  9. This is more complicated than it seems. The state owned entities debt in SA is linked. So if SAA defaults, creditors can call in the debt on other government entities (which is massive) and starts a chain reaction which SA can’t afford.

    So they don’t have much choice but to bail them out. However, they should be using this cash to wind down SAA in an orderly fashion or sell it off. The new finance minister is at least partial to the latter.

  10. Jordan – it’s cool that you’ve seen “THINGS” and know the “TRUTH” about the evil British who control the World. Now it’s time to take your meds and go for a nice lie down….

  11. Hold on chaps, nobody bothered top take the good minister at his word: he’s gonna sell SAA to LH to become not “Lufthansa South” (or, as he calls it, “Swiss International”, but “Lufthansa Way South”.
    Okay, but LX has great staff and an amazing ground crew us LSZH. I mean, on touching down on 16 recently, I commented to my boss “We’ve got 22 minutes until our train, even with luggage, we’ll make it; 19 minutes is the cutoff.” The FF next to me begged to differ: “Four me, nine minutes is the cutoff point.” But, after discussion, his 9 minutes was at the gate, and my 19 was weight on wheels, so we agreed.
    Yet LX makes sure this airline has a second-class hard product and doesn’t threaten LH with its route network.
    So, do you really want the Jambock to follow the Swiss model, and have it be an overflow for British Airways? Or sell out to LH and made a marginal airline that breaks even in good times and dissolves in bankruptcy in bad ones, taking one to ensure LH stays profitable?

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