South African Airways Exits Bankruptcy: Now What?

Filed Under: South African Airways

South African Airways (SAA) is emerging from business rescue, yet oddly the national carrier’s future doesn’t seem any more certain.

SAA emerges from business rescue after 17 months

In December 2019, SAA entered business rescue. This is essentially a form of bankruptcy protection, whereby an administrator takes control of the company, with the goal of maximizing the odds of survival for the airline, or at least achieving as good of a return for creditors as possible.

It’s worth remembering that all of this happened pre-coronavirus, as the inefficient national carrier has been struggling since long before the pandemic.

After 17 long months, SAA has finally emerged from business rescue. With this, SAA is now considered to be solvent, and administrators have “effectively discharged the business rescue and handed over the operations of SAA back to its board and executive team.”

The government has stated that it’s in the final stages of negotiations with a preferred equity partner for the airline:

“A purchase and sale agreement should be concluded in the next few weeks. This will enable capital, and much-needed technical and commercial expertise to be brought in to ensure a competitive flag carrier emerges.”

South African Airways is emerging from business rescue

So what happens next?

In the past we’ve seen airlines enter and exit business rescue while more or less operating as usual. So while SAA is now considered solvent, no one really knows what the future holds for the airline:

So it’s great that SAA’s debt issues have been addressed, but now the airline is going to need some capital if it can actually be transformed into a viable business. Given the carrier’s track record, and the government’s inability to simply left the airline fail, one has to wonder what investors want to come in and help the airline out.

This truly seems like one of those situations where they would have been better off letting the airline liquidate, and starting fresh, because so many legacy problems will still exist.

The way I view it, there are a few ways this could play out:

  • SAA can just keep being a mess, which seems like the most likely outcome; the airline will still be plagued with labor issues and an inefficient fleet, and won’t actually get the money to build a successful airline
  • Ethiopian Airlines had offered to essentially partner with the government and loan planes and pilots to SAA, which seems like the smartest plan, but that likely won’t happen
  • In reality SAA should just be a regional airline, and form a close partnership with a major global carrier (like Emirates or Qatar Airways) for connectivity; SAA will never be able to compete efficiently in long haul markets

Ethiopian Airlines has offered to partner with South African Airways

Bottom line

After 17 months, South African Airways has finally emerged from business rescue. Nonetheless the national carrier’s future continues to remain uncertain. It’s being claimed that the airline will soon receive more capital, though it’s anyone’s guess what that will look like, and for that matter when the airline will resume operations.

If you ask me, Alitalia, Malaysia Airlines, and South African Airways, should all form a partnership, since they have a lot in common in terms of their business models (or lack thereof).

What do you make of SAA emerging from business rescue?

Comments
  1. SAA pilots are currently on strike. So they won’t be flying until that is resolved anyway.

  2. I think we can all agree that operating an airline as a matter of national pride does not make business sense. With Open Skies we are going to see consolidation into three groups: 1) Truly international carriers that fly all (or most) continents; 2) Large regional carriers that specialize in a geographical area primarily (Emirates, Cathay, etc.); 3) Local intra continental/domestic carriers that serve short haul flights with lower passenger volumes. The US lost PanAm. SAA can’t really even compete locally because I believe Lift is now operating out of at least 3 airports in SA. I am not even sure a regional airline would work since there are plenty of those already.

  3. It could or rather will still get ugly. They don’t want to pay the pilots what they are owed and they will be unable to launch until they reach agreement.

  4. The government wants to alter the demographics of the pilot body and doesn’t want to follow the typical union rules about furloughing ie first in last out.

  5. Such an American outlook ignoring all the reasons why American solutions fail in most of the rest of the world. SAA cannot be viable as a regional/domestic carrier alone and operating five or six strategic long haul routes would be key to any viable reemergence. South Africa is still a much in demand tourist destination (post COVID-19) but it must shift some of those long haul flights to CPT from JNB…that’s where the new wave of tourists want to go, not to crime infested, there’s no there there Johannesburg!

    SAA needs to reinstate at least JFK/IAD-South Africa, LHR/FRA/CDG-South Africa, GRU-South Africa, SIN/BOM-South Africa and rebuild its African and domestic routes to be a viable airline. I’ve flown it many times and the inflight product (long haul) continued to improve…but remained FU’d on the ground!

  6. Off-topic: Lufthansa remove again B747-8 in all routes from/to US in June, except FRA-ORD.

  7. I believe SAA should become a regional airline, not a domestic or international one. Domestic routes are well served by Lift, Comair, Kulula, Mango, Safair and Airlink. We don’t need another airline for domestic flights. Internationally SAA will never be able to compete with the likes of Qatar, Emirates and all the other international airlines serving SA. Regionally, however, there are lots of opportunities. Many of the routes have little, if any, competition and yields are good. The uncomfortable truth is that we don’t need SAA. They will have to find a niche, stick to it and do it properly if they want to be relevant.

  8. SAA and Ethiopian, at one time, were the only two well run and competitive airlines in all of Africa. The only other one ever one had been Air Afrique which ceased operations in 2002. Now there is only one, Ethiopian, which has acquired a continental monopoly for good and safe service. Their only competition, recently, has been Emirates, Qatar and Etihad whose hubs are very close to Addis Ababa. Ethiopin’s genius has been to negotiate Fifth Freedom rights within Africa (which the 3 MEs do not have) and to create Asky Airlines as a (mediocre) regional affiliate for West Africa.

    Why would Ethiopian come to the rescue of SAA and make it again a competitor, except to make it a secondary regional carrier for Southern Africa, Asky-type?

  9. I have a lot of respect for Ethiopian Airlines. I can see a place for SAA to be a feeder airline for ET.

  10. In the past we flew many times JNB to/from EZE, LHR, FRA, JFK. Their J class was pretty good and on our last flight they prepared a salmon dish that I still drool over. We also flew internally JNB-CPT and JNB-DUR while connecting. Their lounge in JNB was great and spent many hours there.

    Good to see SAA back but unfortunate they lost their 330’s and are still stuck with the 340’s. The 340’s are nice but uneconomical.

    Hopefully an injection of cash and common sense will bring SAA back to life. I would prefer to see their long haul flights resume as they were a very pleasant alternative to other options.

  11. The definition of insanity is doing the same thing & expecting different results.

    Enabling the repeated mismanagEment of SAA by incumbents is INSANE

  12. Sri Lankan , Malaysia Airlines, Garuda Indonesia, and now SAA – the list of airlines with potential, but are rotten and ruined due to incompetent management, bad business model and corruption.

  13. SAA missed a trick in its core international flights arriving and departing to JNB. As others have stated, CPT is the prime O & D for tourists, look at the success of BA,VS and UA on there direct services. The only real way for SAA to rebound is by leasing/purchasing a fleet of A350s/787s for international flights and A321/A321XLR for domestic and intra-africa flights, obviously capital would be needed for this! In the meantime I will be flying Rwandair to Cape Town, now that it will only be the one stop in KGL instead of having to take a technical in Brussels.

  14. While I’m going to avoid commenting on strategy for SAA v2.0 specifically, I will state that there is no comparison in annual volumes between CPT and JNB for O&D traffic. The Cape Town market size is maybe 30-40% that of Johannesburg on a year-round basis, with tourist peaks for 4 months of the year offset by deep drops in the off peak. Most markets, with few exceptions, struggle to maintain sufficient O&D volume to CPT on tourist traffic alone while the business traffic to CPT is a fraction that of JNB.

    Claims that CPT is a larger market are simply unsupported by the facts.

  15. As a tourist to South Africa myself, I would note that for safari vacations to Kruger, Johannesburg is the preferred airport. I have flown in there much more often than into CPT.

  16. Lucky: SAA’s main problem is inept management and corruption. They could be flying the world’s most efficient fleet and have the most flexible labour agreements ever and still lose money.

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