South African Airways is struggling to stay afloat

Thursday, April 23, 2020

South African Airways has suffered the latest in a series of major financial setbacks after the government rejected a request by practitioners administering a restructuring of the airline for an additional 10 billion rand ($526 million) in funding.

The cutoff left SAA, which has racked up 32 billion rand ($1.7 billion) in net losses since 2008, without the lifeline of government loan guarantees that has kept the beleaguered airline flying through years of mounting debt and unprofitability. It comes amid a nationwide lockdown to slow the spread of Covid-19 in South Africa that led SAA to suspend most flights through the end of May.

To be sure, the response to COVID-19 or coronavirus has deepened difficulties throughout South Africa’s economy, which was in recession prior to the pandemic and is now forecast to shrink by 6.1% this year. Four in 10 South African businesses say they are not confident they will have the financial resources to continue operating through the outbreak, according to a survey released Tuesday by Statistics South Africa.

Though this global pandemic is buffeting airlines worldwide, SAA began the crisis in a struggle to stay afloat. In February, the government set aside 16.4 billion rand ($863 million) to repay the airline’s guaranteed debt over the medium term, with the anticipation that additional funds would be required to cover restructuring costs. Since the start of the year, SAA has relied on 3.5 billion rand ($184 million) in emergency funding issued by the state development bank.

The decision to discontinue financial support reflects both the magnitude of the economic challenges confronting South Africa and suggests a shift in government policy that has until now has kept SAA flying, says Wayne McCurrie, portfolio manager at FNB.

Even pre-shutdown for the coronavirus, it was clear that SAA was being looked at by the government in a different way,” says McCurrie, who adds that the government “is caught in a very difficult position” with respect to the billions of rand that it has guaranteed the airline.

Besides the loss of roughly 4,700 full-time jobs, a shutdown of SAA risks upending key supply chains for the country and wider region, explains Ogaga Udjo, founder of ZA Logics, an aviation consultancy in Johannesburg. These include the majority state-owned company that operates South Africa’s major airports, suppliers of fuel and ground transportation, as well as travel and tour operators. Tourism indirectly contributes roughly 8.2% to South Africa’s economy annually.

SAA Group, the airline’s parent company, owns low-cost carrier Mango, which has flirted with profitability, as well as SAA Technical, the continent’s largest aircraft maintenance and repair business. SAA also is one of only two African airlines to fly one of Africa’s 10 most lucrative routes; between Cape Town and Johannesburg, which earned SAA $185 million in the year that ended March 2019.

« Back to Page

• Unlocking Potential: South African Airways Launches Innovative Recruitment Initiative for Interim Executive Team

• South African Airways enhances perth route for improved connectivity and comfort

• South African Airways explains reported runway issue at OR Tambo International Airport

• Perth, Australia – SAA’s revitalized focus: Expanded content signals promising prospects

• Kenya Airways, South African Airways launch direct Africa-South America flights