South Africa Exerts Last-ditch Effort to Rescue National Carrier

 - December 10, 2019, 9:17 AM
A South African Airways Airbus A340-300 approaches Hong Kong Chek Lap Kok Airport. (Photo: Flickr: Creative Commons (BY-SA) by byeangel)

The government of South Africa is exerting a last-ditch effort to rescue loss-making national airline South African Airways (SAA) after the airline reached the brink of collapse last week due to deteriorating financial performance. Subsequently, once one of Africa’s biggest airlines filed for a business rescue from the government to avert liquidation. After a long debate, President Cyril Ramaphosa’s administration has decided to grant bankruptcy protection to the bleeding national carrier.

One of the oldest airlines in Africa and a Star Alliance member, SAA hasn’t made a profit since 2011 and since then has accrued mountains of debt. The national carrier hit rock bottom last month when aggrieved pilots and cabin crew members went on a weeklong strike over unmet demands for pay raises and protesting planned job cuts.    

Pravin Gordhan, the South African public enterprises minister, has pledged to return the flag carrier to profit. However, Finance Minister Tito Mboweni repeatedly has called for the carriers’ closure.

As part of the rescue plan, the government has hired a veteran business-rescue specialist, Les Matuson, to take charge of the state-owned airline. According to the plan, Matuson and his team at Johannesburg-based Matuson & Associates will get 4 billion rand ($273 million) in working capital from creditors and the government to keep SAA afloat into 2020. Matuson’s profile indicates that he has been active for about 35 years as a business advisor and turnaround specialist.    

Gordhan called the workout process “the optimal mechanism” to restore confidence in SAA. “It will help to restructure and reposition the entity into one that is stronger, more sustainable and able to grow,” he added.

The national carrier will need to slash costs and boost revenue, because the government can no longer provide “continuous bailouts,” Gordhan wrote.

According to a former SAA executive, management should, among other things, rationalize routes, optimize the fleet, and scrutinize finances. “Job cuts are inevitable,” he told AIN.  

Frustrated by bureaucracy and funding shortfalls, former South African Airways CEO Vuyani Jarana resigned from his post in May 2019. Consequently, the board of directors of the company appointed head of operations Zukisa Ramasia as interim CEO.

Ramasia’s management had planned to lay off one-fifth of its 5,129-strong workforce in an effort to ease the airline’s financial burden but shelved the plan after it triggered a labor strike.