South African Airways’ Fate Tied to International Partner

 - October 26, 2020, 12:00 PM
South African Airways took delivery of five leased A330-300s from Airbus starting in 2016. (Photo: Airbus)

The fate of South African Airways (SAA) remains in the balance as the government decides whether to let the airline expire, a move that apparently remains unpalatable, or bring in an international partner.

“The Department of Public Enterprises announced that it has received several expressions of interest but has given no details of them,” Pieter Steyn, a director and mergers and acquisitions specialist at Werksmans Attorneys in Johannesburg, South Africa, told AIN.

“Given SAA’s dire situation, the government’s negotiating position is not strong, and any new strategic investor will have to have assurances about SAA’s debt [and] management, and will have to deal with powerful vested interests like the unions and pilots.”

A private study conducted by African Aviation Services and presented to the government on October 4 urged it to resuscitate SAA and bring in Ethiopian Airlines Group as a strategic partner.

“There is inherent value in an existing airline which cannot be easily replicated in a new replacement carrier,” Nick Fadugba, CEO of African Aviation and the author of the study, wrote in the document, according to South African news daily Business Day. “After a thorough analysis, our preferred strategic equity partner for SAA is Ethiopian Airlines.”

Ethiopian boss Tewolde Gebremariam has said his airline could provide pilots, aircraft, and MRO services to a joint venture with the South African government, but he added that his airline would not get involved in SAA’s debts.

SAA cut international services to only five destinations in February and its latest press release, issued on June 1, said its “business rescue practitioners” complained that a draft rescue plan had been leaked to the press. The individuals “endeavor to publish the final business rescue plan as soon as they are in the position to do so and will update creditors on the process of the development of the plan,” added the statement.

This past May SAA presented its draft financials for 2018 and 2019 to Parliament showing 16 billion rands ($967 million) in losses over the 2017, 2018, and 2019 financial years, Steyn said. The airline has not made a profit since 2011 and has received 57 billion rands in bailouts from the government since 1994.

SAA had operated under receivership since December 2019 and needed another 10 billion rands in funding to restart operations, failing which the business rescue practitioners would have no other option but to liquidate, retrench staff, and sell assets, Steyn said.

“Government has committed to source the 10 billion rands and it seems that the political will is there to find the funds,” he added. “The key test is whether [a] planned ‘new’ SAA can break with the dismal past track record.”

SAA’s operations have suffered from the invasion of international carriers like Emirates and Qatar Airways. “[These airlines] are definitely important African aviation players in the future. Qatar Airways has just entered into a partnership with SA Airlink, which is an interesting indication of its strategic plan to expand in Africa,” noted Steyn. “Ethiopian is an SAA competitor, but it seems likely that any strategic investor will have to have airline management expertise.

“There is much to scare off potential investors in the current situation and negotiating a deal will not be a quick process," Steyn concluded. "A key issue will be government’s involvement and shareholding and the ‘new’ SAA’s ability to have independent management without political interference."