South African Airways

South African Airways Edging Towards Collapse

After a series of unfortunate events, and years of operating losses, South African Airways is edging towards a total collapse faster than ever.

Having received almost $4 billion in bailouts since 1994, and last earning a profit in 2011, South African Airways has been clinging on by a thread. Recent news about staff pay, employee strikes, flight cancellations and sales cuts may be the final blow for the airline.

When South African Airways employees staged a week-long strike last month, multiple flights were cancelled and a significant amount of customers cancelled bookings; costing the airline $3.4 million each day.

At this time, South African Airways is waiting for the government to tell the airline if they’ll be rescued once again with financial aid; or if they’ll be left to fight it out on their own.

As a result of not knowing if the government will initiate another rescue offer, the airline has not been able to publish its financial results for the year through to March.

South African Airways A340-313 ZS-SXC

Worsening the situation, on Friday, Flight Centre’s South African arm announced it would terminate ticket sales for South African Airways flights; ascribed to a lack of faith in the future of the airline.

“In light of the above developments and the continuing concerns regarding SAA, Flight Centre Travel Group South Africa has made a decision to no longer sell SAA, until such time as we have obtained certainty in the market.”

Andrew Stark
Managing Director MEA
Flight Centre Travel Group (Pty) Ltd

The travel group said its preferred travel insurer, Travel Insurance Consultants and its underwriters, were no longer willing to cover South African Airways under their travel supplier insolvency benefit. It is understood multiple other travel insurers around the world have come to the same conclusion.

South African Airways employs more than 5000 workers and operates a fleet of more than 50 aircraft, to more than 35 domestic and international destinations.

In order to continue flying until at least March 2020, and have the ability to pay staff in full, South African Airways has requested a loan of $200 million, however the government insists the airline needs a drastic restructuring to have any hopes of surviving.

Public Enterprises Minister, Pravin Gordhan, says the airline will undergo a “radical restructuring” to ensure financial and operational stability in the future. Despite this, Finance Minister, Tito Mboweni, says he wants the airline shut down.

If liquidated, South African Airways will need to cover liabilities of $2.4 to $4.7 billion; however they would only be able to secure $341 to $409 million by selling their assets, according to Bloomberg.

Additionally, Bloomberg notes that the National Treasury would have to settle over $1 billion in bank debt and creditor guarantees before the airline closes; to avoid potential cross-defaults on other Treasury-backed loans.

Whether South African Airways survives or not will depend on government action and a drastic change to their operating scheme, especially in light of growing economic uncertainty, rising fuel costs and increased competition.

Interestingly enough, South African Airways recently took delivery of their first Airbus A350 and committed to another two to replace part of their ageing A340 fleet; however the potential, narrow-sighted, desire to cut fuel costs may end up costing them more than any one could have anticipated.

The loss of South African Airways will be a significant one, since the airline carries so much history. Founded 85 years ago on the 1st of February 1934, state-owned flag-carrier, South African Airways has provided flights for people all around the world, from their base at O.R. Tambo International Airport.

What are your thoughts on South African Airways’ current situation?