After the aviation nightmare, get ready for SAA 2.0

When the airline industry wakes up from the nightmare that is the Covid-19 coronavirus pandemic, it may find that the clock has been turned back 30 years – to a time when the state dominated the local aviation industry.

This is the warning that has been issued by independent aviation expert Rennie van Zyl against the background of the state’s plans for an SAA 2.0.

The fact that Public Enterprises Minister Pravin Gordhan let the name Comair slip during a parliamentary portfolio committee meeting last week strengthened these suspicions.

Gordhan told the portfolio committee on Wednesday night that he would, within 48 hours, propose a plan for a new airline, devised by his department with aviation consultants Seabury and organised labour, to SAA’s business rescue practitioners.

READ: Voices | More questions than answers about ‘new’ SAA

The written presentation he sent to members refers in one slide to NewCo, the sale of assets and the heading “consolidation of the aviation industry”, with the name of Comair underneath it.

Gordhan did not answer a direct question from DA member Chaleb Cachalia during the committee meeting about the reference to Comair.

Comair went into voluntary business rescue this week.

READ: Aviation sector will collapse without state intervention

The big question is how the aviation sector could be rebooted after Covid-19 and whether the state will seize “the opportunity” to strengthen its control over it.

The business plan of an airline is based on maximising the number of flights with as many passengers as possible per day, plus cargo in the hold.

It’s unlikely that such a plan will work when the travel restrictions are lifted. To start with, a single flight a day carrying a handful of passengers would be unaffordable for airlines, said transport economist Joachim Vermooten.

What to do if only five passengers have booked? Will these five have to carry the full cost of the flight? Will the flight be cancelled? What comes first, the chicken or the egg – the passengers or the service?

Even when the number of passengers begins increasing, they will still have to be socially distanced from each other, which will increase the cost per airline ticket and further delay a full recovery.

Jack van der Merwe, the former boss of the Gautrain Management Agency and an expert in public transport, said air travel would have to be approached like general public transport, at least for a while. That means the flights will have to be provided even before the demand returns.

It is also critical to restore connections to other markets for the purpose of economic recovery. Private airlines that have been grounded by Covid-19 simply will not have the resources to operate unprofitable flights.

GOVERNMENT SUBSIDY

Government will have to subsidise the service until demand has sufficiently recovered to a level at which it makes sense to operate flights commercially.

The International Air Travel Association has previously indicated that, even before the crisis, most airlines only had enough cash to keep operating for two months, and even the strongest among them have been brought to their knees.

READ: $252bn lost as airlines lose flight

Van Zyl warns that if private airlines go under as a result of a lack of support from government, SAA 2.0 will be gifted a monopoly.

“This would be a return to the policy before 1990, where SAA was protected against competition. Without competition, service to the consumer will disappear and the old SAA culture will continue to exist, with the airline being little more than a bottomless pit for the taxpayer.”

The other possibility is that the temptation to offer aid connected to conditions that favour SAA 2.0 will simply prove too great, as has been the case for politicians elsewhere.

Gordhan has been outspoken about his plans to start a new airline, but without government support.

In some respects, conditions are favourable. At present, there is an oversupply of aircraft, personnel and fuel, which means that certain start-up and operating costs will be considerably lower than before the health crisis.

A private equity partner is part of Gordhan’s plan, but legislation prohibits foreigners from owning more than 25% of SAA. According to Gordhan, there is no plan to relax this requirement.

This makes easy targets of desperate local airlines.

According to media reports on Friday, SA Airlink CEO Rodger Foster reconfirmed the airline’s earlier interest in buying SAA’s low-cost affiliate, Mango.

According to TravelNews, Foster is prepared to consider a partnership with government for a new low-cost airline, but only if it is based on business principles and good management.

PARTNERSHIP

Van Zyl said that, if necessary, a new airline could come from a partnership between the state and the private sector.

“There has to be a total breakaway from the old SAA. Government’s shareholding has to be a minority,” he said.

The question is therefore whether Gordhan and his trade union allies, if they do breathe life into a new airline, will be willing to leave it to the private sector to raise.

SAA’s business rescue practitioners, who are meant to be independent and act in terms of the Companies Act, have already indicated that liquidation or closure remain the only options for the airline.

READ: Has SAA reached the end of the runway?

Gordhan criticised them sharply on Wednesday night and appears to be committed to creating a new SAA through his parallel process.

On Friday afternoon, the labour court ruled that the process adopted by SAA’s business rescue practitioners to lay off SAA employees even before a business rescue plan had been published was procedurally flawed and that a notice in this respect must be withdrawn. However, the rescuers may still offer voluntary packages to employees.

This was after union Numsa took the business rescue practitioners to court over the procedure being followed in respect of the layoffs.

The rescue practitioners said they were still studying the judgment.

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