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Fears are mounting in the aviation sector that commercial airlines will not survive without significant financial assistance from government should there be a need to extend the current 21-day lockdown.
On Friday, jittery airline bosses told City Press that, should authorities fail to arrest the spread of the Covid-19 coronavirus and if the lockdown is extended, commercial airlines would crash if government did not intervene with a financial rescue package.
In an unprecedented move this week, the airlines were forced to place about 10 000 employees on paid annual leave due to government’s decision to lock down the country for 21 days to flatten the infection curve.
The airlines, including SAA, British Airways, SA Airlink, SA Express and low-cost carriers Kulula, Mango and FlySafair, were already running a fraction of their usual operations after President Cyril Ramaphosa announced a ban on international travel two weeks ago.
FlySafair CEO Elmar Conradie, whose airline has been voted the best domestic airline for a number of years, said it was unlikely any of the commercial airlines would survive a lockdown that lasted beyond two months unless they got financial assistance.
“At some point, all the airlines will need assistance from government,” he said.
He added that, fortunately, the company had enough cash reserves to see it through the next two months.
Airlines expect to lose “hundreds of millions” of rands during the 21-day shutdown, Conradie said, adding that passengers on the company’s aircraft had dropped by 70% after the initial travel ban was instituted.
“We have been affected quite hectically. According to estimates by the International Air Transport Association [Iata], Europe’s traffic is down by 90% for the second quarter of the year.
"The estimation is that we will be down by as much as 70%. But for the month of April, we will be down by 100% year on year as we will have to go for the entire month without revenue. All our 1 180 employees are on annual paid leave, but we believe we will survive this period,” he said.
FlySafair, he said, was luckily not heavily indebted because the company owned most of its assets, excluding aircraft.
“We are in discussions with some of the companies from which we lease our fleet of 17 aircraft,” he said, adding that the message that should go out to the public was that everyone should stay indoors.
Read: VoicesThe Covid-19 pandemic is a major threat to African aviation
SA Airlink CEO Rodger Foster echoed Conradie’s sentiments.
“We will definitely need an aid package,” he said, adding that the company was in discussions with its partners and shareholders to convert equity into cash to absorb the shocks created by the travel ban and the lockdown.
“We still have equity on our balance sheet and we will work out a plan to turn it into cash to survive. We have mothballed the entire company. All our 64 aircraft are parked, and this will cost us hundreds of millions every month.
"We only have a few essential staff coming to work to figure out how the new aviation market will be configured when the lockdown and travel bans are lifted,” Foster said.
The Covid-19 outbreak had destroyed commercial aviation in South Africa and the sector would not be the same again, Foster said.
“Tourism has gone from full tilt to zero overnight. If there is no tourism, there is no hospitality industry, and if there is no hospitality industry, there is no commercial aviation.
"At the click of a finger, 63 000 flight missions a year at SA Airlink have been destroyed. The industry has collapsed and has been destroyed. It took us 28 years to build this business and, within a heartbeat, all that has been taken away.”
The consequence of the lockdown will be more devastating for people in southern Africa than the virus itself, he said, adding that SA Airlink would return to play a role in the sector that will emerge after the lockdown and the travel ban.
All airlines are without income, but still have significant costs to bear, Foster said.
Lucie Ait El Hadj, the executive manager for strategy and analytics at Comair, said they had to ground all of the company’s 26 aircraft and place most of the company’s 2 100 employees on leave.
She also said the sector would most likely require financial support once the crisis was over. Quoting information from Iata, Ait El Hadj said that “commercial aviation plays an absolutely crucial role in the economy – nationally, regionally and in the global context. Iata found, for example, that, in 2017, 20.9 million passenger journeys were made to, from and within South Africa.
"In that year, aviation and tourism contributed $9.4 billion [R165 billion] in gross value. That accounted for 3.2% of South Africa’s GDP and supported more than 472 000 jobs.
“Over the next 15 to 20 years, the local travel market could double in size to 23.8 million additional passenger journeys and 372 000 more jobs. Its total contribution to GDP could grow to $20.2 billion by 2037.”
SAA, which is under business rescue, has also placed most of its 4 800-strong workforce on leave. Deon Fredericks, the airline’s interim chief financial officer, said the national carrier was focusing on saving as much cash as possible.
“We are looking at different interventions, including payment holidays, deferring payments and conserving as much cash as possible,” Fredericks said.
“While the company is considering a number of scenarios, the future of the airline ultimately depends on how long the lockdown and travel ban lasts,” he said.
On Thursday, the airline announced that the business rescue practitioners had been given an extension to May 29 to publish the business rescue plan.
Aviation expert Guy Leitch said he believed government was not prepared to let SAA crash and would be willing to do all it could to save it.
While the airline loses R6 billion every year, Leitch said SAA was creating more value than the cash it was burning.
Interestingly, the outbreak of Covid-19 had actually helped SAA, Leitch said, adding that the airline “had lost forward bookings and had to ground its fleet before the virus showed up.
"It was flying a reduced schedule and it was bleeding money badly. The airline is no longer losing money as it was in the past. It is actually not using much of the R3.5 billion loan it recently received from the Development Bank of Southern Africa. It is saving that money.”
This week, business rescue practitioners at SA Express launched a court bid to liquidate the company. Its executives have applied to the Unemployment Insurance Fund to pay the salaries of the airline’s 600 employees. Last week, SA Express announced that it would not be able to pay salaries.
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