Has SAA reached the end of the runway?

The past decade has been turbulent for SAA and it had become a somewhat annual pilgrimage for its executives to go to government seeking bailouts to sustain operations.

On December 5 2019, SAA was placed under business rescue in a bid to save the struggling airline. Government had announced that R4 billion would be made available in two batches. First batch of R2 billion was made available through South African banks and the second batch was never processed.

It was only a matter of time before government’s appetite for rescue funds wore off and turned down SAA’s request for another bailout.

In a letter to the joint business rescue practitioners, Public Enterprises Minister Pravin Gordhan wrote: “Government will not support the extension of your foreign currency borrowing limit to permit foreign financing of the business rescue plan, nor for a care and maintenance budget, as you have proposed … Further note government is unable to provide additional funding to sustain business rescue process beyond the funding that has already been provided to the airline.”

Gordhan added: “Further to this, please note that neither will lending guarantees be provided in respect of the Business Rescue Plan.”

Where to from here?

Hopes of SAA’s survival seem to be fading every day. Acting CEO Zuks Ramasia retired and her last day in the office was April 14, coincidentally the same day Gordhan announced government would not be providing any more funding.

Recent strikes crippled the airline further and rumours of lack of consultation between the Business Rescue Practitioners and SAA management on key decisions made the rounds. Domestic routes were cancelled – save for the Cape Town to Johannesburg one.

The Covid-19 coronavirus pandemic could not have come at a worse time for SAA. As governments around the world placed travel and other restrictions, the passenger revenue disappeared. The extended lockdown further put pressure on SAA’s chances of survival.

SAA requires some drastic reforms for it to have a chance to return to profitability. So far we have seen reports of up to 4 700 employees being given notices of retrenchments.

Liquidate and start afresh

Unthinkable as it seems, SAA might be liquidated. Government has reached a point of fatigue and chances are that it might end up liquidating SAA and start afresh. In the past we have seen a similar transformation at Air Senegal.

A number of SAA assets are set for disposal – including A340 engines, A340 jets and its lucrative Heathrow airport slots might be put under the hummer. SAA and its administrators must look into saving those assets that will propel the resurgence of SAA 2.0.

Go lean and restructure

During the Covid-19 induced lockdown, a number of airlines have announced the retirement of some aircraft on their fleet. Lufthansa and Air Baltic are examples. Currently SAA has been operating the Airbus 340-600s on the repatriation and cargo freighter flights that allow for bigger cargo hold ability and capacities that allow social distancing on board. SAA has already started a programme to replace them with a much modern and efficient A350-900.

SAA must continue with the fleet replacement programme and dump the fuel inefficient A346s. The airline must also look into streamlining its fleet to a delicate mixture of limited A320-200, A330-300 and the modern A350-900.

Focus must be on high yield routes that provide the airline with a constant high load factor. Decision on destinations must be based on traffic potential and total contribution to the airline’s network strategy.

Leadership has been problematic for SAA in recent years. The acting CEO’s retirement presents an opportunity to show its commitment to a turnaround. The appointment of a seasoned aviation professional will announce a new era of a reformed SAA.

Another way out of this turbulence is privatisation. If SAA is to get private funds to restructure its operations, it might get a new lease of life. However this requires government commitment and consent. In order to make the national carrier attractive to investors, government must commit to the current debt that SAA holds.

Life without SAA

In view of the recent developments, life without SAA seems more of a reality. But what will life without SAA be like?

International connectivity to South Africa will be largely dominated by foreign airlines such as British Airways, Emirates, Qatar Airways, Lufthansa and Ethiopian Airlines. This will have a negative impact on connectivity, pricing, exports and tourism.

Regional connectivity in Southern Africa is largely dominated and dependent on SAA.

On the lucrative Johannesburg-Harare route, SAA offers up to three flights per day. SAA’s absence on this route will provide a huge gap that other airlines might be unable to fill.

Tourism in the region will feel the knock. SAA flies twice daily from Johannesburg to Victoria Falls – in Zimbabwe and Livingston in Zambia.

The Airports Company South Africa Company, catering companies and fuellers will see a large chunk of their revenues disappearing with the demise of SAA.

• Nunurai Ndawana is the founder of Just African Aviation. He can be contacted on Twitter on @nunuraindawana and email on nunurai@justafricanaviation.com

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