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Aviation experts say privatising part of the ailing airline and merging it with SA Express will not help
Government’s plans to privatise part of SAA and merge it with the regional airline SA Express will not make SAA profitable.
Aviation experts say only cost-cutting and better management will save the beleaguered state-owned airline from collapsing.
SAA is currently entirely dependant on government guarantees (a guarantee by the government that it will pay SAA’s debt when SAA cannot do so), which have already totalled payments of R14.4 billion.
In addition, SAA applied for a further government guarantee in December and, consequently, its financial results have been delayed until March 15.
The proposals made by Finance Minister Pravin Gordhan in his budget speech last month were nothing new, aviation experts said.
The Swiss airline Swissair bought a 20% stake in SAA for R1.38 billion in 1999. However, due to financial problems, Swissair sold its stake back to SAA in 2002 for only R382.5 million.
“I don’t think SAA will attract much attention [for a minority interest] because it is on a lossmaking route,” said Joachim Vermooten, an independent transport economist.
Vermooten said that because SAA’s shares were not traded, a merchant bank would have to be called in to calculate the value of the company to sell a share of it.
He said it would be a difficult calculation because SAA was technically insolvent and there were so many factors to consider.
“The agreement with the minority shareholder will probably mean it will get some special rights to make decisions about capital expenditure, such as the purchase of new aircraft or new loans,” Vermooten said.
Such a provision seems important for finding a buyer, given the SAA board’s notorious track record of making poor decisions.
“That’s why [low-cost airline] Safair will prefer to buy 100% of Mango [also a low-cost airline and a subsidiary of SAA] rather than a minority stake in SAA – then they can do what they want with Mango.”
Furthermore, Vermooten said, even if someone could buy 100% of SAA for R1, it looks unattractive because there is just too much capital needed to make the company solvent.
“Business rescue seems to be a better option for saving SAA, or otherwise SAA should rather be liquidated.”
He said several US and Canadian airlines have gone through business rescue successfully.
Linden Birns, managing director of Plane Talking, said whoever wanted to buy a stake in SAA should view it as a long-term investment.
“This is not the type of industry that you should enter for selfish reasons or for short-term profit, because you will be disappointed,” Birns said.
He said there might be turbulence in the short term, but it should be a good investment in the long term.
“In terms of air traffic, there is annual growth of about 4% in southern Africa and there is no reason this will not continue,” Birns said.
This growth is due to Africa’s growing population and urbanisation, and a lack of adequate water, and road and rail networks for trade and travel purposes.
According to Vermooten, the merger of SAA and SA Express, both lossmaking entities, will only lead to greater losses.
“Both operate in very different markets, and I do not see that there can be much synergy,” Vermooten said.
Birns said the government also mentioned in previous budgets that it was considering merging SAA and SA Express.
But he said the merger could lead to duplication of posts and there would probably be a lack of political will to cut jobs.
Birns said privatisation was not necessarily a solution for SAA, because just as many private airlines as state airlines folded worldwide.
He said two of the best airlines in the world were state owned – Ethiopian Airlines and Singapore Airlines.
