South African Airways: Returns To Intercontinental Travel

 

South African Airways – once a giant of African aviation – is back in the intercontinental market, but there are still doubts about its financial viability.

It had disappeared from our skies altogether in September 2020, having fallen victim not just to Covid but also another disease that has plagued some other state-run carriers – corruption and mismanagement.

It may be on the verge of a sale that would see a private consortium take a majority share in the business.

However, its handling of finances has recently come in for severe criticism by the country’s public spending watchdog.

In a scathing report, Auditor-General Tsakani Maluleke said that the financial statements SAA had drawn up dating from the 2018-19 financial year lacked credibility. The airline recorded losses in the four years from 2018 of a staggering $1.2bn (£1bn).

But interim chief executive officer (CEO) John Lamola said this did not reflect the current position of the airline, which is under new management.

He said the situation had improved in the most recent financial year, with the airline now “running on financial resources generated from its own operations”.

Towards the end of last year, in a sign that SAA wants to be a major player again, it reopened its routes from Cape Town and Johannesburg to São Paulo, Brazil. And now it is selling tickets for flights to Perth, Australia.

These are the airline’s first long-haul destinations in three years. It did return in September 2021, making a surprise profit serving a limited number of African destinations after coming out of voluntary business rescue.

This was a process which saw the airline placed under the temporary supervision of experts who were asked to return the company to financial health. They pared back the fleet from 44 aircraft to six and focused on the African market.

Now it is aiming further afield.

“The choice of São Paulo was as a result of a very meticulous economic and market research analysis,” Mr Lamola told the BBC.

He added that the intercontinental flights hoped to enhance trade and tourism ties between the two countries as members of Brics – an expanding group of emerging economies originally comprising Brazil, Russia, India, China and South Africa.

Prior to the Covid pandemic, SAA operated five other intercontinental routes from Johannesburg to destinations including New York and Hong Kong.

That route encapsulates the prestige that used to accompany the airline. Once the largest in Africa, SAA faced profound challenges in the last decade.

“South African Airways notoriously has gone through a process in South Africa called ‘state capture ‘, where there are well-recorded incidents of corruption that characterised the life of the airline,” said Mr Lamola, adding that investigations were ongoing.

An official inquiry into state capture released at the beginning of 2022 showed that the airline had been wracked by corruption between 2012 and 2017.

As a result of the mismanagement, SAA was forced to rely entirely on government financial assistance over a 10-year period to stay afloat, a situation made worse by Covid.

“In that period… the government had to put in some 40bn rand ($2.2bn) into SAA,” said Public Enterprises Minister Pravin Gordhan.

It had been run at a loss since 2011.

The national carrier was placed under voluntary business rescue in 2019 to protect it from bankruptcy.

SAA sell-off plan
It was then forced to suspend all operations in September 2020, as it struggled to raise a bailout of over $540m.

As part of a programme to rescue the airline, the government announced plans, in June 2021, to sell a 51% stake in SAA to a group known as the Takatso Consortium.

Under the scheme, the government’s department of public enterprises retains the remaining 49% stake, securing a long-term national strategic interest in the airline.

Last July, it was approved by the Competition Tribunal of South Africa provided that certain conditions were met.

One of the requirements was a moratorium on staff cuts that guarantees job security for SAA employees during the transitional phase.

But it has hit problems, with trade unions alleging that proper procedures were not followed. A parliamentary committee plans to subpoena Mr Gordhan to investigate this further.

Takatso, with its huge cash injection, had been seen as a lifeline for SAA, but the airline says it will carry on with its expansion plans in the meantime.

SAA’s new management hopes to shift the business from its dependence on state support to a financially self-sustaining one, by only maintaining a fleet it can afford and pulling out of the low-cost market.

“This airline must be able to survive on operational efficiencies,” said Mr Lamola.

These include choosing routes for commercial rather than political reasons, building a fleet with appropriate long-haul aircraft and matching expansion with the pace of the post-Covid recovery in the global aviation industry.

 

BBC/Jide Johnson.