South African Airways Receives Another Government Bailout Worth $640 Million
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On Wednesday, the South African government announced that they were prepared to give South African Airways a bailout of R10.5 billion ($640 million) to help fund the struggling airline. The state-owned airline was placed under administration in December after years of losses brought on by mismanagement and rising debt.
This latest cash injection is in addition to the R16.4 billion ($1 billion) the limping airline received in February to settle debts and cover interest payments. The latest handout is designed to help the national flag carrier implement a plan to downsize the airline and streamline its operations.
Under the administrator’s rescue plan, only 20% of its current 5,000 stong workforce will remain while its fleet of 44 aircraft will be whittled down to just six.
Citizens are being urged to boycott SAA
So far, 33 planes have been returned to lessors leaving SAA with three Airbus A319s, one Airbus A330, and eight Airbus A340s. The aim is to increase SAA’s fleet to 26 aircraft by the end of 2021 and re-hire 1,000 of the employees who had been let go.
Even before the current COVID-19 global pandemic devastated the airline industry, bloated South African Airways relied on the government’s cash injections to keep flying. This latest funding round will come through cuts in spending elsewhere in other public entities and conditional grants. This has angered many South African Parliament members who call for the airline to be shut down.
An anti-maladministration organization called The Organisation Undoing Tax Abuse (OUTA) urges South African citizens to boycott the airline after criticizing the finance ministry’s mid-term budget. OUTA calls SAA a “vanity project” that “robs the poor” and takes priority away from other institutions. The aviation website FlightGlobal quotes OUTA as saying:
“We are extremely concerned about the allocation…to implement what we believe is an unworkable business rescue plan at SAA,” says chief executive Wayne Duvenage. “We understand that debts need to be settled, but we cannot watch more precious tax revenue being wasted to revive a dying entity.”
COVID-19 has devasted air travel
Critics of the rescue plan believe that a relaunch of the airline in the current economic climate would only result in more losses causing the government to inject further funding. The International Air Transport Association (IATA) downgraded its forecast for African aviation earlier this month, three months after creditors voted to accept SAA’s rescue plan. IATA expects 2020 passenger levels for the continent to be down 70% compared to 2019 rather than the 55% it predicted in July. Now IATA says that it does not expect to see passenger numbers return to pre-COVID-19 levels until 2023.
The plug needs pulling on SAA
When will people see the writing on the wall? South African Airways has not made a profit for the past ten years. While cutting staff levels and returning planes to lessors is a good start, SAA is still left with old Airbus A340s that will all need to be replaced. One suggestion that keeps coming up is that the airline could be partnered with a Gulf carrier or perhaps even Ethiopian Airlines.
Doing this, SAA could concentrate on domestic and short-haul routes with passengers to Europe and the rest of the world connecting through Dubai, Abu Dhabi, Doha, or Addis Ababa. While this all sounds good on paper, now is the wrong time to inject more cash into SAA. They should pull the plug on the airline and open up the marketplace to private operators and let them take the risk of making a profit or not.
What do you think of this latest cash injection into SAA? Please tell us your thoughts in the comments.