A smaller South African Airways to fly again after $2.3bn Govt bailout

The South African government ditches plans for a new national flag-carrier in favour of extending SAA another lifeline.

By Bloomberg News , July 15 2020
A smaller South African Airways to fly again after $2.3bn Govt bailout

South African Airways creditors and unions overnight approved a rescue plan that includes at least 26.7 billion rand (A$2.3 billion) in state funding and thousands of job losses.

Voters representing about 86% of those eligible supported the package, first proposed by administrators for the bankrupt carrier a month ago. The motion overcame the 75% threshold after most labor groups agreed to sweetened severance packages last week, clearing the way for the workforce to be cut by almost 80% to 1,000 people.

All eyes now turn to the National Treasury, which will need to find about 10 billion rand more than previously allocated for SAA at a time when state finances are severely stretched by the coronavirus pandemic.

Finance Minister Tito Mboweni has repeatedly voiced his reluctance to provide further bailouts to a carrier that hasn’t made a profit in almost a decade, putting him at odds with Public Enterprises Minister Pravin Gordhan.

According to SAA’s business-rescue plan published June 16, the Treasury needs to provide a written commitment to provide the funding by Wednesday or the proposals will be deemed unimplementable. The administrators expect to receive a confirmatory letter, Siviwe Dongwana, one of the lead architects of the recovery plan, said at the creditors’ meeting on Tuesday.

“By giving the government the green light to massage its political ego through this multi-billion dollar nightmare, the creditors have spirited away finds that are desperately needed to cope with the coronavirus as well to stimulate the economy,” Alf Lees, a lawmaker for the opposition Democratic Alliance, said in a statement.

Gordhan’s department has said private investors and potential airline partners have expressed interest in taking part in the restructuring of the national carrier, which may help relieve the burden on the state.

Speaking at the meeting, Kgathatso Tlhakudi, acting director-general of the department of public enterprises, said the government is looking for an adviser to work on a sales process.

SAA was placed in administration in December after surviving on bailouts and government debt guarantees for several years. Initial work on a recovery plan was torpedoed by the Covid-19 pandemic, which grounded all the carrier’s commercial passenger planes from late March.

The government said earlier Tuesday Philip Saunders has been appointed acting chief executive officer, a promotion from chief commercial officer.

PREVIOUS [ June 2, 2020] | South Africa’s government has provisionally agreed to allocate at least 21 billion rand ($1.8 billion) to the country’s embattled national airline to help repay debt and resume operations after the lifting of Covid-19 travel bans.

The proposed package includes about 17 billion rand that will go toward repaying South African Airways creditors, according to a draft copy of a rescue plan prepared by administrators and seen by Bloomberg. A further 4 billion rand will go toward retrenchments and working capital.

The draft plan “is for discussion purposes only and we await comment from the affected persons,” a spokeswoman for the administrators said, adding that the team has until June 8 to finalize a rescue proposal. South Africa’s Public Enterprises Ministry, which is responsible for SAA, said it hasn’t yet discussed the plan and no decisions have been taken.

While the funding agreement has yet to be finalized, a deal of this nature would represent a truce between the government and SAA’s business-rescue team over the airline’s future.

The administrators, appointed in December, had an earlier request for state funding rejected in April, and subsequently proposed firing the entire workforce to stave off liquidation.

Plans for new airline abandoned?

Public Enterprises Minister Pravin Gordhan strongly objected to that plan and instead announced his ambitions for the creation of a new "financially viable and competitive" airline, potentially with both public and private owners.

"It will not be the old SAA but the beginning of a new journey to a new restructured airline which will be a proud flagship for South Africa," the country's Department of Public Enterprises said in a statement at the time.

"The old SAA is dead, there is no doubt about that," Gordhan told Bloomberg. "But what will take its place may be some or all of the old SAA and maybe some other airlines too."

However, the proposal appears to have kicked off a fresh round of talks which has resulted in another bailout for South African Airways, which is technically insolvent and was on the brink of being placed in liquidation by administrators.

The coronavirus looked to be the final nail in the coffin for SAA, which last made a profit in 2011 and has since racked up $2 billion in losses over the last six years and has relied on bailouts and state-guaranteed debt agreements to keep flying.

SAA’s commercial passenger planes have been grounded since late March, when the government closed borders for non-urgent travel to contain the coronavirus. Some domestic flights are being allowed to operate as of Monday for business purposes, though SAA had previously reduced its local services to a single Johannesburg-Cape Town route.

Additional reporting by David Flynn

30 Oct 2014

Total posts 12

The article fails to mention that the main reason for the current predicament of the airline is the years of-mis management and interference by the ANC government. The same situation is unfortunately common amongst all the state owned enterprises in South Africa, such as Eskom the electricity utility which is the subject of ongoing corruption investigations and is struggling to keep the lights on. Perhaps an independently owned airline could take its place although unlikely for some time in the current environment.

04 Dec 2017

Total posts 55

Exactly what happened at Gulf Air. Too many government fingers in the pie siphoning the profits. Coupled with James Hogan at the top they stood no chance. A tiny remnant of themself now but at least still flying.

05 Oct 2017

Total posts 143

I still remember the days they used to fly to Sydney; I think via Bangkok (not non-stop in those days). Those days have long passed, but with the arrival of Emirates, Qatar and Etihad on Aussie shores over the past few years, offering significant flight frequencies I might add, it would have stood to reason that Gulf Air would also get their piece of the pie. Unfortunately, this never happened and now I understand why. They are far too small an airline to contemplate a return to Australian skies, instead focusing on a few key Asian cities like Bangkok, Singapore and key European destinations.

Singapore Airlines - KrisFlyer

07 Mar 2018

Total posts 14

SAA used to fly to Sydney via Perth along with Qantas on same route before they Pulled the plug on Sydney and terminated in Perth. The Perth route was one of its most profitable routes up until recently. Basically Qantas held the Sydney to Jo'burg Direct service and SAA held the Perth service.

02 Nov 2017

Total posts 4

Not sure what it's domestic route is like but Sth African government should break up the airline, sell the assets and tender the rights to fly internal routes. Much like Qantas when it was sold off by the Australian government. At least that way the Sth African people have a more efficient independent airline and a revue stream

Singapore Airlines - KrisFlyer

28 Jun 2019

Total posts 37

Unfortunately, "breaking up" companies in South Africa has become synonymous with even more pies for greedy fingers with less visibility into who's doing what where. The word "tender" is basically a trigger for goosebumps for most South Africans after the 10 years of corruption and state capture. There have been hopeful signs the last two years, but it's likely too little too late, especially given the strength and position the unions (understandable as that's their role, but ultimately, unlikely to have ever been sustainable).

Singapore Airlines - KrisFlyer

28 Jun 2019

Total posts 37

Certainly sad, and sadly certainly not surprising. The writing has appeared on the wall for some time, but when Covid-19 hit, it seemed clear it would either strike the decisive blow to SAA or else ironically motivate the government to bail out yet again "given the circumstances" and things would sputter on, at least for a while.

Looking ahead:

SAA's long-haul international network has shrunk so much the last few years that realistically, those routes can and will be picked up by foreign carriers rather easily. Domestically, several other carriers like Comair (British Airways branding), Kulula, and Safair exist and could likely pick up some of the key trunk routes. [Mango has done well but is a wholly-owned subsidiary of SAA and I can't imagine SAA's creditors letting them get away with not dismantling Mango to help pay at least some of the group's outstanding debts.]

Importantly, Airlink, which in practice operates as SAA's regional arm, is and remains a separate, private company. There may be real potential for them to step up and grow now, especially on some of the short to mid-haul international routes if they pick up a few larger aircraft. Their continued domestic service to smaller cities in South Africa is also important as they're the only operator in many of those cities and realistically can continue doing so independently. In time, I could realistically see them becoming a "new" iteration of SAA, right down to the symmetry of their current branding and product offering with SAA (which admittedly may be a positive or negative in South Africa depending on who you ask).

10 Apr 2016

Total posts 44

Opportunity for Qantas. They should announce that they will do daily flights from Perth to both JB and Cape Town starting September. Cancel the Sydney direct flight. Reposition and repaint the Jetstar fleet of 787-8,s. Also add Mumbai and Delhi daily flights. Swap the Singapore 737 with a 787. Use one of the 787-8's to do a daily Adelaide to Singapore and in its spare time can bring connecting passengers to Perth for the London, South African and Indian flights. Grab some money from the Perth Government for creating a 787 base in Perth. Grab some money from Tourism Australia for opening up the massive Indian market to tourism. Finally kiss and make up with Perth Airport and have one terminal for all their flights. Perth Airport should be smart and take up the offer at a discount given they stand to gain from increasing retail rents and possible parking charges. Jetstar will not need to planes given travel to places like Bali will take longer to resume and they can use the A321'a as they hit Australia. AJ said it was survival of the fittest but it is in times like this when the fittest are really able to go to the next level. Virgin will remain and be even more competitive in the domestic market with a new shareholding base.

10 Apr 2016

Total posts 44

Oh and Qantas should take a stake in Comair which is a great South African airline. Codeshare flights to other parts of Africa from JB. As part of the equity stake they can transfer some of their metal to expand the Comair network which had a delay in receiving extra aircraft from the 737 Max debacle. This would be much better than codeshare flights via Dubai with Emirates. Comair would be interested given South African falling over and it let's them use additional metal that Qantas would otherwise have sitting on the ground in the extended ramp up that will take over 12 months (some 737's and ATR's).

05 Oct 2017

Total posts 143

Why would travel to Bali take longer to resume than India? I think you're being a bit pessimistic here based on a few assumptions. Bali's travel demand will rebound almost as soon as Aussies have saved enough money (which is not easy to do under the current circumstances and once there, it's more expensive than usual since the AUD is very weak ATM) and borders re-open.

I don't see another direct link to India getting underway anytime soon, especially since Air India already offers a Sydney/Melbourne to Delhi service.

I rather think the previous under-capacity to Bangkok should be ramped up - bring back MEL-BKK on Qantas metal, with an eventual daily service, and perhaps a MEL-HKT flight on Jetstar, in addition to the 3 times weekly MEL-BKK and SYD-HKT flights normally scheduled on Jetstar metal. SYD-SGN on Jetstar (which was previously offered) may be another option, but possibly too much capacity given the existing Vietnam Airlines services. Would SYD-Phnom Penh or Siem Reap perhaps be an option (Jetstar)? I think it could potentially work. Plenty of Aussies wanting to travel to Cambodia, why not offer a direct service for the first time?

South Africa. I see Qantas as operating both SYD-Joburg and PER-Joburg flights if SAA folds. A continuation to Cape Town may be a possibility, but a stand-alone Cape Town service in addition to Joburg is highly unlikely. Qantas can't even offer more than 1 destination in mainland China, which is a much more lucrative market, so I can't see how they would possibly operate a flight to a second South African gateway.

Singapore Airlines - KrisFlyer

28 Jun 2019

Total posts 37

(Agree on Bali. Tough times or not, people need something to look forward to and if they have any means, they will stretch and scrimp to get to a favourite holiday spot.)

Back on topic: Qantas has already said publicly that they want to add Cape Town to their network in addition to Joburg. Remember these will ultimately be on 789s, so capacity to Joburg will decrease, but as many pax (myself often included) on that flight were continuing to Cape Town anyone, it doesn't seem farfetched. Nor is it a given flights would operate daily. 7x weekly to Joburg and 3x weekly to Cape Town seems very reasonable.

So does adding Perth - Joburg if SAA falls off the route. There is a huge Saffa immigrant community in Perth and there is no competition on the route, which is the obvious difference between it and the analogy with China, where demand may be high with lucrative potential, but competition is intensely fierce.

In general, fares to South Africa from Australia are exceptionally high without a solid seat sale, whereas flights to China are almost consistently a bargain.

05 Oct 2017

Total posts 143

Flying Kangaroo, as I said, I think that Cape Town might be offered, perhaps 3 times weekly, as a continuation of a Joburg flight, but not as a stand-alone sector. We'll just have to wait and see, but I don't see the latter happening. Even Singapore Airlines only ever offered it as a continuation of their service to Joburg and this is SIA, an airline that flies to destinations few other airlines would even consider touching (like Canberra, and for a little while, Wellington).

10 Apr 2016

Total posts 44

I have lived in Indonesia before and know how the Government operates. They will not control Covid and therefore Australia should not allow flights in or out of Indonesia unless we want to start this whole process again in Australia. So realistically I would be looking at 2021 at the earliest and only once there is a vaccination or we can be sure they have controlled it.

Problem with China is you can't compete with the cheap labour. South Africa is different and if they can use this to connect to the rest of Africa then it makes a lot of sense. I am sure Business Class would be full with all the Australian miners having interests across Africa.

05 Oct 2017

Total posts 143

Karl, I don't see that happening. You're again getting into the whole mandatory vaccine argument, which is totally unethical. It will also, if it happens (though I doubt it) stop many travelers from going there. If a vaccine requirement were introduced, it wouldn't stop at covid19. You can be sure they would add MMR, the flu shot and a whole list of others. In fact, the Pacific island nations of Vanuatu, the Marshall Islands and a couple of others have made proof of MMR vaccination a requirement to enter their countries/territories since late December.

Back on topic though - Indonesia isn't any different from Thailand, Malaysia or Vietnam. They're all developing Asian countries with a large tourism sector. All of them, and many others, will be keen on getting back to business ASAP. No matter what your personal views are, tourists will be allowed back within weeks, just as soon as travel restrictions are rescinded. The lives of millions of locals are at stake here - without the income that tourists bring, they may not find any alternative sources of employment and few are eligible for government support. Even those that do offer support, offer a very paltry one, like Thailand's 5000 Baht monthly stipend, which represents about 50% of the minimum wage, too low to support a family.

08 Feb 2018

Total posts 90

I'm sure Karl is allowed to express an opinion based on his personal experiences without being called unethical. All he's saying is he thinks Indonesia will take a while to recover.

08 Feb 2018

Total posts 90

Also it's not unethical, it's common sense to be vaccinated

Qantas - Qantas Frequent Flyer

11 Dec 2017

Total posts 50

Qantas have a major JV partner in the Chinese market. In South Africa all they have is Comair codeshares. Flying to China Eastern's hub in PVG makes sense, as the other Chinese carriers will dominate QF from every other major city.

South Africans will lose many of their long haul services by the end of this, there will be major opportunities for QF into the market (and beyond).

08 Aug 2017

Total posts 44

Regardless of codeshares, of late (up until March 2020 obviously) Qantas haven't even ticketed connecting passengers between CPT and JNB on QF 63/64 on ComAir/BA but on SAA (and the lack of lounge access that entails for OW flyers). Go figure. But as @Karl observes there is an opportunity there with ComAir.

 

I think the real challenge will be that the SA government's hamfisted response to corona has even more resoundingly tested the South African economy than the years of state capture already had. The reality is that it is likely to be YEARS before International travel with SA reaches what it was until recently.

Qantas - Qantas Frequent Flyer

27 Nov 2017

Total posts 22

Just remember that Qantas has already tried to launch flights Perth to Jo'burg but Perth Airport blocked them from running them out of T3, insisting they instead use T1 (which stated would be uneconomical and therefore didn't launch).

Qantas - Qantas Frequent Flyer

16 Nov 2017

Total posts 5

Karl, the JQ 787's are limited in their use... They were ordered without crew rest, so the 10/11 hours from PER-JHB would probably be pushing the legal agreements in play. Maybe using them as Mel/Syd to perth and free up a330? I am looking forward to seeing how all this pans out!

Qantas - Qantas Frequent Flyer

05 Oct 2016

Total posts 61

The JQ 787s were used Mel to HNL, 11:30hrs? Why not per/jnb

24 Aug 2011

Total posts 712

It will only work if the government is truly committed to a corruption-free environment which means no ex-politicians, party apparatchiks, trade union leaders etc are involved in the business' management or on its board. Without that, it will just be more of the same.

06 Feb 2014

Total posts 12

Spot on reeves - and we all know that appears very unlikely at least in the shorter term. They need a genuine reformer from the top committed to stomping out corruption.

Lufthansa - Miles & More

23 Apr 2020

Total posts 2

Exactly, but that never going to happen with this government.

United Airlines - Mileage Plus

13 Mar 2015

Total posts 79

Sad to hear the news about SAA and a long history in that country... Corruption happens everywhere in some places more than others, but do not forget that even the Aircraft Manufacturers are the first on that line...mainly for Airbus where corruption cases has been confirmed at many levels. SAA had a decent product in economy and business, but it was at a lower level than competitors such as BA, AF, LH, KL, LX, AZ on non-stop flights to Europe... I will compare their level to the long-haul service from IB and SK level that is not so great or special. Also they didn't offer a great customer service on the phone, nor on ground and not so great on-board. However, they offered a decent product overall but they were "bleeding" internally to death. I hope the new airline will raise with much "fresh" image, keeping the identity of South Africa... in the meantime BA and LH have a great alternative to Europe because they fly my favorite aircraft on those routes: 747. BA fly the Queen to JNB and CPT, but LH only to JNB. nothing like flying the Queen of the skies. AF, KL use 777's, but LX outdated 340's and sometimes their A330's to JNB and LH to CPT.

08 Aug 2017

Total posts 44

“decent product in economy and business“

Well, ... an incredibly variable product. The A330 with the lie flat direct aisle access business class (often on SA61 JNB LOS) was a terrific hard product and occasionally combined with very acceptable soft product too. But some of those other aircraft (those old A340s!) and service and food etc could be pretty dastardly. An utterly unpredictable experience.

But right on wrt the 747s. The LH 747-8 was daily into JNB and I've not ever flown on the -8. It's a beautiful looker. And there's not many passenger variants in service. Would have been fun....

Qantas - Qantas Frequent Flyer

10 Jul 2016

Total posts 7

As an Aussie, I'm really sad to hear of the demise of SAA . :(

27 Apr 2020

Total posts 1

How many State owned airlines can South Africa Support..In addition to SAA they own SA Express and Mango. Wouldn't their resources be much better spent building up internal flights with in Southern and East Africa. They are way to late to the party to compete with European and Middle Eastern Carriers. Now that US carriers are offering non stop flights to Joburg it seems that my original statement holds true. In the US we have Amtrak Rail service which is draining billions and always will. Stop the cycle of waste and let capitalism and competition do it's thing.

Singapore Airlines - KrisFlyer

14 Jan 2014

Total posts 314

SAA is one of the oldest airlines flying. They were NOT “late to the game”!! They were the victims of a corrupt ANC government which has run a once proud, profitable and EXCELLENT airline into the ground!!

I hate to say this, however when apartheid (a disgusting system if ever there was one) was coming to an end. Racists said the ANC couldn't be trusted to run the country and that South Africa would go the way of Zimbabwe eventually with a complete mismanagement of infrastructure due to corruption!!

The ANC has proved the racists right!! (And it kills me to admit that)

Lufthansa - Miles & More

23 Apr 2020

Total posts 2

You said it as it is, and the next one to go will be Eskom.

08 Aug 2017

Total posts 44

Corona has been a blessing for Eskom. Lowest levels of load-shedding for months!!

29 Jan 2020

Total posts 16

If SAA no longer operate from Perth, it would be good if Perth Airport and Qantas can bury the hatchet, reduce Sydney to Johannesburg to 3weekly,and run daily 787 Perth Johannesburg, and 3 weekly Perth Cape Town.

Currently the only people who enjoy the non stop service are from Sydney, all other connecting cities requires a connecting flight, and in the case of Adelaide and Melbourne they have to back track to Sydney!

With the majority of SA capacity from Perth, passengers from Melbourne, Adelaide even Canberra could utilise domestic capacity to fly their first sector, and connect in Perth.

30 Oct 2014

Total posts 12

It may seem from a linear map that Perth is "on the way" to South Africa but this is not the case as the QF SYD to JNB direct flight heads due south after leaving SYD heading either via Tasmania or Victoria. As such connecting via Perth to South Africa via the East Coast (which was the previous SYD-PER-JNB routing of QF63) is not any quicker for passengers from MEL, BNE or CBR (and especially NZ transit passengers), with only ADL to JNB via SYD less efficient. I am concerned that with a monopoly re-established Qantas may force all East Coast passengers to connect with a PER 787 service, although it would make more sense to establish MEL as the most Southerly gateway port given its location "on the way" to South Africa for East Coast/NZ passengers.

Qantas - Qantas Frequent Flyer

27 Nov 2017

Total posts 22

Not quite. MEL-PER-JNB is 750km shorter than MEL-SYD-JNB due to back tracking. Brisbane and Canberra are shorter through Sydney, but Melbourne and Adelaide are not. Plus there's the Sydney T1 to T3 inconvenience......Perth is far simpler assuming the flight was out of T3.

Qantas - Qantas Frequent Flyer

25 Sep 2013

Total posts 1221

Is anyone surprised at this outcome?


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