South Africa’s Finance Minister Tito Mboweni has called for the country’s indebted flag-carrying airline to be disbanded. This follows years of political debate about the best course of action for the airline.
South African Airways (SAA) had posted losses of ZAR5.6 bn in 2014/15, ZAR1.4 bn in 2015/16, ZAR5.5 bn in 2016/17 and ZAR 5.7 bn in 2017/18, and is running at a loss in 2018/19. SAA has also needed ZAR30 bn ($2 bn) in government bailouts in the last five years.
The airline has been in decline under the chairpersonship of Dudu Myeni who was a personal friend of the former president Jacob Zuma. It has been claimed that corruption was rampant under her chairpersonship — a charge which both she and Zuma deny.
Finance Minister Mr Mboweni’s call to disband the airline stands in contrast to statements made by President Cyril Ramaphosa; the president has previously stated his intention to save SAA. Ramaphosa has expressed his support for a turnaround strategy which would see the state becoming liable for SAA’s ZAR21 bn ($1.5 bn) equities and debt refinancing. The government must also tolerate losses up to 2021, during which the company will seek to reduce staff numbers and terminate loss-making routes in an attempt to break-even.
In the long term, SAA hopes to be able to find a corporate partner willing to recapitalise the airline — a hope which Finance Minister Mboweni sees as unrealistic. At a meeting in New York, he said that “it is unlikely that [SAA will] find any private sector equity partner who will come join this asset.”
Relinquishment of state ownership in SAA is further supported by South Africa’s largest opposition party and many trade unions. It is also seen as an effective political move for the current administration in the upcoming federal election; the ruling African National Congress party needs to show its commitment to tackling rising unemployment instead of issuing significant state subsidies to an organisation operating on losses.
SAA is not the first African airline to encounter difficulty. Currently Nigeria is embarking on its third attempt to get a national carrier off the ground. Nigeria’s first attempt ended in failure 15 years ago, as did the government’s partnership with business magnate Richard Branson. Nigeria Air, due to launch in December 2018, will see the government hold only 5% of its stake. However, maintaining only a minority share in the company may be beneficial for the airline’s future prospects, as routes are more likely to be chosen based on their profit-making viability rather than their perceived developmental impact on the country’s economy.
Politics characterises the African aviation industry, as air travel is seen by many as a developmental tool. This is the reason for the Nigerian government’s keen interest to enter the market and for the South African government’s endeavor for years to keep its loss-making airline afloat.