South African Airways Loses Government Support For Further Financial Backing – The End!?

It seems that after years and decades of loss incurring operations, South African Airways has finally hit a dead end as they were informed that no further financial support from the government would be poured in.

SAA has been through lots of trouble in the last year including strikes, bankruptcy protection and a severe cutback of routes in most recent time but now even the SA government gives up.

Even though the stars aren’t exactly shining bright for any airlines, South African has been a furnace for cash over decades and considering the state of the South African economy itself the government now has enough.

According to Bloomberg the relevant ministry has informed SAA that no further money would be forthcoming, turning off the faucet on the carrier once and for all.

South African Airways has been denied any further funding by its government owner as the national carrier looks for ways to recover from the coronavirus crisis and a local form of bankruptcy protection.

The airline’s administrators, who were put in charge in December, were told by the state to instead source cash from available resources, according to a letter they sent to affected parties and to Bloomberg News dated April 14.

“We are currently assessing the impact of this development on the business-rescue process and will communicate any decisions to be made,” they said in the letter.

South African Airways, which began operations in 1934, has racked up 26 billion rand ($1.4 billion) in losses over the last six years and has depended on a series of state bailouts to keep operating. The grounding of all of its passenger flights, aside from charters to repatriate stranded citizens, due to the coronavirus lockdown have further decimated its revenue stream.

Finance Minister Tito Mboweni has long advocated shutting off funding for the airline, and earlier Tuesday cited the carrier’s closure as a way to save funds as the country deals with the fallout of the coronavirus pandemic. …

“All options are now blocked to any form of real continuation of the airline,” said Peter Attard Montalto, head of capital markets research at Intellidex. “Basically the only option now is liquidation.” …

SAA’s external debt is guaranteed by the state in the event of the carrier’s collapse.

The airline is a rather typical case of a loss making flag carrier that only survives due to heavy subsidies of the government, shoveling more and more money into the operation no matter how high the losses. Similar cases are Malaysia Airlines and Thai Airways but those two countries are in a better (although still serious) financial position.

Conclusion

This time around we might just see the lights go out at SAA once and for all. Several long haul routes have already been suspended as John wrote about 2 months ago. The operations simply aren’t sustainable so the government will likely have to find a way to encourage a private enterprise to operate domestic and regional flights as economically suitable.

I suspect ComAir would be one solution but they don’t fly too many routes so there needs to be a more tight knit network. Additionally South Africa will likely need a cargo option. Should SAA fold which is very likely at this point the government will be on the hook to serve the current debt which is considerable but you really can’t feel sorry for them as they knew what they were getting themselves into and the banks made a state guarantee as a condition for any further loans.