South African Airways has been in a terrible financial situation for a long time. While South Africa should be a big aviation market, the airline has an inefficient fleet and route network, has been losing money for nearly a decade, and there are many reports of corruption and mismanagement. In fact, the airline has gone through five CEO’s in the past 8 years. In other words, they are a hot mess.
Earlier this year, the airline received a huge cash boost of R5.5 billion (US ~$3.7 billion) from the government, adding to numerous bailouts over the past several years, but is nowhere near operating at a profit.
THE NEWEST STRATEGY
In June 2019, the airline announced they would be receiving two new A350-900 jets and, in an attempt to make their fleet more efficient, would be utilizing the pair to operate SAA’s ultra-long-haul routes between Johannesburg (JNB) and New York (JFK) despite being cash strapped.
However, SAA put the horse before the cart and found themselves at the center of a controversy regarding the training of their flight inspectors. Ouch!
THE NEWEST NEWEST STRATEGY
In the following weeks, SAA decided they were going to restructure and lay off about 1,000 employees, but then the employees went on strike so that plan backfired.
THE NEWEST NEWEST NEWEST STRATEGY
South African Airways’ Board of Directors has announced that the airline has adopted a resolution to place the company into “business rescue.”
WHAT DOES THAT EVEN MEAN?
SAA has hired an organization that will take control of the company. The goal is to create a better return for the company’s creditors and shareholders and maximize the odds of survival.
In other words, the investors have recognized that SAA is operating with older planes and no one is going to buy them. Thus, ANY OTHER OPTION of return is (probably) better than outright liquidation.
The announcement is vague but the airline has said that they plan to “operate a new provisional timetable, and will publish details shortly.”
Here is what we know…SAA will be receiving ~ $270 million (USD) but the government refuses to refer to it as a “bailout.”
The government is between a rock and a hard place. Do they continue to inject money into an airline that has an inefficient fleet and route network, and has been losing money for nearly a decade? Or do they let the airline go out of business?
Something to consider: Although the airline may not be profitable, it may still be a net-positive for South Africa (the country) in terms of the access it provides to the country, and the corresponding positive economic impact.
I trust it is difficult to run an airline but, as with any business, critical decisions have to be made.
What would you do if you were the government? Do you think this is “business as usual” and SAA will continue with the same actions that it has exhibited in the past?