Wow! South African Airways Receives Another Bailout (Again)

Yes, you read that correctly! I used “another” and “again” in the same sentence because that’s how many bailouts South African Airways has received.

BACKGROUND

South African Airways (SAA) has been in a terrible financial situation for nearly a decade. While South Africa should be a big aviation market, South African Airways has had an inefficient route network 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’re a hot mess.

In April 2020, the administrators at South African Airways (SAA) were told by the government not expect additional funding and to seek financial resources elsewhere.

South Africa’s Finance Minister Tito Mboweni had long advocated cutting the airline off financially, and cited the carrier’s closure as a way to save funds as the country dealt with the global pandemic.

In other words, reallocating the “bailout money” to sustain the country was far more important than saving the jobs of the employees at SAA.

THE BAILOUT(S)

Understandably, this message was frightening because the airline had received so many bailouts from the government in the past.

In fact, in early 2019, SAA received a huge cash boost of 5.5 billion rand (~$3.7 billion USD ) from the government, adding to numerous bailouts over the past several years.

But it appeared the airlines financial past was finally catching up with them as the South African government had, essentially, said it has bigger problems to deal with (i.e. COVID-19) when asked for another bailout from the airline.

THE NEW BAILOUT

Despite the entire airline being ground, the South African Finance Minister Tito Mboweni (yes, the same finance minster from above) announced an injection of another 10.5 billion rand (~$641 million USD) for South African Airways.

Additionally, South Africa’s Treasury officials said the decision to fund the business-rescue plan has “no attached conditions” and the cash will be used for worker-severance packages and ticket refunds as well as basic startup costs.

FINAL STAMP

South African Airways will receive an injection of another 10.5 billion rand (~$641 million USD) from the governement.

Let’s be clear, I don’t have any experience with airline operating costs, but here’s what I do know:

  • SAA has not turned a profit in 10+ years
  • SAA hasn’t flown one single flight since March (~8 months)
  • SAA is still grounded TODAY!
  • SAA has received numerous bailouts (too many to count and still hasn’t been able to turn it around)
  • South Africa is currently struggling to recover from the COVID-19 pandemic
  • Air traffic is expected to remain depressed by at least 50% through 2021
  • South African government will cuts funds from police, education, and health to fund SAA
  • “No strings attached” is often a recipe for disaster when the economy is doing well (let alone when it is on the brinks of recession)
  • SAA had a potential backer in Ethiopian Airlines Group. Ethiopian is Africa’s biggest carrier and has plans to expand and even they backed out
  • SAA’s structural problems remain unresolved
  • global airlines considered “financially healthy” are now fighting for survival 

…so SAA continuing to do the same thing (read bailouts), stripping money from healthcare and education, without “any conditions attached” and expecting a different outcome is the quintessential definition of insanity.

Meanwhile, both Delta and United are moving in.

What do you make of this situation?

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