Ethiopian Airlines is open to the idea of investing in South African Airways. In fact, it sees it as part of a broader strategy to save aviation in Africa.
Not only has South African Airways (SAA) not reported profit since 2011, it is not reporting anything this year…as it scrambles raise cash, it has delayed the expected release of its 2018-19 financials. Analysts fear even wider losses than expected. Could Ethiopian Airlines come to the rescue?
Tewolde Gebre Mariam, Ethiopian’s CEO, told Bloomberg:
We are interested in supporting South African Airways.
He later added that if the South African government authorized a sale of the state-owned airline, “We would consider” a stake in it.
A Chance To Save Aviation In Africa
With Gulf Carriers commanding increased market share, Tewolde sees part of his mission as saving African commercial aviation at large. Noting that African carriers collectively accounted for 60% of African market share two decades ago but now only account for 20%, Tewolde added:
It’s a continuous decline. If it is not addressed by African carriers — it may become zero. If that happens it means we are all wiped out.
I don’t quite follow the logic, though. Wouldn’t the elimination of South African Airways help solidify Ethiopian’s position as Africa’s #1 carrier?
Discussions have been ongoing since May, though stopped when former SAA CEO Vuyani Jarana resigned. South African Airways needs 2BN rand (about $132MN) to fund debt through March 2020.
If a bailout investment comes to fruition, I have a beautiful bridge in Brooklyn that I’d also invite Ethiopian to invest in c/o myself…
I say that jokingly, but quite seriously I don’t see how a cash infusion at South African Airways will lift the carrier toward a sustainable model of business. The debt service is staggering and will easily erode any increases in efficiency or modest fare increases. The government has backed SAA’s debt, so a simple bankruptcy won’t solve the problem. Indeed, there may be no solution at all for South African Airways.
image: South African Airways
A lot of ifs here, but if Ethiopian can buy SAA for cheap, and if the government is willing to eat the debt in order to offload SAA, and if Ethiopian isn’t stuck with costly legacy contracts and infrastructure, then this could be an enormous coup. Ethiopian would be well on the way to becoming the IAG of Africa. If they can get the concessions they want to do this, it would be an absolutely brilliant move.
A lot of IFs indeed. 😉
Years ago when Apple was in the verge of bankruptcy, Microsoft invest in them. Did Microsoft gain much profit from it? Nope. They sell it as soon as Apple can stand on its own 2 feet. Did they regret it? Nope. It served its purposes that time.
As crazy as it sounds, it did made much sense….
SAA’s problems are rooted in operational inefficiencies, feather bedding of staff and political cronyism in the executive/CEO suite. The company will never succeed until the political interference is removed and it is doubtful that is going to happen. If Ethiopian could get this guarantee of non-interference it could turn the company around (though the other stumbling block would be the unions and massive padding of the payroll). Clearly Ethiopian would like to adopted the European legacy model where several national branded carriers are operated distinctly but commonly owned (BA/IB, LH/OS/LX and KL/AF).
I would imagine investing is SAA is a bit like investing in Alitalia, you pour in the money to keep a state enterprise afloat. The SA government will attach so many strings to this that it’s doubtful if it would be a viable investment for anyone, let alone Ethiopian, Africa’s successful airline and IMO it shouldn’t saddle itself with a carcass.
If the SA government wants things to improve, why not deregulate the market and let Ethiopian in on it’s own terms with its own business model which is very successful.
The management of Ethiopian Airlines are smarter than what you all think, I have done business with the flight school few years ago. Ethiopian Airlines is not dumb enough to agree to buy a stake in SAA as is. The South African government and the labor union is going to experience swallowing a tough pill by undertaking Ethiopian’s offer. Otherwise there won’t be a national airline and thousands of job would be in jeopardy including the labor union itself! The Ethiopian CEO is exactly on point when he said a weak African airlines on the continent is bad news to Ethiopian Airlines. Ethiopian Airlines alone can not compete with the heavily subsidized Gulf airliners to protect the African market. Emirate and Turkish Airlines and others will fill the void if SAA goes under. Ask every local cab companies around the world what Uber done to them when it showed up in their space with unlimited amount of finance! Next is Kenyan Airways, and the beat goes on….kudos to Ethiopian Airlines CEO to consider saving SAA, hopefully managed by Ethiopian team and without the government interference. When likes of Alitalia, KLM and others are going under, Ethiopian’s revenue is up 30% just announced weeks ago! Don’t underestimate the king of African skies, Ethiopian Airlines.
SAA’s Mango subsidiary is profitable. Spinning that off and shutting down the rest is the only viable move here.