During a time in which even once-healthy airlines around the world are fighting for survival, South Africa just injected a whole lot more cash into South African Airways. Is this simply doing the same thing over and over again while expecting a result, the definition of insanity? Or is it even worse considering the current perilous state of the airline industry in South Africa and around the world?
South African Airways Secures Bailout Even Though It is Not Operating
With COVID-19 still ravaging South Africa, air traffic is expected to remain depressed by at least 50% throughout 2021. But that hasn’t stopped South African Finance Minister Tito Mboweni from announcing another 10.5 billion rand (USD641 million) for South African Airways. The carrier remains grounded.
Although Mboweni has long resisted pouring more money into SAA, a company which has been unprofitable for over a decade, he announced the move on Wednesday. Public Enterprises Minister Pravin Gordhan, a longterm proponent of bailout, expressed optimism that South African Airways can be turned around.
This money is in addition to the 16.4 billion rand (USD1 billion) set aside in April to pay SAA’s debt and debt servicing. Why not bankruptcy? South Africa guaranteed the debt of SAA and cannot just write off its debt without larger economic ramifications.
South Africa sought private investment, but found none. Even Ethiopian Airlines, a Star Alliance partner who has eyed expansion in South Africa, declined to invest any money in SAA. It continues to eye an operational partnership, however, in rebuilding the airline.
Unsurprisingly, not everyone is happy about the news. In response to the new round of funding, the Organisation Undoing Tax Abuse (OUTA) has urged South Africans to boycott South African Airways. It calls the beleaguered airline a “vanity project” which “robs the poor” of vital resources, taking priority away from worthier institutions. OUTA CEO Wayne Duvenage noted:
“We’re extremely concerned about the allocation…to implement what we believe is an unworkable business rescue plan at SAA. We understand that debts need to be settled, but we cannot watch more precious tax revenue being wasted to revive a dying entity.”
Considering South African Airways no longer has a longhaul fleet or a large customer base, the move is curious…to put it charitably. Much of the funding will go to pay employee severance packages and issue customer refunds. There are no strings attached to the funding and no specific plan has been outlined for how SAA can return to growth.
South African Airways remains grounded. Its greater structural problems remain unresolved. Yet the latest bailout has no strings attached. That’s going to end well…
image: Aero Icarus / Flickr