South African Airways will receive a bailout even though all parties deny it is a bailout. But what does this mean for the airline and its customers?
I sort of asked this question already in a post last week, but as more news has emerged about SAA’s rescue plan, I want to revisit the question.
South African Airways Enters “Business Rescue”
It was always clear to me that the government would not allow South African Airways to fail. The carrier has not been profitable since 2011 and over the last eight years has survived only by securing one bailout after another.
But with losses mounting, SAA will be assigned an independent specialist, also known as a practitioner to turn things around. His name is Les Matuson and he will “critically review the cost structure of the airline” and attempt to make meaningful changes without the influence of the government or board of directors.
Minister of Public Enterprises Pravin Gordhan said:
“Business Rescue is a well-defined process that will allow SAA to continue operating in an orderly and safe manner and to keep planes and passengers flying under the direction of a business rescue practitioner.”
To aid in that effort, South African Airways will receive a $272 million infusion, half from the government, half from private investors (with a government guarantee).
It is clear that South African Airways will groan on. That said, a number of questions come to my mind:
- Will Matuson withstand airline or government influence?
- Won’t the $272 million bailout be quickly eaten up by costs that have built up over the last few weeks?
- What can Matuson expect to accomplish without huge concessions from labor and job cuts?
- Can South African survive if pilots and flight attendants rebel?
- What will the focus be? Will SAA scale back to be a more regional airline or continue its unprofitable longhaul prestige routes.
Business rescue is a serious and rarely-invoked process in South Africa. Theoretically, it could turn things around. But without scrupulous discipline and painful cuts, South African Airways will only kick the can down the road until the next bailout or liquidation crisis.
> Read More: South African Airways Survives…But Now What?