South African Airways is facing collapse and liquidation as it desperately tries to raise capital to pay staff salaries and other operational expenses.
Blaming the recent strike for its “sudden deterioration” in cashflow, South Africa’s flag carrier now faces a daunting task: raise two billion rand ($135MN) over the the next few days or shut down.
The only way SAA even has a chance of receiving that is if the government agrees to back its loan. That’s problematic for the new government, which is trying to scale back its role as propping up inefficient state industries. The government is already on the hook for R9.2bn ($624MN) to creditors on behalf of SAA and increasingly views SAA as a skeptical investment.
Furthermore, the country has bigger issues on its hands. Eskom, the state power monopoly which supplies almost all power to South Africa, faces a $30bn debt. That company, inefficient as it is, is viewed as indispensable.
Liquidation would not only spell the end of South African Airways, but also accelerate the government debt service. But the recent union victory using crippling strikes to secure raises may have been the final nail on the coffin.
Martin Kingston, a member of SAA’s board, told the Financial Times:
SAA competes in a cut-throat industry with razor-thin margins. There are 50 airlines serving South Africa.
That’s from a board member! If the board has given up already…
Watch this space closely over the next 72 hours. If South African Airways does not secure funding, it will shut down by next week. All eyes are on the South African government now: will it guarantee another loan, even knowing that it will dig itself deeper?