South African Airways just received its first Airbus A350…and another government bailout. But this one comes with a few more strings attached, at least potentially. Among them: explore selling off its SA Express subsidiary.
There was never much doubt that South African Airways (SAA) would receive another infusion from the government. After all, the government has guaranteed SAA’s debt and if it ever hopes to find a private equity partner, it must be seen as a reliable partner.
Speaking in rather sensationalist terms, Finance Minister Tito Mboweni expressed hope in finding an equity partner:
I am pleased to learn that there are conversations involving South African Airways and potential equity partners, which would liberate the fiscus from this SAA sword of Damocles.
Fiscus is a Latin term for moneybag and the sword of Damocles refers to imminent danger, first attributed to an ancient tale from Cicero. It’s actually a rather beautiful analogy.
But Mboweni also gave away the bag…so to speak.
SAA is unlikely to ever generate sufficient cash flow to sustain operations in its current configuration.
So let me get this straight. South Africa will pay 9.2 billion rand ($629 million) over the next three years to cover SAA’s debt, admits it unlikely solve the problem, but now wants to find an investor to pour in money so it does not have to?
Sounds like a playbook borrowed from Alitalia…
The Solution: Selling South African Express?
Mboweni may not be optimistic about SAA’s ability to rebound, but did offer a jaded warning couched in an intriguing suggestion:
Maybe the time has come for us to consider selling or closing down South African Express, which would be an interesting case study if in future you want to close something else.
We can all read between the lines…
Yet we have not seen a will to change or even a viable plan that may attract investors. This latest proposal is no different.
SA Express has a fleet 15 aircraft including:
- 6 – Bombardier CRJ-200
- 1 – Bombardier CRJ-100
- 8 – Bombardier Q400
All but four of the Q400s are grounded after the entire airline was grounded in 2018 due to “serious safety risks”. Thus, I don’t think selling SA Express is all that great of an idea.
Last time I wrote about South African Airways I said:
South African Airways may continue to be seen as a national resource whose value far outweighs its profit. Fine – that is hardly unique to South Africa. But lawmakers should recognize that SAA has been drowning for years and its debt represents a millstone that makes already-difficult growth virtually impossible.
That is only exacerbated by the idea that it must sell off revenue sources–likely at fire sale prices–in order to close its revenue gap (not that SA Express is worth much). There are only so many assets to sell. But if the past is any indication of the future, it seems unlikely South African Airways will actually have to institute any meaningful reforms.
SAA has lost 28 billion rand ($1.9 billion) over the last 13 years and is eight months late in submitting its 2018-19 earnings report.
Is there anything South African Airways can do to turn around?
image: South African Airways