South African Airways slashes network to try and survive

by Andreas Spaeth
72
February 08, 2020
South African Airways

South African Airways (SAA) has announced it will massively cut back its network from February 29 to give it a chance of survival.

It will maintain just five long-haul routes for the time being.

Among the cities it will still serve from Johannesburg is its only Australian destination, Perth, to cater to a large market of visiting friends and relatives and South African expatriates.

It will keep connecting Johannesburg to only two European destinations, London-Heathrow and Frankfurt, while the daily flight to Munich is discontinued.

South African Airways will also keep flying to New York-JFK and Washington DC via Accra but will axe both Asian routes, Guangzhou and Hong Kong, as well as its only South American destination, Sao Paulo.

Five African destinations will also be closed down along with almost the complete domestic South African network, except Johannesburg to Cape Town, although this milk run will see reduced frequencies.

GET fabulous aviation pictures, videos and the very latest news delivered directly to you. Sign up for our Newsletter here.

SAA plies the route of roughly two hours flight time up to 14 times a day, in addition to its low-cost subsidiary Mango, which flies up to eight times daily. All Mango flights will be unaffected by changes announced by the Business Rescue Practitioners for SAA.

These had been assigned in December as the carrier was placed into Business Rescue, a South African version, very roughly, of US bankruptcy protection procedure Chapter 11.

The independent practitioners, both of them with no previous airline experience, have pledged they will publish a Business Rescue Plan, a roadmap to restructuring the airline, by late February.

This will then be presented to creditors for approval.

“In line with SAA’s commitment to take urgent action to conserve cash, and create a viable platform for a successful future, key measures need to be implemented now”, they announced on Thursday.

Further actions in the forthcoming plan will include the “sale of selected assets” and job cuts.

“A reduction in the number of employees will, unfortunately, be necessary”, the practitioners pointed out.

Even if their proposed measures will be approved and implemented, it is far from certain that SAA will ultimately survive.

READ Global regulators appear to agree MAX fixes

South African Airways has been around for 86 years as one of the great traditional airline brands that used to be prestigious and lead the African airline industry for decades.

But the glory days are long gone. Due to decades of corruption, political interference and mismanagement by incompetent, often politically-appointed leaders, the formerly proud airline faces the abyss.

In a case resembling the never-ending saga of Alitalia, it is almost inconceivable why this happened and how the airline kept running continuously through funds as it endured many existential crises.

SAA carries a burden of almost $US6.7 billion ($A10 billion), an incomprehensible amount in the context of the permanently weak South African economy.

The value of its remaining assets is estimated to be worth less than a tenth of the amassed debt.

In recent years, the average annual losses have increased almost six-fold, from about $US67m ($A100m) a year to $US394m ($A590m).

The last decade has seen the South African state sink about $US2bn in the national carrier, which amassed losses of about $US1.8bn in the last 13 years. Just to keep the airline flying, and after much wrangling by the cash-strapped South African government, another almost $US267m was injected in early February.

After a crippling strike by flight attendants and ground staff in November, it looked like the airline would finally run out of funding and be liquidated by mid-January.

“Since the strike, we feel like flying Zombies, with the looming uncertainty,” an SAA pilot told  Airlineratings. Only in late January, the ruling ANC party declared they chose to keep SAA flying in a restructured form.

“They will never close down SAA, it’s simply a matter of pride for the ANC, otherwise their critics would be proven right that the party can’t lead a state-owned enterprise”, a Cape Town-based business owner pointed out.

The toll of these predicaments on airline operation is profound. Many flights have been almost empty and social media photos circulated of just 15 passengers in an economy class cabin of an A340-600 flying to London recently.

Load factors are said to be around 20 percent currently, according to South African media reports, as the uncertainty has led to travel insurers no longer covering the risk of worthless tickets should SAA be grounded.

At the same time, almost paradoxically, South African Airways currently woos long-haul passengers with the first new aircraft in decades. The carrier has received four brand new Airbus A350-900s, leased from Avolon.

Two of these were originally destined for Air Mauritius and not taken up, the other two saw very brief service with Hainan Airlines. After being deployed between Johannesburg and Cape Town initially to accumulate flight hours for crews, they now regularly serve the routes from Johannesburg to New York JFK and to Frankfurt.

Leasing a total of 37 aircraft, almost all their active fleet, inherits huge risk for SAA and the entire country’s finances. A little known fact is that all loans are underwritten by the South African government.

“If SAA is in default on one loan, this will cause a default in all the finance and leasing agreements”, South African aviation journalist Guy Leitch pointed out.

“There is a booby trap of a bomb embedded in aircraft leases.” According to figures Leitch published, “it is possible that SAA would be required to repay ZAR64bn (about $US4.2bn) in addition to the amounts due to banks in the event Business Rescue triggers cross-default clauses in aircraft leases.”

In any case, given recent history, it is more likely South African Airways will finds ways of survival in some miraculous way. See also Alitalia.