Corporate SA loses faith in SAA
IMPACT: FLIGHT CENTRE STOPS MAKING BOOKINGS
Airline now looking over the edge of financial abyss, says professor.
Speculation that SAA is in danger of going under could become self-fulfilling. The national carrier has been given R57 billion in bailouts since 1994 and last made a profit in 2011. Its precarious finances took another hit last month when workers staged a strike that grounded a number of flights, and customers have cancelled bookings on others.
The extent of the carrier’s cash crisis was on stark display when it missed a deadline to publish its financial statements at the end of October, and delayed paying workers’ full salaries for November. While Public Enterprises Minister Pravin Gordhan has said he’s working on a plan to enable SAA to continue operating and become viable – further details will be released this week – Finance Minister Tito Mboweni has said it would be better if the airline was shut down.
‘Financial Abyss’
“SAA is now looking over the edge of a financial abyss,” said
Raymond Parsons, a professor at North West University’s Business School in Potchefstroom. “Its balance-sheet viability game is now very much in injury time. Tough strategic decisions need to be urgently implemented to put it on a sustainable footing and to regain the confidence of customers and other stakeholders.”
Companies are losing faith that the airline can or will be saved. On November 28, Sanlam’s Travel Insurance Consultants unit said it was to exclude SAA from its insolvency cover. That announcement and the government’s mixed messages about bailing out the airline again prompted Flight Centre Travel Group, one of SA’s biggest travel companies, to stop selling the state airline’s tickets.
“We have had to make an immediate move to mitigate the risk to ourselves and our clients,” said Andrew Stark, Flight Centre’s managing director for Middle East and Africa.
The biggest and most immediate impact of the loss of insurance cover and travel agency bookings will be on SAA’s domestic business-travel revenue, according to Joachim Vermooten, an independent airline economist.
The effect on its international business will take longer to determine, because the bulk of passengers on those flights are tourists, he said. Many of them book tickets well in advance, and it’s too early to say whether the airline can survive, Vermooten said.
SAA, which offers flights to more than 30 local and international destinations, began operating in 1934 when the government took over the assets and liabilities of Union Airways. The government sold a 20% stake in the carrier to Swissair in 1999 and bought the shares back in 2002 after the Swiss carrier went bankrupt. While the government has said it will consider selling an equity stake, no tangible progress has been evident. Parliament’s tourism committee called on President Cyril Ramaphosa to intervene and restore SAA to financial stability. But the government could struggle to come up with the money as its own finances are under pressure.
SAA spokesperson Tlali Tlali, Gordhan’s spokesperson Sam Mkokeli and Mboweni’s spokesperson Mashudu Masutha-Rammutle didn’t answer calls to their mobile phones seeking comment. – Bloomberg
We’ve had to move to mitigate the risk to ourselves and clients