After a year, South African Airways takes off to the skies

South Africa's national carrier South African Airways (SAA) will stretch its wings today after a hiatus of over a year as it entered into the business rescue process that began on December 5, 2019.

The first flight took off today from Johannesburg to Cape Town.

SAA has got wings to fly once again because the government finally decided to give up its controlling stake by offloading 51 percent stake to Takatso Consortium which comprises Global Aviation and Harith General Partners.

Initially, SAA will not return to the international long-haul as the market conditions are not yet right. Even though SAA has two A340-600s (owned) and one A330-300 (leased), aircraft that are capable of serving intercontinental routes, the operating cost for the old fleet is so prohibitive that the airline has decided not to resume intercontinental flights for the moment. Simon Newton Smith, executive commercial, SAA said, “SAA's current fleet includes the A330-300 which has the capability and efficiency for some international service at the right time. However, the primary focus is for maximum operational flexibility within Africa. Future fleet for international service is yet to be decided and the timing of that decision will coincide with evidence of sustained recovery in international demand.”

As of now, the carrier will operate flights from Johannesburg to Cape Town, Accra, Kinshasa, Harare, Lusaka and Maputo. More destinations will be added to the route network as it ramps up operations in response to market conditions.

Meanwhile, the former head of SAA Cargo, Tleli Makhetha, who is currently practising as an independent consultant and business coach, stated, “It is true that it currently does not have the fleet for intercontinental operations. Coming out of the business rescue and Covid 19 lockdowns, it has a weak balance sheet that makes purchasing of aircraft almost impossible without a significant capital injection. It does not appear that the consortium has pockets that are deep enough to achieve this. Leasing is therefore the only viable option. It will, likely, be at very high rates, given the weak balance sheet and a rather tentative business model.”

Given SAA is relaunching during a global pandemic, the initial network decisions are data-led and focused on those markets offering ease of access, demonstrating passenger and cargo demand in enough volume to sustain profitable service.

Commenting on exploring the cargo opportunity, Smith added, “Cargo opportunity is an important factor in SAA's network decisions. Despite the challenges of the last two years, SAA Cargo has retained important relationships in the market and continued to operate using the networks of partner airlines.”

Meanwhile, Makhetha stated, “SAA's contribution to the cargo market overall depends on the strategic decisions that the airline takes as it relaunches the operations. The historical model consisted of flying and handling cargo. Each of these activities requires distinct capabilities and generates different revenue streams. Handling capabilities within South Africa, in my opinion, remain in place and should be considered for revival. Flying cargo is a challenge with the current pure narrow-body fleet and no freighters. This constrains the airline's historical ability to provide interconnectivity of cargo into the region. Contribution to the automotive market is going to be a challenge.”

SAA's contribution to the cargo market overall depends on the strategic decisions that the airline takes as it relaunches the operations
Tleli Makhetha, former head of SAA Cargo

In the first week of August, SAA was granted a renewed operating license by the South African Civil Aviation Authority. Even the airline welcomed two A320 aircraft that have been in storage and have accomplished 6-year maintenance 'C-Checks' in Abu Dhabi during its time in business rescue.

Sharing opinion on the Middle Eastern airlines dominating the African market, Smith explained, “Intra-Africa service remains the largest opportunity for African carriers. International airlines are very limited in the service it can provide between African cities and the opportunity for SAA and other African carriers is to grow intra-Africa frequencies and develop new markets and connect these to the networks of the international airlines serving major African cities. Few airlines can achieve this alone so expect the emergence of more cooperation amongst African airlines to deliver a more robust network within Africa and ensure the global relevance to African aviation.”

Along similar lines, Makhetha said, “SAA historically had a good working relationship with some of the Middle East airlines. There are market capabilities that SAA brought into the regional market that the Middle Eastern airlines could not match and for that reason, it remained extremely competitive. With constrained operations and no real cargo capacity, it will be difficult to remain competitive. It is also unclear what strategic contribution SAA brings to the table to force any of the Middle East airlines to enter into commercial cooperation agreements with SAA. These airlines currently have access to the Johannesburg automotive market in their own right and are competing fiercely with the Europeans.”

The privatisation of SAA is a matter that has been the subject of debate for a long time. The decision ultimately rests on the government of South Africa who is the sole shareholder of the airline. Up to now, they have been adamant that privatisation will not be considered as they regarded SAA as a strategic national asset. The government cited employment, trade and tourism as well as international connectivity in support of their view. Some opposition parties and some in the private sector argued that it is a vanity project that is draining the national fiscus, particularly because it has been incurring huge losses for several years. Without much warning, the government announced that a private consortium has been approved to purchase a controlling stake in SAA. Ultimately, deciding to privatise it.

Despite the challenges of the last two years, SAA Cargo has retained important relationships in the market and continued to operate using the networks of partner airlines
Simon Newton Smith, SAA

Makhetha further added, “However, I believe that SAA would have been better served by having a strategic equity partner to infuse financial and operational capabilities into the airline. This means access to international financing, aircraft acquisition and international know-how. The current consortium does not, as far as I am aware, have international participation or international aviation experience.”

“The strategy that is required ensures access to cheaper international finance as a starting point. The government is constrained in its ability to continue funding SAA and the airline now has to fend for itself financially. Secondly, access to modern, efficient and fit-for-purpose aircraft is imperative if the airline is to achieve operational efficiencies and deliver a superior customer experience. Finally, the airline must aspire for global significance either through a strategic equity partner or a very strongly knit alliance. A standalone regional operation is not sustainable.”

SAA's creditors accepted the rescue plan in July 2019 and the then finance minister Tito Mboweni allocated R10.5 billion - taken from various other budgets for implementing the plan. Towards the end of 2020, the department of public enterprises (DPE) provided R1.5 billion from which pay-outs are already being made to members of those unions who accepted the three-month back pay offer, as per News24.

The airline has last presented a financial statement for the year 2016-2017 and due to the fear of liquidation it has not released the results since then.

On March 26, 2020, acting CEO Zuks Ramasia of SAA, now the CEO of the Board of Airline Representatives of South Africa (BARSA), opted for early retirement from the carrier. Effective April 13, 2021, Thomas Kgokolo took charge as the new interim CEO of SAA. He becomes the fifth CEO of SAA in five years.

In a release dated September 22 on restarting the service, Kgokolo noted, “This week is a proud and significant one for SAA and its staff as well as all South African citizens. We restart this business with a new vision of pride in the brand and one that has been inculcated into every staff member. Our first order of business is to service our start-up routes efficiently and profitably and then look to expand the network and grow our fleet, all depending on demand and market conditions.”

The airline has seen at least nine chief executive officer changes in the past decade, hampering attempts at a turnaround, while responsibility for the carrier was passed from the DPE to the national treasury and back again.