Business Maverick

Business Maverick

South Africa Told to Look to Ethiopia to Rescue Its Airline

An Airbus A320-200 passenger jet, operated by South African Airlines, flies above a construction site during take-off from O.R. Tambo International Airport in Johannesburg.

South Africa should act to preserve its insolvent national airline and seek to partner the carrier with Ethiopian Airlines Group, according to a study commissioned for ruling-party lawmakers.

The assessment, obtained by Bloomberg, was prepared by African Aviation Services Ltd. and dated Oct. 4. It was presented to a group of African National Congress lawmakers on Monday, according to an ANC official who asked not to be identified because the information isn’t public.

South African Airways went into administration in December and now needs more than 10 billion rand ($603 million) to restart, according to a plan produced by the carrier’s business rescuers. The airline hasn’t made a profit since 2011 and has been surviving on government bailouts.

“There is inherent value in an existing airline which cannot be easily replicated in a new replacement carrier,” Nick Fadugba, the CEO of African Aviation and the author of the study, wrote in the document. “After a thorough analysis, our preferred strategic equity partner for SAA is Ethiopian Airlines.”

Strong Market

Ethiopian Airlines shares a similar “pan-African vision” to SAA and is Africa’s strongest carrier, Fadugba wrote.

Fadugba declined to comment when called by Bloomberg. Department of Public Enterprises spokesman Sam Mkokeli couldn’t immediately comment and ANC spokesman Pule Mabe didn’t answer his phone or respond to a text message seeking comment.

“South Africa has the strongest aviation market on the African continent,” Fadugba wrote, citing research that shows that five of the 10 most lucrative routes in Africa are in or from South Africa, three of the continent’s 10 busiest airports are in South Africa and six of the 10 busiest routes are in or from the country.

Ethiopian Airlines is willing to provide planes, pilots and maintenance services to SAA, but doesn’t want to assist with paying off its debts and meeting the costs of cutting its workforce, Tewolde GebreMariam, the airline’s chief executive officer, said in an interview last week.

Echoing GebreMariam’s comments, Fadugba wrote that the South African government should take over SAA’s debt and not encumber a new partner with them.

The airline is unlikely to succeed unless an investor is found, he said.

“Without a strategic partner, all ongoing restructuring efforts being made are akin to once again rearranging the deck chairs on the Titanic,” he said.

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