BUSINESS MAVERICK
Cleared for takeoff? SAA plans to restart with R500m or less
When SAA resumes flights on 23 September, it won’t have the promised R3bn from a private sector consortium. The airline will rely on the R500m it received from the business rescue practitioners to fund its restart costs.
SAA will fund the resumption of its flight operations in a few weeks with a portion of the taxpayer-funded bailout that it received from the government during its long-running business rescue process.
The collapsed airline announced last week that it plans to restart flight operations on 23 September after emerging from a 15-month-long business rescue process in April, and nearly two years after its operations were grounded.
Questions have since emerged about how SAA will fund its restart without financial support from a private sector consortium, whose planned purchase of a 51% shareholding in the airline from the government is still pending.
The conclusion of the transaction will result in SAA receiving R3-billion over the next three years from the Takatso consortium, which includes Harith General Partners (a private equity firm) and Global Aviation (an aircraft leasing company). The R3-billion would help SAA restart its operations. But this funding won’t be available to SAA when it resumes flight operations in September because the transaction has not been concluded.
Restart costs
In response to written questions, SAA told Business Maverick that the business rescue practitioners had left working capital for the airline to restart its operations. In the business rescue process, SAA emerged with R500-million for its working capital requirements, which was part of a taxpayer-funded bailout to SAA.
The rescue practitioners requested and received R10.3-billion from the government to fund the implementation of the SAA business rescue plan and pay for the airline’s historical debt to commercial banks. But the cost of this process has so far increased to R16.4-billion, with the Department of Public Enterprises (DPE) requesting more money from the government for SAA to pay aircraft lessors, concurrent creditors, and for tickets bought by passengers which the airline still needs to honour.
The R500-million restart funding is less than the SAA rescue practitioners wanted for the airline. The approved SAA business rescue plan proposed that the airline’s restart costs would be about R2-billion, which would be immediately provided by the government and private sector investors after it emerged from business rescue.
SAA said the R500-million (probably much lower now as the airline incurs running expenses before it returns to the skies) will be sufficient for its restart — even without financial help from the Takatso consortium. “SAA is confident that the markets it has decided to enter into are lucrative and will sustain the airline until the private entity partner comes on board,” it said.
Chances of success
SAA will initially operate flights from Johannesburg to Cape Town, Accra, Kinshasa, Harare, Lusaka and Maputo. SAA said an “analysis of previous [customer] demand” and “current market conditions” had informed its initial flight route decision. For its restart, SAA will have eight aircraft and 307 permanent employees, which includes 88 pilots.
The airline will re-enter an aviation market that has fundamentally changed as the Covid-19 pandemic has reduced demand for air travel.
The restart has been questioned by an aviation analyst, who said SAA is using Airbus A320 aircraft models which “are still configured for a pre-Covid-19 market”. An SAA A320 aircraft has seating capacity of 24 in business class and 114 in economy class. SAA’s competitor FlySafair uses the Boeing 737-800, which only has up to 170 economy seats. The analyst said SAA will find it tough to compete.
“To have 24 business class seats on a domestic route in this tough economy will be a big ask. Airline costs have gone right out the window. To survive, SAA will have to go to the market with low airfares. It is the only way to fill an airplane.”
The Takatso consortium has not been involved in any plans to relaunch SAA — all of the decision-making was left to the airline’s five interim executives.
For now, the Takatso consortium said it is close to finalising its purchase of SAA, paving the way for R3-billion to be pumped into the airline. Gidon Novick, CEO of the Takatso consortium, said its due diligence process into the acquisition of a majority SAA shareholding is “substantially complete”.
“Takatso expects to soon move ahead with concluding a share purchase agreement for 51% of SAA with the DPE,” Novick previously told Business Maverick.
The transaction requires approval from the National Treasury and the finance minister under the Public Finance Management Act. DM/BM
There are plenty of rich politicians around to fill those business class seats..
As I recall, they all fly for free
I believe “free” to them. We as taxpayers pick up the tab.
Who…WHO…would fly an underfunded airline? Shades of Aeroflot… Nee dankie! Haikona…
Come 23rd September,I suspect there will be more journalists than genuine passengers.
There may of course be pre business rescue passengers looking to cash in their tickets whilst they can!