After years in the doldrums, South African Airways is on the brink of collapse. Following a destructive week-long strike earlier this month which paralysed its fleet, the state-owned carrier has failed to pay thousands of staff in full and insists that it has almost no funds left.
International travel agency Flight Centre has stopped selling tickets for the airline after an insurer refused to provide insolvency coverage.
It is estimated that the airline needs around $135m from the government to fund working capital – a drop in the ocean compared to future needs. Board members may have to file for liquidation if rescue funds are not forthcoming.
Yet this time, government is playing hardball. After years of ANC interference and indulgence of the airline, which has not made a profit since 2011, the administration of President Cyril Ramaphosa is taking a different tack. Finance minister Tito Mboweni is refusing to repeatedly bail out a company which has become a black hole for billions of dollars of government funds as he seeks to make state companies stand on their own two feet. In negotiations over the strike, the government showed a rare inflexibility with unions, who walked away with a 5.9% pay rise rather than the 8% they were seeking.
Of course, the government does not want to see the airline fail. SAA remains embedded in South Africa’s aviation industry, and a bellwether of the country’s success. The government says it is urgently working to support the airline and has already agreed to repay R9.2bn in debts that will come due for the airline in the next three years.
Yet an immediate solution grounded in long-term realities is essential if the airline is to survive into the new year. Short-term funds should only be handed over if the government and unions can agree on a realistic plan to turn around SAA, which could involve tough choices such as retrenchments and full or partial privatisation.
While union support for pay increases is understandable, further strikes risk destroying any remaining credibility the airline has in the international aviation market, driving away ticket retailers and customers. After years of dither and delay, the government’s hard line is precipitating a necessary crisis at SAA. It should not be allowed to go to waste.
Like many airlines in the region, South African Airways faces a host of challenges stemming from high operating costs and taxes in the air and on the ground. Total ticket taxes on African flights currently tally up to more than $100, while in many parts of the world a 1.5hr flight costs the same amount.
Africa’s aviation industry also struggles with inadequate infrastructure, high fuel prices compared to the rest of the world, and restrictions on traffic rights and passenger visas. Despite the continent being home to 17% of the global population, its air traffic accounts for less than 3% of global traffic.
African airlines lose an average of $1.54 per passenger carried while globally airlines earn $6.12 per passenger carried, according to the African Airlines Association (AFRAA).