SAA heading for crash unless equity partner comes on board

South African Airways (SAA) might be heading for turbulence again – three years after exiting business rescue and a failed Takatso transaction.

This is according to the airline’s chief commercial officer, Tebogo Tsimane, who said the airline needs an equity partner to save it.

Tsimane made these remarks at an AviaDev aviation seminar recently Earlier this year, National Treasury reported a SAA loss of R771 million in the airline business and R51 million in the red at SAA Technical.

Tsimane made it clear that SAA needed an investor quickly or it would face financial difficulty. He said that for SAA to succeed, it needed a private owner with a controlling stake in the airline.

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Tsimane said that the airline has been taking its business plan to possible financiers. “We have just come out of business rescue. We have been told by our shareholder that we will no longer get a cent.

“So, what are we doing? We are taking the business plan to the financiers and we believe that we have a case and that the financiers, some of them, not all of them, some of them will actually come to the party and say, yes, we agree with what you are doing,” he said.

Qatar not on board

Previously, SAA would not comment about rumoured overtures to Middle Eastern airlines, but reliable sources indicated that while Qatar Airways has indicated possible investment into an African airline, it was not SAA.

Wayne Duvenage of Organisation Undoing Tax Abuse (Outa) agreed with Tsimane that the airline urgently needs capital.

“Without an equity partner that has a controlling interest, SAA will not be profitable and will have to rely on future bailouts or face closure,” said Duvenage.

“As a fully fledged state-owned company, there are too many factors against it to succeed in a highly complex, competitive and fast-moving industry that requires expertise and agility.”

Tsimane lamented the fact that SAA had to jump through more hoops than other airlines. “Unlike private companies, we have to jump far more hoops in terms of governance,” said Tsimane.

“We are not policymakers. When it comes to SAA, the number of things that I am supposed to comply with to get going are far more restrictive than what a private airline has.”

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SAA, like other state-owned companies, must comply with all aviation regulations and laws as well as the Public Finance Management Act, intended to govern the use of public funds.

“I’m still expected to compete in the marketplace like they are competing with me. “So at times both my hands are tied behind my back and I’m still expected to run faster than my competitors.”

Duvenage said that government procurement processes and political interference will always hinder SAA’s ability to succeed in the medium term.

“Airlines must compete on price and service, plus ensure agile pricing systems and operational expertise if they are to survive. SAA is lacking in most of these departments,” he said.

But SAA is not spoilt for choice when it comes to finding an equity partner. The airline must adhere to the same stringent regulations as budget airline FlySafair, which had to prove its compliance with the 25% foreign ownership limit before the licensing council recently. Presently, investors must be local by a large margin.

Duvenage said that with these restrictive laws, SAA needs to get serious about finding a local partner and developing an all-encompassing strategy to cater to various markets.

‘SAA won’t ask govt’

Aviation analyst Guy Leitch, also editor of SA Flyer magazine, said he doubted whether SAA would go to the government cap in hand.

“I don’t expect them to go back for funding. And that is why this issue of having a strategic equity partner to recapitalise the airline is so important,” he said.

Leitch also said that SAA managed to claw back revenues previously blocked by some markets from being routed back to South Africa. He did not expect the airline to “hit the wall” soon.

In SAA’s business plan to woo potential investors, Tsimane said that there must be enough meat on the bone. He said that in the business plan, they need to clarify what is meant by viability and other factors like demand side considerations.

“You must show the financiers that you have a plan that will eventually produce the profits.” SAA declined to answer questions about its financial state, and deferred to its shareholder.