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SAA is broken - But can it be fixed?

Bizcommunity.com logo Bizcommunity.com 2019-12-03 Bizcommunity.com
a airplane that is flying in the sky: SAA is broken - But can it be fixed? © Provided by Bizcommunity.com SAA is broken - But can it be fixed?

Following the week-long strike which cost SAA an estimated R50m per day, the airline's future remains uncertain...

South Africa’s state-owned flagship carrier has endured numerous obstacles over the last few years, recently hitting its lowest point as its employees took to a week-long strike admid the airline’s most challenging financial issues since its inception in 1934.

SAA’s recent struggles

SAA’s employee strike lasted just under a week in November 2019, and only aggravated the airline’s dismal financial position further.

"The strike at South African Airways SOC Limited (SAA) with consequential cancellation of bookings has resulted in a sudden deterioration of SAA’s financial position. Accordingly, the department of public enterprises is working together with SAA to urgently formulate immediate actions that will be required to provide support to enable SAA to carry on its business. However, SAA cannot continue 'as is',” commented the Department of Public Enterprises.

Following the strike-induced financial blow, which is estimated to have cost the airline R50m per day and R350m in total, SAA is in talks regarding retrenchments in an effort to cut costs and repay debt. It is estimated that the airline could save up to R300m in the event that 944 workers are retrenched.

The struggling airline experienced difficulty in paying their employees’ salaries in November. While it awaited further funding, it resolved to pay its workers 50% of their November salary and their 13th cheque, making the announcement on 27 November.

“As at the issuing of this communication, the necessary funding to enable SAA to pay salaries has not been finalised. However, SAA understands that employees have to fulfil their financial commitments. In the interim, our cash position has improved so we can pay the salaries as indicated,” the announcement stated.

Ultimately, the airline has been granted a R5.5bn bail-out by the Treasury. However, this bail-out will only be granted in conjunction with the repayment of short-term debt. The Treasury also agreed to repay R9.2bn of historic debt over the next three years.

What the future looks like for SAA

Opposition MPs, including the Democratic Alliance, have made their opinions surrounding the continuation of SAA very clear. Most are pushing for the privatisation of the state-owned airline, claiming that the constant financial bail-outs are costing the South African economy dearly.

“Since 1994, the South African taxpayer has paid out bail-outs that amount to R57bn to SAA. SAA is bankrupt,” said MP Alf Lees of the DA.

MPs are also unhappy regarding the airline’s recent promise to increase its employees’ wages by 5.9%, effective from April 2020, deeming it unrealistic. This could mean that the promise is unlikely to come to fruition, possibly leading to future strikes and more financial losses.

With short term insurance giant Sanlam announcing that it would no longer sell ticket insurance on SAA bookings, and travel agent Flight Centre putting a hold on sales of any SAA tickets, it would seem that companies affiliated to or working with SAA are making their own decisions.

On a positive note, the airline has announced that it is focused on appointing a more “effective” management team, with radical restructuring, as well as addressing leadership and governance issues going forward. These issues have played a sizeable part in the carrier's gradual financial decline.

On Sunday 1 December, Public Enterprises Minister, Pravin Gordhan, took an unusually hard-hitting stance stating; “The strike initiated by Numsa and SACCA caused immense damage to the reputation, operations, and the deterioration of the finances of SAA”.

Gordhan went on to say that, “SAA is determined to remain open for business. Management is also committed to ensure financial sustainability going forward. SAA Board and management will intensify its marketing campaigns to rebuild confidence in the airline and will take bold initiatives to increase its market share”.

Only time will tell if the airline will be able to remain in the skies, or whether it is time for the state to accept defeat and hold back on future bail-outs.

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