Will restructured SAA take flight?

Issues around funding remain murky, and whether the plan can succeed in the Covid-19 environment is anyone’s guess.
Aviation expert says the rescue plan does not represent an attractive investment proposition. Image: Siphiwe Sibeko, Reuters

It has been just under eight months since South African Airways (SAA) was put into business rescue. The process to turn around the airline has been tumultuous to say the least and, with the business rescue plan almost at the point of implementation, the question is what will it take for it to fly? 

In June the director-general and chief executive officer of the International Air Transport Association (Iata), Alexandre de Juniac, said that “financially, 2020 will go down as the worst year in the history of aviation”. 

Airlines across the world have felt the impact of Covid-19, which has caused a collapse in air traffic due to countries across the world instituting lockdowns and closing international borders to stem the spread of the virus. 

De Juniac announced in June that the aviation industry would make losses of $84.3 billion in 2020. He added that airline finances would be “fragile” in 2021, with losses of just under $41 billion expected. 

It is under this shadow that SAA hopes to restructure its operations and build a commercially viable national carrier, using a R27 billion plan that involves settling SAA’s old debts and restarting operations

‘Water under the bridge’

The R27 billion includes the R16.4 billion commitment the government appropriated in the February budget to settle guaranteed debt and interest. 

The amount covers monies owed to lenders before the airline was placed under business rescue, as well as the R5.5 billion SAA received from a coalition of commercial banks and the Development Bank of Southern Africa for post-commencement funding (PCF). 

Reflecting on the past eight months, Department of Public Enterprises (DPE) acting director-general Kgathatso Tlhakudi says: “The work could have been done a lot faster and unfortunately the result of it is that funding that would have been used for the restructure basically got exhausted dealing with operational expenses.”

This is not a new sentiment. In Parliament earlier this year, when the rescue practitioners were working towards a “structured wind-down” instead of a rescue of the airline, Public Enterprises Minister Pravin Gordhan criticised them for not being prudent with the PCF given to them.

Read: Why did PwC not identify corruption at SAA?

At the time Les Matuson and Siviwe Dongwana had been in charge of SAA’s business rescue for five months, the airline’s flights were mostly grounded due to the lockdown, and government had vetoed extending an additional R10 billion to the pair because they had not presented a “proper and fully-fledged” rescue plan. 

“That’s water under the bridge,” says Tlhakudi, adding that they are now looking at new sources of funding to ensure the restructuring of the airline. 


The question of who will fund the restructure has come under great scrutiny following the woolly letter of commitment from government.

Government, represented by Gordhan and Finance Minister Tito Mboweni, has presented Matuson and Dongwana with a letter in which it commits to “mobilise funding for the short-, medium- and long-term requirements, to create a viable and sustainable new South African national airline”. 

The airline will need R10.5 billion according to the figures in the rescue plan. This will be put towards working capital, paying off creditors and covering retrenchment packages.

Read: Government, unions agree to retain 1 000 more employees in new SAA

As a precondition to the rescue plan’s implementation, it states that government must provide confirmation that it will “support and commit to providing the requisite funding” for the various items in the rescue plan. 

The ‘unfortunate narrative’

Tlhakudi would not be drawn on how the government aims to “mobilise” the funding, but says the “unfortunate narrative” that has taken hold is that the money would be a “burden on the state”.

“That’s not the narrative we have encouraged ourselves,” says Tlhakudi. “We have always said that we are looking at multiple sources for recapitalising and restructuring SAA and that there has been interest from the private company space.”

The DPE has said that SAA has attracted “a mix” of local and international investors who are interested in providing the airline with financial, technical and operational expertise.

Asked by Moneyweb if the letter given by the government provided enough clarity for that condition to be met, Matuson and Dongwana did not respond.

Mboweni also recently tweeted that a bailout for SAA “does not exist”. He was responding to a court application in which the Democratic Alliance (DA) seeks to interdict him from invoking his “emergency” powers under the Public Finance Management Act to release funding for SAA.

“It only exists in your mind,” said Mboweni to the DA’s Geordin Hill-Lewis, who is also listed as an applicant. “Where is the evidence of the allegation? I do not know about this.”

How will it work

Aviation economist Joachim Vermooten isn’t convinced that the current business plan will attract private investors. 

“The problem with the business plan as-is is that it does not present a viable investment proposal, where normally you want to see a reasonable return on investment to the extent that there is a risk,” he said.

Of the full R26.9 billion, 93% will go towards existing creditors and losses incurred which have to be settled. The actual costs of the new airline only account for the R2 billion in working capital, the cost of recapitalising subsidiaries and trading losses.

The restructured airline is expected to make losses of R6.4 billion in the first three years – based on “optimistic assumptions” – and to make a profit only from 2024.

There is, for example, no build up in the load factor, which is expected to be 61%. Vermooten says this is not enough for an airline to operate in today’s environment. In 2019, prior to Covid-19, Iata carriers achieved a record high average load factor of 82%.

In addition, SAA’s unsecured creditors, who will be getting R600 million over three years – or 7.5 cents for every rand they are owed – will be expected to provide services for the new airline.

Vermooten says it’s unlikely they would give SAA the same credit terms as before. 

“Once you get hurt by only getting 7.5 cents for your fuel or services provided to SAA, you would do it on cash on delivery and even on a deposit basis and that will increase the upfront payment to actually launch,” he says.

Source: SAA Business Rescue Plan

“Ultimately if you look at the profile that comes out, it’s three years of losses and very small profits thereafter – in a market in which airline investors can put their money into other airlines,” he says, adding that it will be difficult to get independent or institutional investors on board. 

When it comes to investment from other airline companies, Vermooten says timing is against the government in a Covid-19 environment, where all airlines are battling for their own survival. 


Vermooten says an added challenge is the broad focus of SAA’s services. While it aims to start on a small base, it eventually plans to be active in all markets – domestic, regional and international. 

“If you really want a successful business it needs to be a focused airline,” he says. “If you look at other government-owned airlines, those that are successful only provide intercontinental services.” 

He adds that domestic services mean that SAA will also be competing against its subsidiary Mango. 

Tlhakudi disagrees. He says the two businesses compete in two different market segments, with SAA being a full-service carrier in direct competition with British Airways while Mango, as a low-cost carrier, is in competition with FlySafair and Kulula.com. 

Vermooten points out that what would be really beneficial to consumers is for the country to emerge with a competitive airline industry.

Read: SAA’s ex-chair Dudu Myeni banned from directorships

Outside of SAA, other airlines have also experienced hardships due to Covid-19 grounding restrictions, with SA Express facing liquidation while two divisions of Comair, which operates Kulula and British Airways, are under business rescue. 

“We really need a system in which the entire industry is supported rather than one specific airline,” he says.



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That is if you are referring to SAA flying, as an economically viable going concern.

However, i suspect that as SAA has been kept in the air for 20 years, courtesy of some current NCCC members and some of their predecessors, by diverting R50+ Billion of RSA taxpayers money into a black hole.

Then YES, i am sure the current powers that be – can find another R50 billion of tax payers money in order for it to take FLIGHT once again – i would hazard for another 5 years or less.

Agree it will not take flight as a going concern, but it will take flight to the detriment of the SA tax payer, the faithful 4% and the poorest of the poor in SA.

Well done PG and cronies. Enjoy your first class travel, may you imbibe heartily and arrive at your destinations feeling like the rest of SA.

It will for as long as you bail it out every three months!

It just needs to pay for the next ANC election campaign.

The new SAA will be a monument to Gordhan’s and the ANC failures. Even larger than the old SAA.

If my company only got 7.5c per Rand on existing debt , why would I ever deal with SAA again ?

The putrid 7.5c isn’t even definate; if there’s no money for this on payment date which is only in 3 years’ time, the businesses get a type of share in the flopped SAA2!

This airline will fly !!! – like a brick !!!!

Yes, it wil fly!!!! when pigs fly

…. or when Pravin and the rest of the cronies fly out of gauvament.

Not with our money.

The ANC have been cavalier with the SA citizen’s money for 26 years and stolen a great deal of that money and the time is up for that type of criminal activity.

Yes! It will fly! Like a lead balloon.

Possibly the worst investment anyone can make right now.
Putting money into an ANC-run airline.
When 99% of all planes are not flying.
How dumb are these people?

Agreed. Why would any private company put in their own capital but, at the same time, be forced to dance to the Government’s tune? For example, procurement only from “preferred BEE suppliers” at 2-3 times the normal price, no lay-offs of unnecessary staff, appointments only based on BEE targets with merit being a subsidiary criterion, and then of course, parasite ANC cadres who want free business class flights for all friends and family until the cows come home. On what planet do these people live?

Be realistic, look at the rest of the worlds really large airways – they are cancelling purchasing contracts, ask for financial help, etc – give me one reason why the “new saa” would survive this without begging for financial help – it is typical the anc pattern – we made a what-up, lets try again with the hope a different outcome – “new saa” is a stillborn baby – its high time for gordhan to rather start counting pills again iso working out an airway’s viability
if employees of the old saa has to go for training for the next+/- year to come to work in the “new saa”, what was their job description till now at old saa???????????????

Public vs Private Sector:

Why does the anc want private sector involvement when they participate to such a large degree in the economy. From my research they employee approximately 2.8Million people about 18% of total employed count, the government has around 700 SOE which again employee around 105,000 people and has approx R510,942,836,000 of debt

Governments do not create jobs, it is the laws and policies which they implement that allow private individuals the right to take an estimated risk in creating a business which then facilitate the creation of jobs.

Government already taxes 21% of all the private business and employees contribute a further 35% to government coffers in return for what? just having to complete with them in every sector?

Government should own the infrastructure not the business.
The infrastructure should be leased at a Market competitive Rates and at rates which will allow more people to take risks by opening up businesses.

South African economy is at least 30% owned by the state which makes it the biggest business monopoly owner.
Where is the Competitions Ombusman ?

The only reason these clowns are arguing for a ‘business case’, is for the perks that accompany ministerial and government jobs; such as free (vip) flights and an opportunity to plunder. There are no other logic that exists.

They will certainly not see a single cent from me… EVER.
I will literally fly with any other airline. I will not fuel this mad corrupt ANC vanity project.
I will not line the cadre pockets.

This ‘new’ SAA is being set up only for one reason. It is a vehicle for selected cadre to be used as a feeding trough and for a medium in which they can launder money as well as fill their own pockets from the constant bail outs which no doubt will follow in time. Light fingered senior management and the executive will take care of the airlines income by giving themselves huge salaries and bonuses.

Will I fly this new venture with pilots who have limited training and hours? I doubt it. I remember only too well the CAA aircraft which killed 3 people on board their jet. All 3 were supposedly highly skilled pilots as will be the 88 SAA pilots kept in the fold.

Insanity has become the ‘norm’ in South Africa.

How on earth is it legal or fair for Government to use the business rescue process to screw Comair and the other smaller creditors and then pump more taxpayer’s money into the corpse of SAA? Isn’t it time that Minister Patel and his crew maybe start showing some interest in this unfair, uncompetitive behaviour? Instead of chasing Dischem about a few overpriced facemasks-for which you had alternatives if you found the price extravagant…

Indeed. How is it that the Competition Commission consistently overlooks the state-owned monopolies and attempted monopolies, while attempting to come down hard on even small organisations. The Competition Commission has a lot to answer for. They are complicit in this mess.

Good evening Mr President, Tito, Pravin and other cabinet members, too many to mention.
This is addressed to each of you personally through this website because I know of no other way to do this, given the bureaucracy separating you from the people you claim to represent and who pay you your salaries.
You are aware of the thousands if not millions of black children in this country who are starving or partially fed, with little or no education, and now – through no fault of yours, but because of some dodge natural disaster, are unlikely to be employed in the next 20 to 30 years. If you doubt this assertion, ask your experts in whatever council is currently mismanaging this period – that is how long it will take for us to recover from the pandemic.
You now want to waste another estimated R40 billion of taxes on trying to keep the banks (who are already covered against their losses and who should have called it in a decade ago), a couple of thousand pilots, cabin crew, technicians cleaners, admin people and managers employed – while millions of black kids in rural Western and Eastern Cape, KZN and Limpopo and the townships around Gauteng are being fed wild plants or if they are lucky just pap or whatever the NGO’s are able to provide. Thousands of other people have lost their jobs because of the Covid rules you and your experts implemented and which have yet to be proven to be correct (ask your hospitalized ministers whether it was worth it).
WAKE THE F*** UP. These children and unemployed youths cannot afford an airline that has not functioned properly in the last 15 years due to ANC appointed managers. Why in God’s name will it function in the next 15 years? Why spend our taxes on something you all know will never work? Why are you not spending those taxes on our children and grand-children’s future? Ask your experts. Are you going to allow our children and their children to starve and remain destitute so that you maintain the livelihoods of only a few at the expense of so many?
Mr President stop this insanity – do you want to be remembered in the same failed light as the apartheid government?

The answer is simple.
If nobody buys an SAA ticket, the airline will not fly literally

They have no plan for it to fly (that costs valuable money). Keep it on life support and loot the billions given to it every 3 months. More money for the elite

End of comments.





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