Will South African Airways survive?

Which way to go road sign

It seems like things are going from bad to worse for South African Airways (SAA), which is experiencing financial difficulties and has now been shunned by two big South African travel insurers.

It has been reported that the airline is on the brink of financial collapse ─ allegedly it delayed paying workers their full salaries for November and is struggling to secure funds to survive.

According to politician Pravin Gordhan, Minister of Public Enterprises in South Africa, SAA suffered a ‘sudden deterioration’ in its finances after a recent strike grounded flights.

The Department of Public Enterprises said that the airline has faced ‘difficult challenges’ in the past few years, including industrial action from two unions, which ─ in addition to contributing to a deterioration in its financial position ─ caused ‘immense damage’ to the airline’s reputation and operations.

As a result, the airline is believed to be facing significant restructuring. "SAA, therefore, cannot continue in its current form," stated the Department. "The airline group will now go through a radical restructuring process which will ensure its financial and operational sustainability. There is no other way forward."

The airline group will now go through a radical restructuring process

Santam’s (South African financial services group) Travel Insurance Consultants (TIC) said that it has stopped its travel supplier insolvency benefit for SAA flights, while Australian agency Flight Centre Travel Group said it will stop selling SAA tickets. In addition, the company that administers Hollard Travel Insurance is believed to have excluded SAA from its travel supplier insolvency coverage.

This suggests dwindling faith in the airline’s financial security and, indeed, its longevity.

The board of SAA was due to present a report on the state of the airline to South Africa’s Standing Committee on Public Accounts (Scopa) but the meeting was deferred. The airline released a statement that said: “Given the significant and ongoing developments in respect of the sustainability of the airline, SAA welcomes the deferment of their appearance at Scopa. This will enable further urgent engagement with all relevant role players on the support initiatives being developed under the direction of the shareholder. Arrangements are being finalised for Scopa to visit SAA next week. All information requested has been submitted to the shareholder.”

The Department of Public Enterprises said that the government is committed to a viable, sustainable, profitable national airline. "It is our collective responsibility as South Africans to support SAA in its efforts to restore sales confidence among its customer base and rebuild revenues in the shortest possible time,” it stated.

So, what does the future look like for SAA? There are reported plans that the business may be merged with Ethiopian Airlines in a bid to grow the West African travel hub together. But with the airline’s reputation on the line and travel insurers severing ties, SAA could well be in jeopardy.