Cash Crunch Forces South African Airways to Cancel Flights

JOHANNESBURG (Capital Markets in Africa) – A financial crisis at South African Airways deepened Tuesday as a funding squeeze forced the national carrier to cancel several domestic and international flights.

Eight flights between Johannesburg and Cape Town will be cut this week, and 20 between Johannesburg and Durban, the carrier said in an emailed statement. It also canceled 10 flights between Johannesburg and Munich.

The move is “in line with SAA’s usual policy of reviewing flights and consolidating services with low demand,” and is aimed at saving money, the carrier said. “SAA will be reviewing further possible flight-schedule amendments over the coming days.”

The airline, which was placed into bankruptcy protection last month, is waiting for the government to fulfill a pledge to provide it with a 2 billion-rand ($138-million) lifeline that will enable it to keep flying. The Ministry of Public Enterprises, which oversees SAA, said work is still under way to raise the money.

“We are still in talks with government about how and when it will transfer the 2 billion rand it has committed to,” Louise Brugman, a spokeswoman for the airline’s business-rescue practitioners, said by text message.

The crisis at SAA has been a key test for President Cyril Ramaphosa’s administration, which needs to rein in spending and stabilize beleaguered state-owned companies as it faces losing the country’s sole remaining investment-grade rating.

“SAA is working closely with its sister airline, Mango, to re-accommodate passengers on alternative services operated by both airlines to minimize disruption,” the carrier said. Passengers who were booked on canceled flights to and from Munich would be rerouted via other destinations on planes operated by SAA and its partners in the Star Alliance, it said.

SAA offers flights to more than 30 domestic and international destinations. It has posted losses since 2012 as it grapples with the high operating costs of an aging, inefficient jet fleet and a bloated workforce — as well as high taxes, political interference and corruption scandals.

While SAA’s Johannesburg base is a major international destination, its position at the southern end of the continent means it lacks the potential to become a major hub. The scope for profitable regional flights is limited by the relative poverty of neighboring nations.

Efforts to establish a wider African business have had limited success as global giants including Dubai-based Emirates Airline and Turkish Airlines add dozens of sub-Saharan destinations and Ethiopian Airlines, the continent’s biggest carrier, turns Addis Ababa into a major hub.

The main opposition Democratic Alliance said SAA couldn’t be rescued and should be liquidated.

“SAA is bankrupt and has been for a very long time,” DA lawmaker Alf Lees said by email. “It is in debt to the extent of some 20 billion rand. It has no cash reserves, it is unable to meet its current liabilities, including salaries, and still requires more bailouts funded by taxpayers. National Treasury is simply not able to keep the failed public enterprise afloat.”

Source: Bloomberg Business News