South African Airways needs culture reset as take-off approaches

By David Whitehouse
Posted on Tuesday, 21 September 2021 14:52

A South African Airways (SAA) plane is towed at O.R. Tambo International Airport in Johannesburg
REUTERS/Rogan Ward

South African Airways (SAA), which takes to the skies again on 23 September, will need to develop a culture of stable management under its prospective new owners if it is to succeed, analysts say.

The airline, which came out of administration after 17 months in April, will operate initial flights from Johannesburg to Cape Town, Accra, Kinshasa, Harare, Lusaka and Maputo, with more to be added later.

Repeated attempts to turn the airline around before Covid-19 failed to bear fruit, with the company running up losses of R26.9bn ($1.8bn) from 2007 to 2019. The airline also suffered from chronic leadership instability, with 14 CEOs between 1994 and 2020. Current CEO Thomas Kgokolo is the third interim appointment in the last three years.

The Takatso consortium which is planning to become the majority shareholder said at the start of September that the deal was at an “advanced stage,” with due diligence mostly complete and no material issues found. The consortium, made up of private equity firm Harith General Partners and Johannesburg-based Global Airways, which also owns the budget airline Lift, will hold 51% of SAA, while the government will retain 49%.

“Good management and a better economic environment” are the key factors that will determine the airline’s success, says Fabien de Beer, chief risk officer at Mergence Investment Managers in Cape Town.

  • Though it will be “challenging” for the airline to find its feet again, De Beer is encouraged by the privatisation. The move indicates that the government “is prepared to deal with non-performing state owned entities that are a drain on public resources.”
  • Decisions on whether future capital injections are made will now not rest with the government alone, De Beer adds. The government will remain responsible for old liabilities while the consortium will provide fresh capital.
  • Chairman John Lamola said on 19 September that the airline will “no longer be constrained by the complexities of state governance” and that it will have “the competitive agility of a partially privately owned business.”

Industry crisis

SAA stands a better chance of succeeding if and when the agreement is concluded, says Johann Els, chief economist at Old Mutual Investment in Cape Town. “With majority private ownership, the airline will likely not be subject to the previous meddling and will be better run on commercial principles. This will also eliminate the drain on the fiscus.” Still, he notes that the accord remains to be finalised.

Getting the privatisation deal over line is the only first challenge. The company has “a herculean task ahead,” says Marcel Langeslag, director of African Aviation at Netherlands Airport Consultants in Johannesburg.

  • While a significantly reduced workforce and a rationalised route network are positive signs, the restart is taking place in the middle of perhaps the biggest ever aviation industry crisis, he says.
  • “Demand in the market is still low and high load factors and profit will remain elusive for some time to come.”
  • Fitch Ratings in July cut its 2021 and 2022 assumptions for airline traffic recovery in Europe, the Middle East and Africa due to continued emergence of new Covid-19 variants.
  • The recovery is “further constrained by weak domestic markets and uncoordinated travel policies,” Fitch argues.
  • Revenue Passenger Kilometres (RPKs) will only reach about 35% and 65% of 2019 levels in 2021 and 2022, respectively, Fitch forecasts.

Bottom line

SAA will need to learn about operating as a private business fast to have a chance of succeeding.

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