South African Airways Is Headed For Privatization With A New Board Of Directors
South Africa, which has four government-subsidized airlines, is considering merging struggling South African Airlines and South African Express to create a new, bigger airline and selling off part of it to a minority equity partner, Finance Minister Pravin Gordhan said Wednesday during his 2016 budget speech, IndependentOnline reported.
SAA needs urgent action, Gordhan said. The government must stop bailing out struggling state-owned companies and those that no longer serve a clear need will be phased out.
He proposed merging SAA and SA Express — an airline created in 1994 that SAA claims is one of the fastest growing regional airlines in Africa. The new airline will operate “under a strengthened board” with a minority equity partner brought in to create a bigger and more efficient airline, he said.
“We do not need to be invested in four airline businesses,” Gordhan told parliament.
Many of South Africa’s 300-or-so state entities are a drain on the government funds and some companies should be sold, according to a report commissioned by President Jacob Zuma, Reuters reported.
SAA’s financial position has deteriorated and in the event of a default, the government will likely be called on to pay a portion of its guarantee to the airline.
“Government will seek opportunities to enter into strategic partnerships that allow SAA to draw on private-sector capital and technical expertise to improve its performance and expand its network,” according to the South African treasury, Reuters reported.
The National Treasury is responsible for SAA, and is busy drafting proposals for a new airline board to submit to the cabinet within the next few weeks, TimesLive reported.
Gordhan did not say whether a future new South African Airline board will include Dudu Myeni, current chairwoman of SAA, CNBCAfrica reported. Her name has been associated with the controversial firing of former Finance Minister Nhlanhla Nene.
SAA is technically insolvent and has been relying on 14.4 billion rand ($940 million) in government guarantees to raise debt and continue operating, TimesLive reported. The airline is looking to reduce plane leasing costs, among others. It could take three years to come up with a plan for SAA, Gordhan said.
SAA has been making headlines for years over its ongoing losses. Finance managers said in a leaked internal memorandum that it the airline was trading recklessly, according to IndependentOnline. More recently, SAA became a lightning rod in a political uproar involving Chairwoman Myeni, Zuma and the treasury. You can read more at this AFKINsider report.
“Hopefully the word bailout will be removed from our vocabulary as far as state-owned enterprises are concerned,” Gordhan told reporters, according to TimesLive. Minority stakes in other companies could also be sold off, he said, but did not say which ones.