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COVID-19 Bailout Last Straw for South African Airways as Government Suspends Funding
While other airlines around the globe are receiving cash infusions to keep themselves afloat, the government of South Africa has decided to take the opposite approach. The government has opted to deny future funding for the flag carrier in a push to get the airline to move towards profitability. South Africa instead wants the airline to look at alternative and available resources with ways to stay afloat.
The airline has had a rough track record and the recent events have only compacted on the struggling carrier is it attempts to find profitability. SAA had been seeking funding to get itself through the coronavirus epidemic, but the government saw the latest request for cash as the last straw. The airline has lost over R26 billion ($1.4 billion) since 2014 but claims the bailouts are necessary to keep the airline on the path towards profitability.
Recently, the airline had been pushing for a cash injection to overhaul its long-haul fleet. The fuel heavy fleet of Airbus A340s was believed to help cause part of South African’s issues. The airline has managed to lease a few Airbus A350s from struggling Chinese conglomerate HNA Group, but has not replaced the entire A340 fleet with the newer model airplane.
According to South African source Business Tech, the current Minister of Finance in South Africa Tito Mboweni has been an advocate of cutting funding for the struggling airline and might be using the government’s struggle with coronavirus as leverage to achieve his goal. Mboweni has been the Minister of Finance since 2018, with previous work in South Africa’s Ministry of Labor and South African Reserve Bank and has watched the government-backed carrier struggle his entire political carrier with finding its footing.
Minister of the Department of Public Enterprises Pravin Gordhan hopes the airline can find sustainability off this news, saying in Bloomberg, “we are of the firm conviction that South Africa needs a viable and sustainable set of airlines. We must urgently determine the operating and business model for a rescued airline, with a sustainable financial model.”
Regardless of South African’s future, the government will be responsible for the flag carrier’s external debts. However, the airline’s internal issues will have to be sorted themselves, either by finding profitability or through liquidation.
The parent company had already taken steps to stem the financial pains of COVID-19, including slashing staff and routes from the passenger branches of the flag carrier. The airline has three operators in the main carrier SAA, a low-cost arm called Mango and a cargo carrier called SAA Cargo, only the latter of which is operating consistently right now. SAA’s current passenger operations are limited to rescue and charter flights for citizens stuck abroad.
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