Is it time to put SAA out of its misery? Aviation experts believe so

Put SAA out of its misery
Put SAA out of its misery

Put SAA out of its misery.

This is the call being made by aviation experts, who believe the airline should be liquidated at a time when the Covid-19 coronavirus has forced even financially healthy airlines to their knees.

According to Guy Leitch, editor of SA Flyer magazine, it will cost government R2 billion per month to keep SAA on life support.

Joachim Vermooten, a transport economist, said the R6.5 billion that government promised SAA in 2020/21 and the R16.5 billion required to fulfil its debt obligations over the next three years, was at least R2 billion short of what was needed.

Leitch believes government has far more pressing obligations than pumping more money into SAA, but Vermooten doubts that they are ready to let go of the airline.

SAA must be put out of its misery and government must show where its spending priorities are in respect of this crisis
Peter Attard Montalto - head of capital investments at Intellidex

Peter Attard Montalto, head of capital investments at Intellidex, said the current crisis would force government to decide whether it should spend money on its “unsolvable SAA problem” or rather support health services and the economy.

“SAA must be put out of its misery and government must show where its spending priorities are in respect of this crisis,” he said.

These calls come fresh on the back of news on Friday that SAA had cancelled all international flights. This was after it announced the suspension of 162 flights on Wednesday. The decision was made as a result of a dramatic worldwide decline in bookings for passenger air travel and an increase in the number of cancellations, as travellers give up travel plans and restrict their movements out of fear of the virus.

On top of this, SAA’s business rescue practitioners have asked for a further extension of the deadline for the publication of the airline’s business rescue plan. According to law, a business rescue plan must be published with 25 days.

The deadline has already been extended on two previous occasions, but the rescuers say they will be unable to assess the impact of the Covid-19 crisis on SAA by the current deadline of March 31.

They have, however, made it clear that the crisis will make SAA’s already beleaguered position much worse and that it will be very difficult to provide a credible business rescue plan.

An estimate published by the International Air Transport Association (Iata) on March 5, suggests that Covid-19 can cost the South African aviation industry $1.2 billion (R20.7 billion at Friday’s exchange rate), along with a loss of 102 000 employment opportunities.

These estimates do not make provision for the travel restriction that governments have since instituted.

Iata is seeking assistance for airlines worldwide in the form of direct financial aid; support, including guarantees for loans; and tax relief.

The Airlines Association of South Africa (Aasa) has already begun setting up meetings with government to discuss the issue.

Other local airlines also announced drastic measures over the past week.

SA Express, which is also in business rescue, has suspended all its flights.

FlySafair has reduced its flights by between 30% and 40% and, on Thursday, Comair suspended all of its regional flights, but was able to resume these flights shortly thereafter.

Comair said it was watching the situation closely and adapting its schedule as required.

It’s not just the airlines that are suffering from reduced passenger air travel.

A significant percentage of income of the Airports Company South Africa (Acsa), the Air Traffic and Navigation Services (ATNS), the South African Weather Service and the South African Civil Aviation Authority (Sacaa) is derived from flight volumes. The fewer flights there are, the smaller their income will be.

In March, Sacaa complained in Parliament that airlines that were in financial trouble collected R24 per ticket on its behalf, but then failed to pay this to the authority.

It asked for legislative amendments which would make it a preferential creditor when airlines go into business rescue or are liquidated.

According to its spokesperson, Percy Morokane, ATNS is expecting to lose R70 million by the end of this month, as a result of the Covid-19 related decline in flight movements and cancellation of flights.

“If the situation is not stabilised, there will be a significant impact on the next financial year.”

Luckily, the organisation had a healthy balance sheet and strong cash reserves, but it was closely monitoring the situation, saving where possible and reprioritising its capital expenditure, he said.

According to Hannelee Doubell, spokesperson of the SA Weather Service, 34% of the organisation’s income was dependent on flight volumes.

Based on Iata’s estimates, they were expecting a 20% decline and have already instituted austerity measures.

Acsa said it was too early to provide data about the decline, but that large numbers of people were simply failing to arrive for their flights. They were expecting a significant impact on their income.

Vermooten said Acsa did have reserves that could soften the blow, but he had no doubt that government would have to step in to assist Sacaa and the ATNS unless there was a decision to privatise on a large scale.

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