South African Airways Gets Another Bailout, SAA May Be Privatizing

South African Airways Gets Another Bailout, SAA May Be Privatizing

South African Airways

South African Airways has offered severance packages to its entire workforce of around 4,700 employees as a bailout from the government remains "unlikely". Image: Christopher Griner/Flickr

Cash-strapped South African Airways has been granted a $347 million bailout in addition to the $1.04 billion that taxpayers have already paid to keep the airline going, and it could be getting funding in the form of a strategic equity partner, Eyewitness News reported.

The bailout comes with conditions that the airline cuts costs. SAA is expected to achieve financial sustainability over the next five years in part by cutting costs on fuel, aircraft ownership, labor and procurement.

Talk of privatizing underperforming state-run companies has long been a polarizing topic in South Africa. President Jacob Zuma paid for a report, released in February, that recommends the country do just that, according to an earlier AFKInsider report.

The report concluded South Africa should sell equity stakes in some state-run companies to improve public finances hit by a weak economy. It’s a move that would be a departure from the ruling African National Congress’ stance since coming to power in 1994. The ANC has long said that state companies should not be sold off, Reuters reported, according to NewsDay.

Eskom, the country’s struggling power utility, and national carrier SAA are the two public utilities whose financial struggles have caused the most controversy. Both are seen seen as huge drains on public funds.

Analysts often say that Eskom and SAA should be privatized.

Finance Minister Pravin Gordhan met the newly appointed SAA board of directors and warned that it was not business as usual, Independent Online reported. He wants the SAA board to report back regularly on its progress.

In the past two years, SAA has failed to produce financial statements, according to Eyewitness News.

Funding must be secured to meet SAA’s liquidity requirements and the airline should work with the National Treasury and the Public Enterprises Department on the potential introduction of a strategic equity partner, according to a Finance Ministry statement released after Gordhan met SAA’s new board, Reuters reported.

Dudu Myeni will stay on as board chairwoman despite objections from the opposition Democratic Alliance party, which holds her responsible for the airline’s crisis.

The DA believes Myeni had a disastrous performance at the airline, Eyewitness News reported. On her watch, SAA received at least $1.04 billion from taxpayers just to keep the airline going, according to the DA.

“Dudu Myeni has wrecked SAA and the Cabinet decision to reappoint her as chairperson of the board was irrational,” said Democratic Alliance spokesman Alf Lees. “With Dudu Myeni’s mismanagement of SAA, as well as her apparent protection from President Jacob Zuma, there is a high risk that the board will fail to meet the conditions announced by the finance minister … The sensible thing … would have been to remove Myeni from the board.”

Myeni defended her record, saying the airline is in the rights hands and has met all its obligations. Revenue is improving and new routes have been developed.

However, she denies that the airline received a cash injection from government. The airline got a government guarantee, she said. “We service those loans ourselves monthly. We’ve never received any cash injection from the government.”