The government of South Africa is looking to sell its state-owned airline due to overwhelming debts. The national airline has been running on losses for several years, and the government has been subsidizing its operations to keep it afloat. The subsidies have been devouring the national budget, and the government is looking to ease this burden by selling off the airline.
Finance Minister Tito Mboweni revealed that the government is already holding talks with potential equity partners interested in South African Airways. He said this move would liberate the government from the continuing onus of having to subsidize the airline’s operations.
As it stands, the airline is owing to 9.2 billion rands ($629 million), which the government has promised to offset over the next three years. Investors demand that the airline’s loss or debts be cleared before any further funds can be committed to the airway.
South African Airways is not the only government company running at a loss or incurring debts for several years. Others include Eskom Holdings, the South African Broadcasting Corporation, and state arms manufacturer Denel SOC among others. Analysts say the state companies are being run down due to large-scale corruption and mismanagement. Meanwhile, fallen economic growth and reduced tax revenue, among other things, have made it difficult for the government to continue to offer bailouts.
Although top officials had proposed many years ago that equity partners be found to invest in South African Airlines, no single buyer had stepped forward to accept the challenge. Just recently, Ethiopian Airlines said they would like to have a stake if the South African government would make an offer to them. Whether the government will formally do this remains to be seen.
Over the past 13 years, the airline has accumulated over 28 billion rands in losses, and could not even deliver its financial statements to parliament as at when due in March. The 5.5 billion rand bailout offered by the government has not helped the airline in the face of its creditors. Yet, the total 10.8 billion rands extended to SAA, SABC, Denel and South African Express Unit have not helped much in any discernible way.
“SAA is unlikely to ever generate sufficient cash flow to sustain operations in its current configuration,” Finance Minister Mboweni said. “Maybe the time has come for us to consider selling or closing down South African Express, which would be an interesting case study if, in future, you want to close something else.”
As it stands, company managers and leading teams may lose their bonuses or even salaries or accept pay cuts or even loss of jobs in some instances if the state organizations continue to lose financial targets and service objectives.