SA’s R7.5bn loss-making state owned airlines headed for a guided merge

When former SAA chief executive, Nico Bezuidenhout, who now runs the ambitious foreign-owned Fastjet airline, says he’s considering entering the already-overtraded South African domestic airline market, you have to know our state-owned carrier is dismally run. Yet there are two glimmers of hope on the horizon, which the story below partially reveals; SAA will in the next few years enter a holding company with its two sister carriers, Mango and SA Express, to create operational and financial efficiencies. With all three state-owned enterprises (SOE’s) carrying accumulated losses of nearly R7.5 billion, Bezuidenhout’s openness to a merger deal with the new entity combined with Public Enterprise Minister Lynne Brown’s willingness to selling a 25% share in it, we may just see a stop to yet another ongoing SOE haemorrhage of the state fiscus. The move to a single holding company, using a Boston-based consultancy and costing R12.1m, looks for all the world like we’re finally clear for financial take-off. But sorry control, we have a small problem – cadre deployment and SAA chairperson, Dudu Myeni whose turn around attempts and blaming of her own pilots for her airlines financial woes (among a host of other corporate-unfriendly moves) effectively means the chocks are still in place. They can rev the engines for all they’re worth – until this kind of SOE leader is removed – and companies are privatised to free them from selfish political agendas, they’ll all become financial dodos – and we’ll just have to keep emptying our pockets. – Chris Bateman

By Liesl Peyper

Cape Town – It will cost government R12.1m to make use of the services of Bain and Company, the Boston-based consultancy firm appointed to manage the merger of South Africa’s three state airlines – SAA, Mango and SA Express, said Public Enterprises Minister Lynne Brown.

Responding to a parliamentary question posed by the DA’s Alf Lees, Brown said the scope of the work entails the development of an “optimal corporate structure to re-align the state-owned airlines” and that the consultancy will take cognisance of industry best practices.

In October 2016 at a meeting of the Airlines Association of Southern Africa in Namibia, Brown said airlines worldwide were compelled to restructure their operations to address inefficiencies and remain relevant to the markets they serve.

“The same is the case with SAA, SA Express and Mango that are in need of such restructuring to effectively and sustainably deliver on their respective mandates,” she said at the time.

She emphasised though that the “strategic intent” of government is to maintain control and oversight of the state airlines.

At a portfolio committee meeting of Parliament later in November, Brown said that that there is a merger plan for the airlines, but that it would take three years, BusinessLive reported.

Minister Lynne Brown

She said a holding company for the three separate airlines could be created, or they could be merged into one entity. Another possibility would be to sell a 25% stake in the newly formed holding company to a strategic partner.

Privatisation calls

There have been several calls from business and opposition parties for the national carrier to be privatised.

The DA’s Natasha Mazzone earlier said that “full privatisation” was the only solution to prevent the negative impact SAA has on South Africa’s fiscus.

The IFP’s Mangosuthu Buthelezi also previously said that South Africa is “pouring good money after bad” and that government should be privatising state-owned entities, such as SAA.

The national carrier has in the past two financial years made a combined financial loss of over R7bn, while Mango recorded a loss of R36.9m in the financial year at the end of February 2016.

Both SAA and SA Express are surviving on state debt guarantees at a time when the government is trying to rein in spending and raise revenue amid slowing economic growth. – Fin24

Source: http://www.fin24.com/Companies/Industrial/r12m-for-foreign-firm-to-manage-sas-airline-mergers-20170110

For a deeper understanding of the world of money and greater financial control, upgrade to BizNews Premium.