South African Airways is expected to shortly receive a 5.5 billion rand ($376 million) infusion for the new fiscal year. But the beleaguered carrier says that is not enough to keep the lights on.
SAA has debt of 12.7 billion rand ($868 million), of which about 3/4 of that is so-called legacy debt while 1/4 is working capital. In a presentation to lawmakers, SAA laid out its upcoming expenses for FY 2019/2020. Factoring in debt servicing costs, South African has requested 22 billion rand in order to emerge as a debt-free and profitable carrier.
But South African has two huge problem facings it. First, its debt servicing is a crippling blow to its ability to grow. Interest on debt will eat up the latest government cash infusion, indeed rendering it unfit to make the structural changes to emerge as a competitive carrier. Government officials have encouraged SAA to make more cutbacks, but it is rare that a carrier has ever been successful in cutting its way to growth. The only thing that make sense is for SAA to shed its debt, but with the the South African government guaranteeing the legacy debt and pulling the strings at SAA, this is not a feasible strategy.
Second, more money does not change the vicious “beatings will continue until morale improves” culture. Employees have been given less to work with as the cash-strapped carrier has already made several service cuts. That has upset customers, some of which take out their frustration on front-line workers. The result is depressed employee morale and behavior (also experienced by me) somewhere along the indifferent to hostile scale. Furthermore, with Ethiopian Airlines continuing its robust growth and offering a full-service experience, SAA has some serious competition on regional and longhaul routes for connecting passengers.
South African Airways may continue to be seen as a national resource whose value far outweighs its profit. Fine – that is hardly unique to South Africa. But lawmakers should recognize that SAA has been drowning for years and its debt represents a millstone that makes already-difficult growth virtually impossible.