Jamie McKane1 December 2019
One of the proposed solutions to the problems at South African Airways (SAA) is to merge the company’s operations with another major African airline, the Sunday Times reports.
According to an internal document written by former SAA CEO Vuyani Jarana and seen by the Sunday Times, SAA’s best chance at recovery is to be free of government ownership and to merge with another major airline.
The document – titled “The Investment Case for South African Airways” – states that the company carries little value for government, and should be offloaded to improve its profitability.
“Given the thin margin nature of the airline business, under government control or under government rules, it is unlikely SAA will deliver better margin performance. Government should consider exiting the airline business,” the document stated.AdvertisementScroll to continue
In addition to this argument that the South African government should offload its stake in SAA, the document also proposes that the best way to rescue SAA is to merge the airline with another.
This solution would see SAA consolidate its staff and routes with another airline, creating a commercial joint venture between SAA and international airline.
The document notes that merging operations with Emirates and Lufthansa was an appealing idea, but stated that the best option would be to partner with Ethiopian Airlines.
This plan proposes that Ethiopian Airlines sublets aircraft into the joint venture and provides pilots, while SAA provides cabin crew.
“The biggest opportunity is to grow the West Africa hub together where traffic throughout Africa is consolidated, before connecting to the US and Canada,” the document said.
Jarana’s plan to merge operations with Ethiopian Airlines was presented to the SAA board in June 2019, according to the report, which was shortly before his resignation as SAA CEO.
Public Enterprises Deputy Minister Phumulo Masualle recently stated that difficult decisions would need to be made to save the floundering state-owned airline.
This was after the SAA strike came to an end when SAA and the unions reached a wage deal of 5.9% against a demand of an 8% salary increase.
Despite the desperate financial situation of the airline, the government believes that SAA’s financial position is recoverable.
“The department believes that the recovery of the airline is possible and this can be achieved within the parameters of the fiscal support already on the table. This will require a determined, concerted effort across the board. This, of course, can ensure that jobs are reserved to the extent that is necessary,” Masualle said.
“This requires that we act together and it is true that very tough decisions in the immediate need to be made. However, as we do so, it should be that everyone who matters, and ultimately the public, is taken into confidence about measures that are made to conclude this matter so that we have a viable airline.”