During his 2016 Budget presentation in Parliament on Wednesday 24th February, Finance Minister Pravin Gordhan observed that government does not need to be invested in four different airline businesses. Therefore, government has proposed a merger between South African Airways (SAA) and SA Express with the hope of reviving the depreciating airline back to making profit. The new entity will be in partnership with a minority equity partner.
Gordhan said preparations are in place for the merger as Public Enterprises Minister Lynne Brown has agreed to scrutinize the possible merger under a strengthened board, “with a view to engaging with a potential minority equity partner, and to create a bigger and more operationally efficient airline”.
Considering her Airbus contract debacle in December last year and the controversial nature of her tenure, it is not yet certain where SAA chairperson Dudu Myeni will fit in when the merger is completed.
Treasury specified that a lot of years will go by before SAA can become a sustainable and stand strong. Saying that SOEs have been draining national resources for the past five years, with SAA one of the biggest culprits of the 2.9% return on equity in 2014/15.
Out of SAA’s R14.4bn total guarantees, R13.4bn was used to raise debt finance and R1bn is to be raised before the end of the financial year, Treasury said.
“In the period ahead, government will seek opportunities to enter into strategic partnerships that allow SAA to draw on private-sector capital and technical expertise to improve its performance and expand its network,” it said.
In his speech, Gordhan said the idea of the merger is a very welcome guide to the path ahead
“The PRC report indicates that the mandates of some of our entities overlap, some operate in markets that should be more transparently competitive and some are no longer relevant to our development agenda,” said Gordhan.
He added that “Some are in perpetual financial difficulties.”
“So we must take decisive steps to ensure that they are effectively governed and that they contribute appropriately to the attainment of the National Development Plan.”
“The strength of our major state-owned companies does not lie in protecting their dominant monopoly positions, but in their capacity to partner with business investors, industry, mining companies, property and logistics developers, both domestically and across global supply chains,” said Gordhan.
Treasury made clear the commitment of government to stabilise the South African airways.
“Government remains committed to stabilizing SAA,” it said. “As part of a broader turnaround strategy, steps have been taken to reduce aircraft leasing costs, cease operations on some unprofitable routes and achieve procurement savings.”