State Government Dumps Plan To Merge State-Owned Airlines

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The proposed plan to merge South Africa’s three state-owned airlines has been ditched by the state government as the Public Enterprises Minister Lynne Brown said merging the airlines would allow the three to streamline finances and technical expertise.

Instead, the enterprise minister supported the introduction of a private equity partner with a stake of up to 25% in a new company that will hold South African Airways (SAA), Mango and South African Express as subsidiaries saying  a full merger is “highly unlikely”.

Finance Minister Pravin Gordhan earlier announced state’s plan to merge state’s airways with SA Express under a strengthened board so as to “create a bigger and more operationally efficient airline.”

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It’s no longer news that SAA  is in financial distress and has been relying on 14.4 billion rand ($940 million) in government guarantees to raise debt and continue operating.

While the airline seeks to reduce plane leasing and other costs, Gordhan said it could take two or three years to come up with a financially credible plan for SAA.

However, in the view of Minister Lynne Brown, merging the airways cannot be attainable. Her view on this move is described as a shift from Gordhan’s statement that during his February budget speech that state government need not to invest in four state-owned airlines (including minority-owned South African Airlink).

Brown insisted in an interview on Sunday that no firm decision had been taken and that the transaction adviser that the department and the Treasury were in the process of appointing would provide guidance. The aim would be to achieve efficiencies, economies of scale and better co-ordination of routes



She said she would prefer to have the three state-owned airlines , and possibly South African Airlink, merged, but did not believe this scenario was likely.

She said while speaking at the Airlines Association of Southern Africa’s 46th annual general assembly in Swakopmund, Namibia, on Friday that full details about the introduction of an equity partner could be made by the finance minister in his budget speech in February.

“All my discussions with industry role players is that a merger would be too difficult. One out of three companies owns the paths that they operate on…. What we need to do is force them to work together and at the moment that isn’t so,” she said adding that an example of medium-haul airlines were those in North Africa.

Such a tie-up would bring benefits both for the equity partner as well as for SAA, which operates the long-haul route to SA. The inclusion of an equity partner “will include bringing in managerial, technical and other level support”, the minister said. “We need them to be able to give us dividends, because they are economically, financially stable.” she clarified.

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Meanwhile, Jackie Walters who is the University of Johannesburg department of transport and supply chain management head said on Friday that the introduction of a private investor would need urgent shift from the state.

“I would think that any shareholder would want a bigger share, and a say in running the business.”

“The biggest challenge they will have is how to be hands-off,” Walters said.

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