Following a series of turns, there is news this week that the government of South Africa has begun discussions with private groups that are looking to buy into South African Airways. The airline needs a minimum of 10 billion rand ($583 million) to resume operations. Therefore these talks are critical as there is a lot at stake.
The talks have started
According to Bloomberg, the Department of Public Enterprises’ director general, Kgathatso Tlhakudi, shared on Wednesday that his team joined advisers from FirstRand’s Rand Merchant Bank to begin negotiations. Altogether, the government wants the carrier to restart services by the end of this year. However, the situation also depends on demand amid the global health crisis.
Tlhakudi did not share who the prospective investors are. However, the state has previously mentioned that there have been inquiries by private-equity firms and even other aviation groups.
Notably, Ethiopian Airlines has previously expressed its interest in South African Airways. The carrier is one of Africa’s most prevalent airlines. Additionally, it has managed to bag a profit consistently over the years. So, it could be trusted to help turn the fortunes of SAA around.
An ongoing struggle
South African Airways entered administration in December last year. Additionally, border closures and flight suspensions have forced it to remain grounded since March. The restrictions are undoubtedly piling on the pressure for the company, which has already been in a dire financial state for nearly a decade.
The government has pumped in cash several times over the years. The National Treasury has already committed to giving 16.4 billion rand ($820 million) to the firm in debt guarantees. Subsequently, several politicians and members of the public are concerned about the amount of taxpayers’ money being spent on the airline. Therefore, Finance Minister Tito Mboweni has stated that any new cash injections must be from private entities.
A balanced plan
Authorities are hoping to repeat the style of privatization that former the state monopoly Telkom went through. The telecommunications firm was partially sold to outside investors before a listing on Johannesburg’s stock exchange. However, the government is still a minority stakeholder. SAA may also be eventually listed.
Tlhakudi said the following about the plan for SAA:
“That proved to be a very good model for Telkom as it brought into the company management discipline and the important discipline of delivering a product on time to the market.”
Altogether, it’s a tough time for airlines across the globe, but SAA is feeling the brunt of the situation. By the end of September, the airline’s workforce may be cut to approximately 1,000 employees from more than 4,000. Nonetheless, the airline will be hoping to have this cash injection as soon as possible so it can get back on track.
What are your thoughts about South African Airways’ negotiations? How do you feel the situation will progress? Let us know what you think of the airline’s prospects in the comment section.
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