SA airline consolidation: No firm decision yet

Cape Town - No firm decision has been taken on the consolidation of state-owned airlines South African Airways (SAA), Mango and SA Express, Colin Cruywagen, spokesperson for the Ministry of Public Enterprises, told Fin24 on Monday.

"This will become clearer only after the transactional adviser, who will be appointed by National Treasury, has provided guidance. The Department of Public Enterprises and National Treasury have been mandated by the Inter-Ministerial Committee on State-owned Company Reform to lead the process and provide recommendations on the consolidation of the airlines," explained Cruywagen.

This follows on statements made by Minister of Public Enterprises Lynne Brown at the 46th annual general assembly of the Airlines Association of Southern Africa (Aasa), which took place in Swakopmund, Namibia, last week.

She said between the Department of Public Enterprises, Department of Transport and National Treasury decisive action was taken to address inefficiencies and structural deficiencies through a process of merger of state airlines. She said this is in its initiation stage through the appointment of a transaction adviser.

"Our government departments are in the final stages of procuring the services of an external expert on airline mergers and acquisitions to assist in the development of the anticipated optimal group airline structure," said Brown.

"The development of the optimal group corporate structure to realign the state airlines is premised on our Long-Term Turnaround Strategy of SAA and the 20:20 Vision Strategy of SA Express."  

She said the strategic intent of the SA government is to maintain control and oversight over state airline assets. This will be done, among others, by streamlining existing business processes; fostering central decision-making; establishing a coordinated deployment of the airline assets in the market; enabling a share of resources, commercial information, business intelligence, planning and procuring; and external support services.

While SAA is a full service flag carrier, SA Express is a regional feeder carrier to SAA and Mango is a low costs service carrier. In September Finance Minister Pravin Gordhan confirmed that SAA had made a loss of R4.7bn in the 2014-’15 financial year.

"The optimal group corporate structure for airlines to address fragmentation is based on shareholding, oversight, governance, corporate administration and flight operations. As such, the structural realignment of our airlines seeks to rationalise overlapping airline mandates," said Brown.

"Finding an optimal group corporate structure has been done elsewhere around the globe and there exist a litany of case studies in America, Asia, Europe and Australia wherein airlines were compelled to restructure to address their inefficiencies in response to prevailing market conditions so that the airlines stay relevant to the market it serves."

She said the same is the case with SAA, SA Express and Mango that, in her view, are in need of such restructuring to effectively and sustainably deliver on their respective mandates.

"Our South African experience, which is now in the process of fixing the fragmented corporate structures of our airlines...This fragmented corporate structure is compounded by our antitrust regulatory regime," said Brown.