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SAA faces regulator scrutiny over sale plan

Nov 17 2019 17:30
John Bowker, Bloomberg

South African Airways officials will be summoned to a meeting with regulators next month to disclose details about talks with potential equity partners and give assurances that any deal won’t violate foreign-ownership laws.

Under the Air Services Licensing Act of 1990, airlines must be at least three-quarters locally-owned to operate a domestic service. That would prevent international operators from buying more than a 25% stake from the government, unless the rules are changed.

"We are going to be calling SAA to next month’s meeting to share with us what their plans are," said Mike Mabasa, chairman of the Air Services Licensing Council, which regulates domestic aviation within South Africa.

"If they are already in conversations with strategic equity partners we need to know what that entails."

Finance Minister Tito Mboweni said last month the government is talking with potential investors in SAA, which is technically insolvent and reliant on bailouts and other forms of state support to survive. The carrier last week triggered a plan to cut 944 jobs to reduce costs - leading to an ongoing strike that started on Friday.

Two labour groups on Sunday said they are consulting with workers about intensifying the strike across the aviation industry after failing to reach a deal over wage increases and job cuts at the weekend.

The National Union of Metalworkers of South Africa and the South African Cabin Crew Association argue that ending the outsourcing of services would help reduce costs.

"It is clear to us that the management of SAA is not prepared to do what is necessary to save the airline," they said in a joint statement.

Investor interest

Ethiopian Airlines Group Chief Executive Officer Tewolde Gebre Mariam has said the continent's biggest airline would consider taking a stake in SAA, a partner in the Star Alliance. Virgin Atlantic Airways founder Richard Branson has also indicated an interest.

"If some tough decisions need to be made, we'll make them," Public Enterprises Minister Pravin Gordhan said on Thursday.

Gordhan has previously said the company will need to remove unnecessary costs to attract a viable buyer.

The carrier on Monday triggered a plan to cut 944 jobs, leading to a strike that has forced the cancellation of most of its flights from Friday through Monday. Routes to some international destinations including London and New York are due to resume Sunday night.

SAA's ongoing battle with unions may prove decisive to the carrier's survival, with an estimated R50m of losses incurred with every day of strike action, and little in the way of leeway in terms of cash reserves. Labor groups are demanding a reversal of the plan to reduce the workforce by about a fifth on top of an 8% pay rise and other employment benefits.

"SAA pretends as if its service is indispensable, which is not the case," because it has just a 20% market share, and other carriers can step in in the event of its demise, said Gerhard Papenfus, chief executive officer of the National Employers’ Association of South Africa.

"This notion of indispensability, however, emboldens the trade unions to make unrealistic demands."

SAA spokesperson Tlali Tlali, didn’t answer calls to his mobile phone seeking comment.

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