South African Airways have received an injection of cash, in order to help fight its survival prospects in a tough airline industry.
South African Airways is the state owned flag carrier of South Africa. The firm is eadquartered in Airways Park at Tambo International Airport.
This morning, the firm said that it was to enter a business process rescue operation with a £212 million lifeline from government and banks.
State-owned SAA, which has not made a profit since 2011 and has depended on government bailouts to stay solvent, said it would try to operate a new provisional flight schedule.
The airline industry has been savagely competitive and many firms have seen struggles in a tough period of trading.
The first demise came earlier this year, from British based Thomas Cook (LON:TCG) who collapsed following a combination of slowing business and poor administration.
Last week, it was reported that Fastjet (LON: FJET) were fighting to stay afloat in the market amid slumps in revenues, which led to a consideration of selling its Zimbabwe business.
It seems that South African Airways have joined the slump, and government officials will be worried about the performance of the business.
SAA said the process sought to provide the best prospects for “selected activities within the group to continue operating successfully”.
Last month, the firm was hut by an employee strike that forced it to cancel hundreds of flights which made matters worse for the South African flag carrier.
On Wednesday, a deputy minister, who declined to be identified due to the sensitivity of the matter, told Reuters he had received an official letter saying President Cyril Ramaphosa had called for a change of approach on SAA and that the airline would enter “voluntary business rescue”.
Pravin Gordhan, minister of public enterprises, said in a statement on Thursday that business rescue was the best way to restructure SAA into a stronger entity. He said the plan was still to attract an equity partner.
Existing lenders would provide 2 billion rand of lands guaranteed by the government, which gives some backing in the event of a future collapse.
Government would provide 2 billion rand in a “fiscally neutral manner”, Gordhan said.
Hans Klopper of BDO Business Restructuring said the rescue process for SAA could be fraught with difficulty and that it could take months if not years to find a solution to the airline’s problems.A relatively small amount of SAA’s assets could be recoverable. The rescue process could further dent confidence in the airline, he said.
“If there aren’t willing patrons prepared to book flights then the bottom falls out of the whole business,” Klopper said.
“With SAA there is a structure of devastation, but you may have somebody who comes in and offers, say, 1 cent on the rand. Because some creditors could get zero if there is a liquidation.”
There have been firms however, who have made gains in the apparently slumping airline industry.
Both Ryanair (LON: RYA) and FTSE100 listed Wizz Air (LON: WIZZ) both saw their November passenger numbers rise, after both firms gave modest expectations in prior updates.
It seems that there is a monumental turnaround process that needs to be made for South African Airways, and the injection may give an opportunity to kickstart operations however the market will remain cautious.