Le­gal process to merge ail­ing SAA and SA Ex­press takes off

Chal­lenge is to en­sure merged en­tity does not in­herit op­er­a­tional prob­lems of both air­lines

Sunday Times - - Business News - By PENE­LOPE MASHEGO

● The Depart­ment of Pub­lic En­ter­prises has started the le­gal process to move na­tional car­rier South African Air­ways (SAA) back un­der its wing as part of its goal to merge the air­line with SA Ex­press. This fol­lows Pub­lic En­ter­prises Min­is­ter Pravin Gord­han’s re­cent state­ment that dis­cus­sions around the merger had be­gun.

SAA has pre­vi­ously been placed un­der ad­min­is­tra­tion and still re­sides un­der the au­thor­ity of the Trea­sury and the Depart­ment of Fi­nance.

“Once the le­gal frame­work has been ap­proved to trans­fer the air­line back to the Depart­ment of Pub­lic En­ter­prises, the de­tails of a pos­si­ble merger with SA Ex­press can be con­cluded and ex­plained pub­licly,” Gord­han told Busi­ness Times on Fri­day.

How­ever, the task of merg­ing the air­lines into a sin­gle prof­itable na­tional car­rier is com­plex and will re­quire strate­gic think­ing around how the merged en­tity will avoid in­her­it­ing the fi­nan­cial and op­er­a­tional prob­lems that have plagued both air­lines.

SAA has been run­ning at a loss for the past decade and needs R21.7-bil­lion over the next three years to turn around its for­tunes. Of the three air­lines, Mango, SAA’s low-cost sub­sidiary, is the only prof­itable one, hav­ing recorded only two losses in its al­most 12 years of op­er­a­tion. It con­trib­uted 7% of SAA’s R30.7-bil­lion group rev­enue last year.

But SA Ex­press seems to be shak­ing off its op­er­a­tional is­sues and an­nounced this week that it was al­most at the end of its five-phase re­cer­ti­fi­ca­tion process with the South African Civil Avi­a­tion Au­thor­ity.

The avi­a­tion au­thor­ity grounded SA Ex­press in May and sus­pended its Air­craft Main­te­nance Or­gan­i­sa­tion cer­ti­fi­ca­tion as well as its Air Op­er­a­tors Cer­tifi­cate, cit­ing fail­ure to com­ply with safety reg­u­la­tions.

The South African Civil Avi­a­tion Au­thor­ity

Once the le­gal frame­work has been ap­proved, the de­tails of a merger can be con­cluded and ex­plained pub­licly Pravin Gord­han

Pub­lic En­ter­prises Min­is­ter

con­firmed that SA Ex­press had a demon­stra­tion flight on Fri­day, which is part of the fourth phase of the air­line’s re­cer­ti­fi­ca­tion bid, say­ing the process was pro­gress­ing well.

The Depart­ment of Pub­lic En­ter­prises cred­ited SA Ex­press’s progress to the work of an in­ter­ven­tion team com­pris­ing for­mer Depart­ment of Trans­port deputy-gen­eral Di­pak Pa­tel, for­mer SAA CEO Siza Mzimela, Sa­sol se­nior vice-pres­i­dent for cor­po­rate af­fairs Wrenelle Stander and Denel Avi­a­tion main­te­nance, re­pair and overhaul op­er­a­tions ex­ec­u­tive man­ager Dean Khu­malo.

“[The] in­ter­ven­tion team was estab­lished by the depart­ment to pre­vent a com­plete col­lapse of SA Ex­press — op­er­a­tionally and in terms of its fi­nan­cial po­si­tion,” the Depart­ment of Pub­lic En­ter­prises said, laud­ing the team and the new board for the “phe­nom­e­nal” work they had done in a short time.

Alf Lees, the DA’s spokesman on fi­nance, said the par­lia­men­tary fi­nance com­mit­tee had not re­ceived any word on SAA mov­ing back to the Depart­ment of Pub­lic En­ter­prises, but he was not sur­prised at the plan.

“It [mov­ing SAA back to pub­lic en­ter­prises] has been talked about for some time now. It seems to make sense with the pres­ence of [Gord­han] as the Depart­ment of Pub­lic En­ter­prises min­is­ter,” said Lees.

This week, SAA said it had be­gun the process of find­ing a pri­vate strate­gic eq­uity part­ner, which Sol­i­dar­ity Re­search In­sti­tute head Con­nie Mul­der said would not be af­fected by SAA mov­ing back to pub­lic en­ter­prises.

Pic­ture: 123rf.com

Un­like South African Air­ways, which has been run­ning at a loss for the past decade and needs R21.7-bil­lion over the next three years to sur­vive, South African Ex­press ap­pears to be turn­ing the cor­ner.

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