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
● 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.