The state company that could go from zero to hero in South Africa

While there have been debates about the future feasibility of South African Airways (SAA) given its operational challenges and dwindling state resources, a study commissioned by the airline projects a significant increase in the group’s contribution to GDP, job creation, and government revenue.

A new report by Oxford Economics titled The future economic impact of South African Airways considers the SAA Group’s direct operational impact, indirect effects through its supply chain, and induced effects from employee spending, tourism and trade facilitated by SAA.

Notably, the study was commissioned by the SAA Group — which comprises subsidiary companies SAA Technical and Air Chefs and includes divisions SAA Cargo and SAA Voyager.

The methodology combined SAA’s internal projections, macroeconomic forecasts, and established economic models.

According to the report, SAA’s total contribution to GDP is projected to increase from R9.1 billion in 2023/24 to R32.6 billion by 2029/30.

Its growth is expected to create a substantial number of jobs, with the total number of jobs supported increasing from 25,200 in 2023/24 to 86,700 by 2029/30.

SAA’s operations are predicted to support an increase in government revenue from R1.5 billion in 2023/24 to R6.4 billion by 2029/30.

The SAA Group’s operations stimulated fiscal revenues (tax) of R1.1-billion in 2023/24, a figure that is projected to rise to R4.4-billion in 2029/30.

Additionally, the report estimates the SAA Group’s tourism impact at R1.7 billion in 2023/24, rising to R8.9 billion in 2029/30 and its trade impact in 2023/2024 amounted to R300 million, which is forecast to quadruple to R1.2 billion in 2029/30.

SAA Interim CEO, Professor John Lamola, said t the report affirms that the State’s contribution as the sole shareholder in SAA has not been without a tangible return on investment.”

“In turn, as the study ventures into a forecast of future impacts as derived from SAA’s growth and expansion plans. It serves as an independent validation of SAA’s current five-year Corporate Plan,” he added.

Financial and operational woes history

The report noted that SAA faced “significant financial and operational challenges” in the decade leading up to 2019.

SAA has a history that is marred by corruption during the years of State Capture, with frequent government interference in its operations

Back in 2019, SAA, which had around R28 billion in liabilities, was seen as a black hole for taxpayer-funded bailouts.

These challenges led to the airline entering business rescue in 2019 and further scaling down operations in 2020 due to the COVID-19 pandemic.

SAA then underwent business rescue and emerged in April 2021 as a “smaller and more streamlined entity,” as reported by Oxford Economics.

This restructuring involved reducing the scale of its operations and re-establishing some regional and international routes.

An agreement to sell 51% to Takatso Consortium for R51, with a R3 billion capital injection, was signed in February 2022.

However, ongoing negotiations saw disagreements over SAA’s reevaluated value, initially set during the peak of its crisis.

Late former Public Enterprises Minister Pravin Gordhan called off the deal and noted that public interest and fair market price were not adequately addressed in the renegotiations.

According to the Auditor General of South Africa, between 1 April 2018 and 31 March 2023, the South African government injected over R38.1 billion into SAA.

R27.6 billion of this was deposited into the airline after the business rescue process.

Since relaunching in September 2021, SAA has been gradually ramping up operations and working towards rebuilding its network.

It emerged from business rescue with just six aircraft and five routes, but now currently flies 16 aircrafts and will take delivery of an additional seven during calendar year 2025.

The current footprint of 16 destinations is modelled to support the extension of the route network into Europe, North America and East Asia as SAA maintains its strategic brand as a premium international network carrier.  

Any more taxpayer bailouts?

SAA was recently transferred to the Department of Transport (DoT) as its line department following the dissolution of the Department of Public Enterprises, and Transport Minister Barbara Creecy told Scopa that much smoother flying is to be expected.

“As it stands, SAA is debt-free and not looking for additional funding from the National Treasury,” said Creecy.

“Since exiting business rescue, SAA has repositioned itself as a leading national carrier, taking advantage of its ability to provide long-haul and intercontinental flight services and leveraging its partnerships with other airlines,” added the minister.

Creecy assured MPs that SAA would not be privatised but welcomed equity stakes from development financial institutions, similar to the Public Investment Corporation’s investment in Airports Company South Africa.

However, the airline requires a cash injection investment through an equity share partner to reach a healthy financial state and return to its “glory days”.

With that said, SAA has reported some steady growth for the 2022/23 financial year; a big change after a period that nearly left the national carrier grounded for good.

The airline, together with its subsidiaries, posted a net profit of R252 million – the first time the airline has been in the black since 2012.

This stands in stark contrast to the combined R23.5 billion in losses reported over the previous four years.

Total revenue increased by 183%, from R2 billion the prior year, to R5.7 billion.

“SAA airline operations turned a prior year’s negative [earnings before interest, taxes, depreciation, and amortisation] of R1 billion into a positive R277 million,” said the carrier.

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