Parliament is currently considering a proposal to merge SA’s state-funded airlines, SAA, SA Express and Mango Airlines, in an effort to cut costs.

On the 11th September 2019, the South African parliament was presented with a proposal, prepared by the Department of Public Enterprise, to merge all three of SA’s state-funded airlines. The plan has highlighted a number of potential benefits of this possible merger; however, there are also various risks that parliament will need to consider carefully before making a final decision.

Parliament considers plan to merge SA’s state-funded airlines
The three SA airlines included in the merger proposal are:

  • South Africa’s international and domestic flag carrier, South African Airways (SA);
  • Regional carrier, SA Express; and
  • South Africa’s popular low-cost carrier, Mango Airlines.
    The merge does not seek to create an entirely new airline out of the three aforementioned airlines, but rather to transform the governance and the way in which the airlines operate, into one entity.

Most notably, the merged airlines would be utilising one combined fleet which would consist of a total of 86 aircraft flying to 59 destinations. South African Airways would supply the majority of the aircraft with a total of 47, while SA Express would contribute 24 and Mango Airlines a maximum of 15.

Ultimately, this fleet alone would put the newly merged airlines into the top three of the largest airlines in all of Africa, coming in second only to Ethiopian Airlines, which currently totals 117 aircraft.

Potential benefits of the merge

In conducting research when putting the proposal together, the Department of Public Enterprise discovered that it would likely lead to significant cost savings for the government; fewer salaries and reduced maintenance costs (perhaps not such a good thing in light of the recent security breach at SAA technical!) being just the tip of the cutback on expenses. Additionally, each airline would have the opportunity to borrow capacity from another if needed.

Furthermore, seeing as though both South African Airways and SA Express have struggled financially for many years now – SA Express received a R300 million bail-out from the government only a few weeks ago – the merge could help to facilitate and speed up the process of getting out of debt.

Are there risks?

There are most definitely risks, as well as a few significant cons, associated with the potential merger. Firstly, there is certain to be a cutback in the number of jobs available (due to the need for fewer executives) leading to retrenchments, and further aggravating South Africa’s sky-rocketing unemployment rate.

The main risk though is that considering how some of these airlines have been performing in recent times, linking them together could backfire and result in even heavier financial losses for the government.

“At the moment, as we speak, the consolidation [plan] is being presented at the economic cluster, and next week it will be submitted to Cabinet for a decision. Thereafter, we will be able to decide on how much additional funding the airline will need, based on how the consolidation will be carried out,” said Public Enterprises Minister, Pravin Gordhan.

Cabinet will undoubtedly need to take the time to consider all the potential risks vs benefits that this three-way merge could bring about. The next step will be either an approval or rejection of the plan or, alternatively, the economic cluster of ministries may opt to send it back for further refinement or changes.

The public is said to be able to expect a final decision over the course of the next few months…

SOURCE