South Africa Looks to Merge State Airlines, Sell Minority Stake

  • Unprofitable SAA, SA Express may be combined under new board
  • No more bail-outs for state enterprises, Gordhan vows

South Africa is considering merging two state-owned airlines and selling off a stake in the enlarged carrier to private investors, Finance Minister Pravin Gordhan said.

The government will “explore the possibility of merging South African Airways and SA Express, under a strengthened board, with a view to engaging with a potential minority equity partner,” Gordhan said in his budget speech in Cape Town on Wednesday. The aim would be “to create a bigger and more operationally efficient airline.”

SAA is technically insolvent and has been relying on 14.4 billion rand ($940 million) in government guarantees to raise debt and continue operating. While the airline is seeking to reduce plane leasing and other costs, Gordhan said it could take two or three years to come up with a financially credible plan for SAA.

The National Treasury, which is responsible for SAA, is busy drafting proposals for a new board for the airline to submit to the Cabinet and hopes to conclude the process within the next few weeks. SAA is one of a number of state-owned companies that have turned to the government for support to fund new infrastructure and cover operating expenses, reliance Gordhan said was unsustainable.

‘Not Sacrosanct’

“Hopefully the word bail-out will be removed from our vocabulary as far as state-owned enterprises are concerned,” he told reporters. He indicated that minority stakes in other companies could also be sold off, without specifying which ones.

“There is often the view within government and outside as well that all state-owned companies are sacrosanct, they can’t be touched, everyone is absolutely essential,” the minister said. “There’s evidence now that there are not sacrosanct. We’re willing to take a tougher look at each of these entities.”

Other pronouncements in the budget review affecting state companies include:

  • The government is withholding 5 billion rand of the 23 billion rand it agreed to give Eskom last year until the utility has implemented required cost cuts, executed its capital expenditure program and improved maintenance.
  • The South African National Roads Agency Ltd. will receive 1.4 billion rand over the three years through March 2019 to help supplement the revenue it collects from tolling freeways.
  • The South African Post Office was allocated an equity injection of 650 million rand in the current financial year, which was funded by reprioritizing other expenditure.
  • The foreign-borrowing limit for Transnet Ltd. was raised to 81 billion rand from 55 billion rand