Insurers blacklist South African Airways as doubts grow over its survival

November 30, 2019: Santam’s Travel Insurance Consultants (TIC) and Australian agency Flight Centre Travel Group – the two travel insurance companies in South Africa have stopped covering tickets issued by South African Airways (SAA) against insolvency as doubts grow over the airline’s survival.

While the move is unlikely to push SAA into liquidation by itself, it will hurt ticket sales and exacerbate a cash crunch that left the airline unable to pay salaries on time this month, analysts said. While union support for pay increases is understandable, further strikes risk destroying any remaining credibility the airline has in the international aviation market, driving away ticket retailers and customers. 

SAA has not made a profit since 2011 and has been struggling with an unprofitable network, inefficient planes, and a bloated workforce, despite bailouts of more than 20 billion rand ($1.4 billion) over the past three years. Its financial position worsened dramatically after November 15, when two of its largest unions began an eight-day strike over pay that forced SAA to cancel hundreds of flights.

Banks want additional guarantees from the state before they lend SAA more money but finance minister Tito Mboweni has refused, leaving the airline’s finances on a knife-edge.

Public enterprises minister Pravin Gordhan still wants to save SAA, which says it needs more than 2 billion rand ($136 million) quickly to stay afloat.

It is estimated that the airline needs around $135 million from the government to fund working capital – a drop in the ocean compared to future needs. Board members may have to file for liquidation if rescue funds are not forthcoming.

President Cyril Ramaphosa has stayed out of the tussle so far but the longer Mboweni refuses to sign off on guarantees, the more likely it is that SAA will shut down - an outcome an SAA board member said was a possibility. Ramaphosa’s government has taken a harder line on SAA recently, saying repeated bailouts must come to an end. He is trying to preserve the country’s last investment-grade credit rating and revive growth in Africa’s second-biggest economy.

Of course, the government does not want to see the airline fail. The government says it is urgently working to support the airline and has already agreed to repay R9.2 billion in debts that will come due for the airline in the next three years. 

SAA has recently suspended all services between Johannesburg and Hong Kong from November 23 until December 14, 2019. This decision has been taken to curb significant financial losses incurred on the route, exacerbated recently by the ongoing political tensions in Hong Kong.

African airlines lose an average of $1.54 per passenger carried while globally airlines earn $6.12 per passenger carried, according to the African Airlines Association (AFRAA).