National Treasury

National Treasury has recently rolled out a R2.3 billion bail-out to South African Airways to prevent the airline from defaulting on its loan with Standard Chartered Bank amidst a government commitment of fiscal consolidation. The bail-out could not have come at a worse time. In the second quarter of 2017, the South African economy went into a recession. This implies that tax revenue expenditures will be lower than they had been projected in the 2017 budget framework. Government has a debt of R2.2 trillion, around 52% of GDP. The cake is thus smaller and smaller and bail-outs are displacing funds that could be used in developmental purposes such as healthcare, education and infrastructure.

In the financial year that ended March 2016-17, SAA allegedly made a loss of R1.9 billion. The trajectory continued in the new 2017-18 financial year, with losses of around R734 million in the first month. The misfortunes of South African Airways are perplexing when compared to the performance of other state owned airlines. Fly Emirates made lowest profit in 5 years at $340 million while Qatar Airways made profits of $540 million in the financial year 2016-17 Etihad $130 million at the end of the 2014-15 financial year. By being at the centre of the world, these Gulf airlines enjoy a geographical advantage paralleled by no other region. Their huge oil reserves have no doubt assisted their states to make the sort of capital investments into technologies, buying the latest aircrafts that have bigger capacity and better fuel efficiency thus keeping the airlines innovative and competitive.

In addition to SAA, several other airlines in Africa have been operating at a loss with stiff competition from the Middle East. However, some state-owned African Airlines such as Ethiopian Airways continue to fly their nations’ flags without being a perpetual burden on the public purse. Ethiopian Airways has consistently been making annual profits of around $2.5 billion over the last few years. The outlook for air travel in Africa is positive. The growth in Africa’s middle class and urbanization is expected to boost demand for air travel. SAA along with other airlines must take advantage of this growth in continental demand.

 

 

http://www.treasury.gov.za