SA’s aviation sector fastens its seat belt
If a successful airline like Comair needs help, they all do, and they want the government to show them the money
JSE-listed Comair’s decision last week to go into business rescue sent shockwaves through the aviation industry because for more than 70 years it consistently delivered annual profits.
The prevailing view in aviation circles is if this can happen to Comair, which is solvent, it can happen to anyone.
Though Comair is not the first SA airline to enter business rescue — state-owned SAA went this route in December 2019 — it is certainly the first high-profile victim of Covid-19 in the industry. The fallout around the pandemic certainly exacerbated the situation at the crippled SAA, but it was on the ropes even before then.
Calls are now increasing for a special government intervention to help keep the SA aviation industry afloat.
Low-cost airline FlySafair maintains it is imperative that the industry receive clarity from the state “in terms of intervention into this industry”.
“Governments around the world are recognising that airlines are essential economic enablers and are coming to the party to support their aviation companies. We’ve seen various types of support coming from the US, France, the Netherlands and plenty of others seeking to support their airlines, because not only are we a keystone to the greater tourism trade, but indeed to the economy as a whole,” said Kirby Gordon, chief marketing officer for Safair, which owns FlySafair.
“Help from the state can come in a number of ways. It could be relief on charges from state-owned entities, which are in a better position to lend against government guarantees — so we could look to have our cash flow preserved and temporarily improve our margins to claw back in more viable timelines if relief is granted by the likes of Airports Company SA, Air Traffic Navigation Services, SA Weather Service, and the Civil Aviation Authority,” says Gordon.
Protection of airlines is the protection of the infrastructure of an economy, so investment into our sector will underpin growth and recoveryKirby Gordon, chief marketing officer for Safair
He adds that VAT and other tax relief would help, as well as a delay on carbon taxes.
Gordon says FlySafair is in a “tough position at the moment” with the passenger airline completely grounded and no revenue coming in. It still has to foot the “large monthly bills on aircraft leases and various other overheads”.
“It’s a tough scenario in that our assets are specialised and cannot be pivoted to other uses. We’re a large employer (1,200 staff) and we’re going to be among the last businesses to open because of the very nature of our trade,” he says.
“To make matters worse, when we do start to operate again, it’s going to be at a much lower level than before, due to a lower anticipated demand, which means we’ll have stunted revenue with which to try to cover the full set of costs. Even operating a full schedule again, our problem is that we operate with very thin margins, which means that the longer we remain inoperative, the longer it’s going to take to claw back from this position.”
Gordon says the airline paid all its staff for the initial 21-day lockdown period, “but we’ve all been unpaid since then, and will remain so until we can fly again”.
Airlines all over the world as well as in SA find themselves in a similar state and that the government needs to provide “some cash investment to help us all ride the storm”.
“Protection of airlines is the protection of the infrastructure of an economy, so investment into our sector will underpin growth and recovery in so many other parts of the SA economy.”
Drastic steps needed
Chris Zweigenthal, CEO of the Airlines Association of Southern Africa, says the organisation has written to the government requesting aid for the industry. “We understand it’s a tough call from the government. We have an economy that has not been performing and, at the same time, we do know there are many other important priorities such as catering for the poor and those who do not have food.”
Zweigenthal says the R500bn rescue package announced by President Cyril Ramaphosa is really geared for smaller and medium businesses, which have no reserves to support themselves.
“We understand that. But at the same time we think that aviation is a facilitator and is pivotal for business. It supports, travel and tourism and many small, medium and micro-enterprises,” he says.
While the airline industry is in a dire situation because of the lockdown, Zweigenthal accepts that drastic measures are required by the government to contain the spread of the virus.
“It did have an impact. You effectively cut nearly all activity. If in February you had 100% activity, you went down to 40% of the operation in March; then on March 27, there was zero activity. The industry is basically getting zero revenue. That puts it straight into a liquidity crisis and there are cash problems.”
The International Air Transport Association (IATA), said in its latest forecast that there are more than 250,000 jobs at stake in the aviation and related air transport sector in SA, and the shutdown has resulted in a loss in revenue for the airline industry of $3bn. It said this loss represents 14.5-million fewer passenger journeys in SA this year compared with 2019.
Linden Birns, MD of Plane Talking, a consultancy to the air transport industry, says the multiplying effect of this loss has reverberated through the numerous industries and regulatory bodies linked to aviation.
He says it is apparent from remarks made by government representatives that they believe “SAA was the be-all and end-all in the airline industry” but that it is critical the rest of the sector is also saved. “There is a very robust airline sector and related infrastructure services providers without which you won’t have anything. They are all co-dependent.”
IATA has also pointed out that there are various levers at the government’s disposal, including deferrals or waivers on taxes; discounts on infrastructure user charges; as well as the possibility of the state going to the bond markets and underwriting or guaranteeing loans to airlines.