Room for 25% equity partner in SAA merger - Brown

6 April 2016

Cape Town - Public Enterprises Minister Lynne Brown said on Wednesday that she is in favour of a merger between South African Airways (SAA) and SA Express, but said the question is how it should happen.

Brown outlined her department’s strategic and annual performance plans to the Portfolio Committee on Public Enterprises and also gave a broad overview of the various state-owned companies her department is overseeing.

“The question is, should we merge SAA and SA Express, or create a holding company that keeps all four airlines – including Mango and SA Airlink – within our fold?

“My preferred choice is to merge them so that they still do the things that they were tasked to do.”

Brown said it’s difficult for a feeder airline such as SA Express to operate on SAA’s airline code (the unique code that aircraft use in their timetables, booking systems and on passengers’ tickets). “The SAA code is currently divided among SA Airlink, SA Express and Mango.”

Whatever the outcome, government is sure to seek a strategic partner from the private sector. According to Brown, legislation allows for a 25% equity partner.

During Finance Minister Pravin Gordhan’s Budget Speech in February, he said government did not need to be invested in four airline businesses and that a merger will see a strengthened and more profitable national carrier.

The move to merge the airlines comes after the Presidential Review Commission report on state-owned companies.

During question time, Brown was asked if government would make provision for a regional airline that would accommodate lower income groups.

“I can’t tell you if this will be transferred to lower income groups,” she said. “The problem with the airline business is there are very few private sector businesses that want to get involved.

“Their overheads are high and the cost of jet fuel is volatile,” she said. “As for long-haul destinations, we almost need a medium-cost airline to get into this space.”

This article first appeared on Fin24, see here.