SAA merger: CEO raises questions

12 January 2017

Cape Town - It is unclear what a merger between the three state-owned airlines SAA, Mango and SA Express would achieve that cannot be achieved by each airline individually, Erik Venter, CEO of Comair, told Fin24.

This was in reaction to a parliamentary response by Public Enterprises Minister Lynne Brown. Fin24 reported on Tuesday that Brown said it will cost government R12.1m to make use of the services of Bain and Company, the Boston-based consultancy firm appointed to manage such a merger.

"Mango is already a 100% subsidiary of SAA and SAA ensures that its flights do not overlap with those of SA Express. So I do not see any structural change to the network or capacity arising from the merger," said Venter.

"The airlines already make common use of some of SAA’s back office systems and airport staff, for instance, so I do not see any meaningful saving in overheads arising specifically from a merger."

At the same time, a merger might consolidate three boards of directors into one and might concentrate control under one CEO, added Venter.

In her parliamentary response Brown said the scope of the work entails the development of an “optimal corporate structure to re-align the state-owned airlines” and that the consultancy will take cognisance of industry best practices.

In October 2016 at a meeting of the Airlines Association of Southern Africa in Namibia, Brown said airlines worldwide were compelled to restructure their operations to address inefficiencies and remain relevant to the markets they serve.

She emphasised though that the “strategic intent” of government is to maintain control and oversight of the state airlines. She said a holding company for the three separate airlines could be created, or they could be merged into one entity. Another possibility would be to sell a 25% stake in the newly formed holding company to a strategic partner.

There have been several calls from business and opposition parties for the national carrier to be privatised.

SAA has in the past two financial years made a combined financial loss of over R7bn, while Mango recorded a loss of R36.9m in the financial year to the end of February 2016.

Both SAA and SA Express are surviving on state debt guarantees at a time when the government is trying to rein in spending and raise revenue amid slowing economic growth.

This article first appeared on Fin24, see here.