South African Airways(SAA) stock is up 3% today as creditors finally approved a rescue plan to restructure the company. Earlier this year, the airline’s stock price depreciated 65% as it laid of its 4,700 workforce and announced ‘voluntary bankruptcy’ after running out of cash. The new project is dependent on the treasury supplying 10 billion rand ($600million) alongside other creditors. For the plan to be successful South African Airways will need to reduce its fleet and cut its workforce. The operation will then be scaled-up cautiously as lockdown flight restrictions are lifted.

The 110-page plan made to steer the company into the green outlines a long-term strategy presenting how SAA will become ‘self-sufficient’. SAA has not been profitable since 2011 and in the last 3 years alone the government has provided $1.1bn in funding. SAA’s financial frailties are clear and are rooted in a high debt-equity ratio, mismanagement and a sprinkle of corruption as top-ranked employees allegedly earned salaries which would destabilize the balance sheets of most businesses.

Saving and restructuring the airline which won Africa’s Leading Airline award for 11 straight years from 1994-2005 may be worthwhile in the long-term. With lowering costs of travel and a global increase in travelers South Africa may yet regain its title as a tourist hotspot. If the treasury can not provide the required funds SAA will most likely be liquidated and sold to competitors.

 

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