Pravin Gordhan

South Africa’s Public Enterprises Minister Pravin Gordhan has stated that the strike action initiated by the country’s aviation unions over pay has caused immense damage to the reputation, operations and finances of South African Airways (SAA).

Reuters reports that the Minister said the airline group will now go through a radical restructuring process which will ensure its financial and operational sustainability as there is no other way forward.

SA’s Department of Public Enterprise says over the past few days there has been intense discussions with lenders to secure the necessary funds to cover the operational and structural transition over the next few months.

To worsen the airline’s situation, two big travel insurance companies in South Africa have stopped covering tickets issued by SAA against insolvency as doubts grow about whether the struggling state-owned airline can survive.

Reuters reports that while the move is unlikely to push SAA into liquidation by itself, it will hurt ticket sales and exacerbate a cash crunch that has left the airline unable to pay salaries on time this month, analysts say.

SAA has not made a profit since 2011 and has been struggling with an unprofitable network, inefficient planes and a bloated workforce, despite bailouts of more than 20 billion rand ($1.4 billion) over the past three years.

Its financial position worsened dramatically after November 15, when two of its largest unions began an eight-day strike over pay that forced SAA to cancel hundreds of flights.

Banks want additional guarantees from the state before they lend SAA more money, but Finance Minister Tito Mboweni has refused, leaving the airline’s finances on a knife’s edge.

Gordhan still wants to save SAA, which says it needs more than 2 billion rand ($136 million) quickly to stay afloat.

Santam’s Travel Insurance Consultants (TIC) said this week it had stopped its travel supplier insolvency benefit for SAA flights as Australian agency Flight Centre Travel Group said it would stop selling SAA tickets.

The company that administers Hollard Travel Insurance told Reuters that it had also excluded SAA from its travel supplier insolvency coverage, citing the airline’s finances.

In a letter to clients dated November 28, Flight Centre said its preferred travel insurance provider is no longer willing to cover SAA due to doubts about its long-term viability.

TIC said its reinsurers had instructed it to exclude SAA from its insolvency coverage. It did not disclose the names of its reinsurers.

Cyril Ramaphosa’s government has taken a harder line on SAA recently, saying repeated bailouts must come to an end. He is trying to preserve the country’s last investment-grade credit rating and revive growth in Africa’s second-biggest economy.

South Africa’s sovereign debt is rated “junk” by S&P Global and Fitch Ratings, but Moody’s still ranks it as investment grade, helping to prevent a spike in borrowing costs typically sparked by a downgrade from all three rating agencies.

Leitch said SAA’s liabilities exceeded its assets by a huge amount and the recent loss of confidence in the airline would force the government to decide whether to rescue it.

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