The National Staff
Etihad Airways and South African Airways have expanded their strategic partnership, adding a second daily codeshare service between Johannesburg and Abu Dhabi from March.
Earlier this week the Etihad president, James Hogan, denied it was planning an investment in the troubled South African airline after media quoted its acting chief executive, Nico Bezuidenhout, as saying that a such a deal was on the cards.
Etihad over the past three years has acquired equity stakes in similarly struggling carriers to boost its geographic footprint and connectivity.
This year, the Abu Dhabi airline grew its equity partnerships to eight, including Air Seychelles, airberlin, Virgin Australia, Air Serbia, Ireland’s Aer Lingus, India’s Jet Airways. Deals with Etihad Regional (formerly Darwin Airline) and Italy’s Alitalia await approval.
In Thursday’s announcement Etihad said that it would place its “EY” code on SAA’s new Johannesburg-Abu Dhabi flights, in addition to 16 of the airline’s other services from Johannesburg to key destinations across the African continent. In return, SAA will place its “SA” code on 32 other Etihad routes.
“Under the second phase of our cooperation, we will better serve established regions such as North America, Europe and Australia, while strengthening our presence in fast-growing markets across the Middle East and Asia,” Mr Bezuidenhout said.
“In particular, the codeshare expansion will support a planned adjustment of our network to strengthen access into the fast-growing China and India markets.” SAA is “technically bankrupt” and surviving off state- guaranteed loans, the South African public enterprises minister Lynne Brown said in October.
The carrier delayed the publication of earnings for the 12 months that ended in March. It made a 991 million rand (Dh315.4m) operating loss the previous year.
SAA presented a 90-day rescue strategy to the government that includes 1.3 billion rand in annual savings and a review of some long-haul routes, Mr Bezuidenhout said on Wednesday. He suggested that a stake sale to Etihad could also be an option.
“We haven’t discussed the SAA issue specifically, but we will oppose any privatisation moves,” said Patrick Craven, the Congress of South African Trade Unions spokesman. “It certainly needs to be more efficiently run, but we reject the argument that that can only happen if there is privatisation.”
Privatisation is back on the South African government’s agenda for the first time in more than a decade as it runs out of options to bail out cash-strapped state companies.
The finance minister, Nhlanhla Nene, announced plans in October to raise at least 20bn rand by selling “non-strategic” assets to help the power utility Eskom plug a 225bn rand cash-flow gap.
As recently as 2009, the ruling African National Congress was discussing the option of nationalising mines. Strikes and power shortages that have curbed growth and tax revenue and left the nation’s credit rating on the brink of junk status have spurred a change in thinking.
“The policy shift is significant,” said Azar Jammine, the chief economist of the Johannesburg-based advisory service Econometrix, said.
“It illustrates the tremendous dilemma the government is facing in terms of where to get the money to run the state companies, which are in such disarray.”
South Africa’s last major asset sale was in March 2003, when it sold 25 per cent of telecommunications company Telkom South Africa for 3.9bn rand. The government disposed of 20 per cent of SAA to Swissair in 1999 and bought it back in 2002 when the European carrier went bankrupt.
Asset sales could help the government meet his target of lowering the budget deficit to 2.5 per cent of GDP over the next three years, from 4.1 per cent this fiscal year. Debt-service costs are the government’s fastest-rising expenditure item, consuming a projected 10 per cent of the national budget this fiscal year, up from 9.6 per cent last year.
“The government itself is running out of cash,” he said. The most obvious solution is to privatise.”
* with Bloomberg News
* Bloomberg News
Follow The National's Business section on Twitter
