Authorities mulls state-owned airlines merger, seek minority equity partner

February 24, 2016 12:29 PM

“Government will seek opportunities to enter into strategic partnerships that allow SAA to draw on private-sector capital and technical expertise to improve its performance and expand its network,” Treasury said.

Passengers board a South African Airways Boeing 737 aircraft at the Kamuzu International Airport in Lilongwe in a file photo. REUTERS/Siphiwe Sibeko

South Africa will explore merging two of its state-owned airlines, South African Airways (SAA) and SA Express, and seek a minority equity partner for the company, Finance Minister Pravin Gordhan said on Wednesday.

Many of South Africa's 300-odd state entities are a drain on the government's purse and a team commissioned by President Jacob Zuma to review the companies recommended that some companies should be sold.

Treasury said in its 2016 budget review the government was implementing recommendations of the committee and would examine private sector participation in the state-owned companies.

“We do not need to be invested in four airline businesses,” Gordhan said in his budget speech.

“(Public Enterprises Minister) and I have agreed to explore the possible merger of SAA and SA Express, under a strengthened board, with a view to engaging with a potential minority equity partner, and to create a bigger and more operationally efficient airline.”

Treasury said the financial position of SAA has deteriorated and in the event of a default, the government would likely be called to pay a portion of its guarantee to the airline, which stands at about 14.4 billion rand ($939.3 million).

South Africa’s state-owned firms range from SAA to power utility Eskom and logistics group Transnet, among others.

Eskom was expected to receive a 23 billion rand cash injection from the government, but Gordhan said Treasury had delayed giving the power utility the remainder of 2 billion rand until it complies with equity allocation conditions, such as cost cuts and improving maintenance.

Treasury allocated 4.5 billion rand over the next three years for the implementation of the National Health Insurance, which is still in the pilot phase, as the government seeks to make healthcare services affordable for all South Africans, irrespective of whether they are rich or poor.

Gordhan said further details on financing of the scheme, expected to be rolled out in three phases over a 14-year period, will be released soon.

($1 = 15.3307 rand)