Prepared for Free Article on 26/04/2024 at 08:51. Authorized users may download, save, and print articles for their own use, but may not further disseminate these articles in their electronic form without express written permission from Africa Confidential / Asempa Limited. Contact subscriptions@africa-confidential.com.
PREVIEW
Committed investors and political will are key to success of proposed tie-up between Kenya Airways and South African Airways
Officials in Nairobi and Johannesburg are working with new investors for the launch next year of the biggest airline alliance in Africa after two years of crashing revenues in business travel and tourism.
Regional governments and the World Bank are predicting a modest upturn in both areas this year. In the medium term, the aviation sector in Africa, the second biggest continent after Asia, is forecast to be one of the fastest-growing in the world.
But battered by the Covid-19 pandemic, African airlines have projected combined losses of $8.2 billion in 2021. That's $2bn less than the losses in 2020.
The Strategic Partnership Framework signed by Kenya Airways (KQ) and South African Airways (SAA) last November was seen by policy-makers as a rational response to the financial pressures hitting the sector.
It was meant to lay the basis for a new continental airline, making the most of bases in two of Africa's busiest commercial hubs, Nairobi and Johannesburg.
So far, neither company will be drawn on how the merged entity will operate.
Interested investors have been gauging the level of support from the two countries' treasuries which are both struggling with revenue shortfalls and rising debts.
KQ has been trying to cut costs and diversify into cargo and charter flight operations. That enabled it to reduce its losses in the first half of 2021 to 11.48 bn shillings ($104.36m) down from KSh14.32 bn in the preceding six months.
But the carrier accumulated losses of more than KSh127bn over several years, forcing it to apply for a bail-out by the government, which is the biggest shareholder, with 48.9% of the equity.
Plans to fully nationalise the carrier, although approved by the National Assembly in July 2019, were scrapped after the Treasury offered a bail-out programme, taking over KQ's KSh93.4bn debt to suppliers, and providing a further KSh53.4bn in direct support in the fiscal year ending June 2022.
SAA returned to operations in September 2021, after a year's hiatus and a long period in administration. In three years, beginning 2018, SAA reported losses of 16bn rand ($800m). It had received R50bn in government assistance between 2004 and 2020, most of it when Dudu Myeni, a close ally of ex-President Jacob Zuma, chaired the board of directors. The report of the Zondo Commission into 'state capture' said SAA's 'governance quality and effectiveness' were in steady decline from 2012 and the period was marked by fraud and corruption.
The proposed merger to form a Pan African airline could help keep both airlines afloat and widen their reach, through tie-ups with smaller local carriers, and boost their passenger traffic and cargo business (AC Dispatches 4/10/21, On the runway again with sights on a continental carrier).
Aviation experts however suggest that the merged airline will also have to choose between rival international commercial alliances. KQ is a Sky Team member while SAA belongs to Star Alliance. Analysts also suggest that liberalising the African air travel market holds far better prospects for airlines than mergers.
Copyright © Africa Confidential 2024
https://www.africa-confidential.com
