South Africa’s state airline grounds itself as debt crisis worsens

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South Africa’s state-owned airline is cancelling almost all of its flights over the next two days as it battles with unions over planned job cuts that are part of a government effort to slash its spiralling debt.

The airline, South African Airways (SAA), is losing about US$35-million a month and has warned that its survival could be jeopardized if the unions go ahead with their threat to launch “the mother of all strikes." The unions confirmed on Thursday that about 3,000 workers will go on strike starting 4 a.m. local time on Friday.

The response to the cuts is the first major test of the South African government’s attempts to decrease costs at its hugely indebted state-owned enterprises – including its electricity monopoly, which has imposed frequent power blackouts on the country as it struggles with finances.

In anticipation of the strike, SAA announced it is suspending nearly all of its domestic and international flights on Friday and Saturday. It said the strike “will result in a set of circumstances from which there may well be no recovery.”

The airline, one of the biggest in Africa with close to seven million passengers annually, announced a restructuring plan this week that could require the layoff of nearly one-fifth of its 5,150 workers. Despite a US$360-million bailout by the government this year, the airline still has massive debts and is technically insolvent.

The government announced last month that it aims to cut US$10-billion from its spending to reduce its soaring debt, but it gave no details. Two of the three major credit rating agencies have already downgraded South Africa’s debt to junk status, and the third agency, Moody’s, warned last month that it could do the same. Moody’s said the government lacks a “credible strategy” for cutting its debt, despite its promises.

Last year, the government tried to impose a wage freeze at its electricity monopoly, Eskom, but it quickly abandoned the plan after workers launched an illegal strike, accompanied by road blockades and the sabotage of equipment, which triggered a wave of power blackouts across the country.

While the unions have fought against wage freezes or layoffs at the state companies, Finance Minister Tito Mboweni has called for restructuring that could include the partial privatization of SAA and the unbundling of Eskom’s main entities to promote competition. British billionaire Richard Branson said last week that his Virgin Atlantic airline might be interested in buying an equity stake in SAA if the government approached it.

Mr. Mboweni said last month that the bailouts to the airline were “subsidizing the middle class and wealthy, flying around the country and other parts of the world, rather than ordinary workers who sit in old trains from the townships every day, often getting stuck.”

Analysts have predicted that the planned strike at SAA could be the final nail in the airline’s coffin. The airline says a strike would cost it more than US$3-million a day, at a time when the government is increasingly reluctant to provide further bailouts for the airline, which says it needs more than US$13-million in working capital this month if it hopes to keep operating.

The unions, representing the majority of the airline’s workers, have been unsympathetic to the airline’s warning that a strike could endanger its survival. The unions are seeking job guarantees and an 8 per cent wage increase, while the airline is offering 5.9 per cent.

Union leader Irvin Jim of the National Union of Metalworkers of South Africa said the strike would be indefinite. “If they think we are playing, they have got it coming,” he said.

A last-ditch negotiating session was held on Thursday afternoon, but there was no breakthrough.

The airline’s acting chief executive, Zuks Ramasia, said the restructuring and layoffs were crucial to SAA’s future.

“We urgently need to address the ongoing loss-making position that has subsisted over the past years,” she said on Monday. “It is a matter of great regret that we will part ways with some loyal colleagues.”

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