South Africa starts talks with potential buyers of state airline

South Africa’s government has started talks with private entities interested in buying into the country’s insolvent national carrier, which needs at least 10 billion rand ($583 million) to resume operations.

A team from the Department of Public Enterprises and advisers from FirstRand Ltd.’s Rand Merchant Bank began negotiations after receiving as many as four promising proposals regarding South African Airways, according to Kgathatso Tlhakudi, the DPE’s director general. The state ideally wants SAA to resume operations by the year-end, he said in an interview on Wednesday, although much will depend on a pick up in demand amid the Covid-19 pandemic.

While Tlhakudi declined to identify SAA’s suitors, the government has said previously that approaches have been made by private-equity firms and potential aviation partners. Ethiopian Airlines Group, Africa’s largest and only consistently profitable carrier, has in the past said it may be interested.

SAA has been in administration since December and hasn’t flown a commercial passenger flight since March, when South Africa’s borders were closed to help contain the coronavirus. The airline has long been a drain on state finances, relying on bailouts and debt guarantees since last making a profit almost a decade ago. Finance Minister Tito Mboweni has made clear that any fresh cash injection must come from private sources.

Listing Plans

The government is keen to replicate the privatization of former state phone monopoly Telkom SA SOC Ltd., which was partially sold to outside investors ahead of a listing on Johannesburg’s stock exchange, Tlhakudi said. The state retains a minority stake in the carrier.

“That proved to be a very good model for Telkom as it brought into the company management discipline and the important discipline of delivering a product on time to the market,” Tlhakudi said.

SAA may eventually also be listed, the director general added.

Airlines around the world have been hammered by travel restrictions to contain the Covid-19 pandemic, with many, including Deutsche Lufthansa AG and Air France-KLM, needing billions of dollars in government bailouts. While South Africa domestic flights resumed this week, the country remains closed to international travelers—the bulk of SAA’s customer base.

SAA’s administrators agreed with the government and labor groups to cut the workforce to about 1,000 employees from more than 4,000, and that process should be completed by the end of September, Tlhakudi said.