Closure and restart as an option for a sustainable South African national airline

Joachim Vermooten

doi:10.4102/jtscm.v14i0.477

Abstract

Background: The non-implementation of certain key initiatives of South African Airways’ (SAA’s) turnaround strategy poses a risk that SAA may not recover financially. Objectives: The establishment of SWISS (previously known as Crossair and Swiss International Air Lines) as a successor airline to Swissair’s liquidation was studied to determine the viability of closure and restart of a smaller successor state-owned airline as an alternative option to a sudden liquidation of SAA. Method: The study is based on a literature review of analysis, official reports and financial results. Results: Three distinct phases for the establishment of the successor airline for Swissair were identified: (1) Financial distress of the SAirGroup (Swissair’s holding company) and the factors which contributed to Swissair’s demise. (2) The transition from Swissair to SWISS. Swissair’s grounding was caused by a liquidity crunch followed the announcement of bankruptcy protection. Flight operations were restarted a few days later with financial support from both the State and the private sector. Some of Swissair’s assets, routes, staff and flight operations were transferred to a subsidiary, Crossair, as successor airline, later re-branded as SWISS. SWISS, however, continued to incur losses despite progressively reduced scale of activities and four restructuring plans. (3) As a Swiss-based national airline SWISS, which became profitable following its acquisition by Lufthansa. Conclusion: The transformation of SWISS as successor airline to Swissair is an option to mitigate the risk of a sudden service disruption of SAA. Serious pitfalls require detailed preparation and funding before implementation. SWISS only became successful following its acquisition by Lufthansa.

Highlights

The social value of the studyThe absence of a realistic, achievable turnaround plan combined with the lack of funding to maintain losses thereof poses a risk that South African Airways’ (SAA) may go out of business if it cannot settle debts as they become payable in future
The transformation of SWISS as successor airline to Swissair is an option to mitigate the risk of a sudden service disruption of SAA
SWISS only became successful following its acquisition by Lufthansa

Summary

Introduction

The social value of the studyThe absence of a realistic, achievable turnaround plan combined with the lack of funding to maintain losses thereof poses a risk that SAA may go out of business if it cannot settle debts as they become payable in future. An alternative option, which is explored in this study, is to mitigate the risk and economic impact of a sudden liquidation of SAA by means of a planned closure and restart (or carveout) of viable operations – a smaller and more focussed successor state-owned airline. This would establish a smaller sustainable state-owned airline to continue operations. The non-implementation of certain key initiatives of South African Airways’ (SAA’s) turnaround strategy poses a risk that SAA may not recover financially. The factors considered by the AG included SAA’s history of losses, lack of capital and volatility in foreign exchange rates, maturing loans and lack of working capital (SAA 2018:99)

Objectives

Results

Conclusion