Options for the restructuring of state ownership of South African Airways

Abstract

Background: South Africa adopted an economic policy that included both deregulation and privatisation in line with the 1980s’ global trends. Economic deregulation of the domestic air transport market was implemented in 1991 and partial privatisation of South African Airways (SAA) 8 years later, in 1999. This was reversed in 2002. SAA’s poor financial performance since 2012, its insolvency and future funding needs resulted in mixed messages on the future ownership of SAA. Since 2004 the policy of full ownership of state-owned enterprises (SOEs) ruled out SAA’s privatisation. SAA’s escalating losses prompted the Minister of Finance and National Treasury to favour the introduction of a strategic equity partner (SEP) to invest in a minority shareholding in SAA. Objectives: This article examined options for the restructuring of state ownership of state-owned airlines in South Africa. Method: Contemporary privatisation trends and the level of state ownership of airlines in Europe and elsewhere were identified. The preferred methods of airline privatisation and their economic benefits were determined. Results: Contrary to the freeze of privatisation in South Africa, increased trends in privatisation were identified elsewhere. In particular, share issue privatisations (SIPs) on listed securities exchanges were favoured to SEPs. South African Airways’ financial circumstances demonstrate the need to eliminate SAA’s losses and to resolve its insolvency. Conclusion: The South African official definition of privatisation needs to be broadened to include SIP instead of being limited to the sale of shares in SAA. The SIP method of privatisation is ideally suited to resolve SAA’s capitalisation and subject SAA to market and regulatory disciplines.