Skip to main content

A South African Airways jet sits on the tarmac at O.R. Tambo International Airport in Johannesburg, South Africa, on Feb. 14, 2019.

Mike Hutchings/Reuters

Two big travel insurance companies in South Africa have stopped covering tickets issued by South African Airways (SAA) against insolvency as doubts grow about whether the struggling state-owned airline can survive.

While the move is unlikely to push SAA into liquidation by itself, it will hurt ticket sales and exacerbate a cash crunch that left the airline unable to pay salaries on time this month, analysts said.

SAA has not made a profit since 2011 and has been struggling with an unprofitable network, inefficient planes and a bloated workforce, despite bailouts of more than 20 billion rand ($1.8-billion) over the past three years.

Story continues below advertisement

Its financial position worsened dramatically after Nov. 15, when two of its largest unions began an eight-day strike over pay that forced SAA to cancel hundreds of flights.

Banks want additional guarantees from the state before they lend SAA more money, but Finance Minister Tito Mboweni has refused, leaving the airline’s finances on a knife edge.

Public Enterprises Minister Pravin Gordhan still wants to save SAA, which says it needs to more than 2 billion rand quickly to stay afloat.

President Cyril Ramaphosa has stayed out of the tussle so far, but the longer Mr. Mboweni refuses to sign off on guarantees, the more likely it is that SAA will shut down – an outcome an SAA board member said last week was a possibility.

Santam’s Travel Insurance Consultants (TIC) said this week it had stopped its travel supplier insolvency benefit for SAA flights then Australian agency Flight Centre Travel Group said it would stop selling SAA tickets.

The company that administers Hollard Travel Insurance told Reuters on Friday it had also excluded SAA from its travel supplier insolvency coverage, citing the airline’s finances.

Bryte Insurance’s head of travel Anrieth Symon said on Friday it had reversed its position on SAA and would cover its flights against insolvency.

Story continues below advertisement

SAA spokesman Tlali Tlali declined to comment on Friday and did not respond to e-mailed questions.

Neither Mr. Mboweni’s spokeswoman nor Mr. Gordhan’s spokesman answered their phones when called by Reuters.

’ALL OPTIONS’

SAA said in a memo to staff on Friday that its board and executives were in intense discussions with the government and that the airline’s leaders were exploring “all options regarding SAA’s future”.

Guy Leitch, an aviation analyst who edits the SA Flyer magazine, said the decisions by the insurers and Flight Centre to drop the airline were hugely significant.

“No one managing SAA, from Minister Gordhan downwards, anticipated the flight of confidence that the strike would have,” Mr. Leitch said.

In a letter to clients dated Nov. 28, Flight Centre said its preferred travel insurance provider was no longer willing to cover SAA due to doubts about its long-term viability.

Story continues below advertisement

TIC said its reinsurers had instructed it to exclude SAA from its insolvency coverage. It did not disclose the names of its reinsurers.

Mr. Ramaphosa’s government has taken a harder line on SAA recently, saying repeated bailouts must come to an end. He is trying to preserve the country’s last investment-grade credit rating and revive growth in Africa’s second-biggest economy.

South Africa’s sovereign debt is rated “junk” by S&P Global and Fitch Ratings but Moody’s still ranks it as investment grade, helping to prevent a spike in borrowing costs typically sparked by a downgrade from all three agencies.

Mr. Leitch said SAA’s liabilities exceeded its assets by a huge amount and the recent loss of confidence in the airline would force the government to decide whether to rescue it.

“This is a high-stakes game.”

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.

Report an error
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter
To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies