Yes, size matters for SAA

Is SAA finally pulling out of its decade-long nosedive and rising towards recovery?

There are early signs that the state-owned airline is edging closer to its former glory days by shifting towards operational and financial sustainability. Management is emphatic that it can fly without more taxpayer-funded bailouts. Management also says commercial banks are keen to discuss lending SAA money to bankroll its growth ambitions. 

SAA’s regional and international routes are expanding. Interim board chair Derek Hanekom says the airline’s unaudited 2023/2024 financial statements indicate that a net profit will be recorded for the second consecutive year. SAA recorded a net profit of R252m for the 2022/2023 financial year, marking its first positive bottom line since 2012. 

Hanekom says the profit for the upcoming reporting period will be larger.

“We continue to generate profits without financial support from the National Treasury. We have been clear over the past two years that we won’t approach the Treasury for support. We’ll run SAA in our own way,” he tells the FM.

However, the audited financial statements for 2023/2024 have been delayed and are still outstanding. Their tabling in parliament has been postponed — not a good indicator of recovery. 

SAA has racked up losses of more than R29bn since 2018 and received bailouts of R38bn from taxpayers over the same period to remain operational. In other words, billions of rand went into a black hole. If SAA were a privately owned airline, it would have crashed long ago. 

If it is accepted that SAA has ended its money-losing streak, questions must be asked. What has changed at SAA, paving the way for a turnaround? What is being done differently by management that others before couldn’t do? 

The most obvious answer is that SAA is running a smaller aviation operation after emerging from business rescue in April 2021. 

The SAA of today leases 18 aircraft, flying about 20 times a day. Before it entered business rescue in December 2019, it was leasing 52 aircraft. At its peak in earlier years (particularly in the early to mid-2000s), SAA’s capacity was significantly higher, with a fleet size of 60 to 65, flying to more than 40 destinations across Africa, Europe, Asia, North and South America, and Australia). It operated more than 50 daily flights, depending on the season and demand. 

A smaller SAA allows for more focused management and doing more with less. The SAA strategy under Hanekom and new CEO John Lamola is centred on rebuilding a smaller, financially sustainable airline with a carefully managed route network and fleet. 

“Though SAA is now profitable, it is still in a reasonably precarious position. The cash reserves are not where they should be. We can’t expand the way we want to expand because the capital is not available,” says Hanekom. 

The appointment of Hanekom as the interim board chair in April 2023, by then public enterprises minister Pravin Gordhan,  was seen as the first step to rebuilding skills at the airline.

Hanekom is a respected politician and activist with a long record of public service. He has had multiple high-profile roles, including minister of tourism, minister of science & technology, and minister of agriculture & land affairs under several administrations, including Nelson Mandela’s. He was one of the few ANC veterans who publicly opposed former president Jacob Zuma and took a stand against the state capture project, which also targeted SAA. 

Hanekom says it is still difficult to convince skilled individuals from the private sector to serve at SAA, given its tainted history of state capture, corruption and political interference. Underscoring this is that, historically, SAA’s board consisted of nine to 14 members. Today it operates with just six board members: Hanekom, Fathima Gany (finance), Fundi Sithebe (airport operations), Mahlubi Mazwi (finance and business strategy), Johannes Weapond (corporate law), and Dumisani Sangweni (economics and strategy).

After Vuyani Jarana resigned in 2019, citing lack of government funding to support the airline’s turnaround plan, SAA did not have a permanent CEO until February 2025, when the cabinet approved the appointment of Lamola after he had done the job on an interim basis since May 2022. He is the ninth CEO since 2014, following many who have served on an interim or acting basis.

Other airlines in South Africa have had more leadership stability but have had to face aviation market challenges without financial support from taxpayers. The industry as a whole was devastated by the pandemic. At least 40 airlines have collapsed in Southern Africa since 1992, while SAA was propped up by the government. 

Airlink, a privately owned regional airline that traditionally flew to underserved towns in South Africa, is one that has survived. Rodger Foster, the former CEO of Airlink who recently stepped down after nearly 33 years in charge, has attributed the airline’s survival to keeping an eye on the balance sheet so that operating costs don’t gobble up revenue, to forging lucrative partnerships with global airlines and to leadership stability. He finds it bizarre that SAA has had multiple CEOs over a short period. 

We have been clear over the past two years that we won’t approach the Treasury for support. We’ll run SAA in our own way

—  Derek Hanekom

“In my time as CEO of Airlink, I think I’ve seen more than 30 CEOs at SAA. There has not been transfer of knowledge or institutional memory. How does each CEO understand the aviation industry if they don’t stay long? The industry is complicated and so dynamic,” says Foster.

The choice of Lamola as SAA’s CEO has drawn mixed opinions. 

On the positive side, under his leadership since May 2022, SAA has returned to profitability, completed three years of outstanding audits of financial statements and expanded its fleet and route network to restore regional and international destinations.

However, Lamola’s appointment as permanent CEO has been controversial. The SAA board and an independent headhunting firm reportedly ranked him as the least preferred candidate among the final three shortlisted, below Allan Kilavuka, the current CEO of Kenya Airways, and Philip Saunders, SAA’s former chief commercial officer. 

A concern raised about Lamola during the recruitment process was his comparatively limited senior airline executive experience. Though he has experience in state-owned entities (SOEs), having worked for Denel and Airports Company South Africa, his professional pedigree has largely been in academia.

The CEO interview process was also controversial because transport minister Barbara Creecy and Deputy President Paul Mashatile personally interviewed the shortlisted candidates. 

CEO appointments should be made by the board to ensure accountability and effective governance, says Parmi Natesan, CEO of the Institute of Directors in South Africa. “Best practice in governance, as outlined in King IV, states that a board should have the authority to choose and appoint the CEO to ensure proper oversight and accountability.”

While Hanekom admits that it was ill-advised for Creecy and Mashatile to interview the candidates, he is emphatic that the SAA board was not influenced or pressured in its CEO selection. He says Lamola performed well during the interview process and had the advantage of being the incumbent.

There was also an acceptance that it would be difficult for the cabinet to approve the appointment of Kilavuka, a Kenyan citizen, to lead a South African SOE even though he has a strong track record as CEO of Kenya Airways since April 2020. 

Despite the recruitment controversies, Hanekom says there have been big political shifts that are putting SAA on a path of operational and financial sustainability.

He says management and the board no longer take instructions from politicians about the airline’s strategic direction and day-to-day affairs. This is significant because political interference contributed to SAA’s downfall during the state capture years. 

Such interference was detailed by the state capture inquiry, where former public enterprises minister Malusi Gigaba and several former directors were implicated in wrongdoing. This interference came to a head in 2012, when SAA chair Cheryl Carolus and seven other board members resigned and were vocal about being undermined by Gigaba.

Russell Loubser, a former JSE CEO, was the first to resign, saying Gigaba was the source of contention because he didn’t want SAA to be run on commercial principles. “Gigaba was not interested in running SAA correctly. He made utterances such as that SOEs like SAA would be used to achieve state objectives. With Zuma being the president at the time, I knew that things would not turn out the right way. And they didn’t.”

The final straw for Loubser was when former SAA directors Yakhe Kwinana and Zakhele Sithole pushed for the appointment of PwC and Nkonki to jointly take over the external audit function at SAA from Deloitte in 2012. This appointment didn’t happen with the support of the SAA board. 

The appointment of PwC and Nkonki from 2013 to 2016 was found by the state capture inquiry to have been irregular because it didn’t follow any proper procurement process. The firms were also criticised for repeatedly issuing clean audit opinions, despite widespread allegations of fraud and corruption within the airline. From 2017, the auditor-general (AG) took over the audit function of SAA and raised red flags about the airline being in crisis.

The effects of auditing blunders are still being felt. The AG is scathing about rookie accounting errors made by the airline. In its audit of the SAA 2022/2023 financial statements, the AG found that the airline doesn’t have the record-keeping systems and skills to prepare credible financial statements. 

SAA also struggles to comply with key legislation relating to procurement and contract management, expenditure management, consequence management and revenue management. 

Loubser says he didn’t hesitate to accept Carolus’s invitation to join the SAA board because he saw it as an opportunity to serve the airline and country. “I wanted to bring the commercial skill set that I have to build and grow SAA. However, it became clear very early that people like Gigaba and Kwinana were not interested in proper corporate governance. This is what killed SAA,” says Loubser.

Gigaba and Kwinana have denied any allegations of wrongdoing related to their roles at SAA. 

David Lewis, a former SAA board member who resigned along with Carolus and Loubser, also believes political interference harmed the airline. Gigaba was appointed by Zuma as public enterprises minister to replace Barbara Hogan, who often bumped heads with the former president over appointments at SOEs.

Lewis speaks highly of Hogan. “When Hogan was the shareholder of SAA, she gave the board a lot of space and room to manage the airline without any interference. Whereas, from the day that Gigaba came in, he provoked the board into resigning. He got in the way of the board performing its most basic fiduciary responsibilities, like getting its audited accounts out to parliament on time. It never was his intention to fix the airline. The intention was to loot the airline.” 

Lewis believes SAA can reclaim its former glory only if political interference is eliminated and the board is allowed the autonomy to oversee management’s execution of sound commercial principles. 

At least there has also been a return to business basics, including independently raising money to fund operations and growth plans. 

Underscoring this is that SAA recently raised more than R1bn by selling one of its two landing slots at Heathrow Airport in London. 

SAA doesn’t use the landing slots because it no longer operates flights in and out of the UK, and it leased them to British Airways and Qatar Airways. The lease with Qatar ended in March 2025, paving the way for SAA to sell the slot to the airline while retaining ownership of the one leased to British Airways.

“Qatar came out with the highest bid for the slot. It has already transferred the money into our bank account. The price was over R1bn,” says Hanekom.

He says SAA does not have immediate plans to operate at Heathrow because long-haul routes are expensive to operate, competition is intense, and the airline is still facing a capital crunch.

In my time as CEO of Airlink, I think I’ve seen more than 30 CEOs at SAA

—  Rodger Foster

“We are not in a position to compete with Virgin Atlantic or British Airways. We just don’t have the aircraft that would be required. We’d have to invest quite a lot of money, which we don’t have. Our approach is to hold off on expansion plans for a couple of years. When we are ready, we’ll go back to the London route,” says Hanekom. 

For now, the focus is for SAA to acquire more leased aircraft to expand its flight network. The airline has returned to debt capital markets and asked commercial banks for a loan facility of R2.25bn, which is yet to be finalised. 

Hanekom says the loan facility will not fund SAA’s day-to-day expenses but will be drawn down once the opportunity arises to acquire more suitable aircraft.

SAA primarily leases its aircraft rather than owning them outright — a popular option for many airlines because it offers cost efficiency, flexibility and reduced financial risk.

For example, SAA was considering the purchase of two Airbus A330 aircraft. Not only would it have incurred costs in the purchase of aircraft, it would have had to spend R400m to retrofit the planes to its economy-class seating specifications.

SAA ditched the purchase plan and now prefers to lease aircraft. 

Hanekom says banks are responding positively to SAA. This is significant considering that the airline fell out of favour in the past because, on several occasions, it nearly defaulted on debt and interest payments when they became due. However, the government came to the rescue. 

Arguably, it is no coincidence that SAA is now forced to stand on its own.

The collapse in March 2024 of a plan to introduce private sector investors into SAA’s ownership structure meant there would be a hole in the airline’s financial books and no investors were available to inject R3bn to fund its expansion plans. 

Hanekom says introducing private sector investors into the ownership structure is not off the table. Instead of investors taking up a 51% stake in SAA (as was previously the plan), the airline’s board is keen on investors taking a minority ownership position. SAA wants potential investors to buy a minority stake of up to 20% in the airline.

“Potential partners in the aviation industry are approaching us. These partners will not just bring money, but they will possibly bring us new flight destinations and aviation expertise,” says Hanekom. 

In anticipation of potential partnerships, SAA plans to overhaul its corporate structure over the next five years to improve efficiencies, enhance competitiveness and cut costs. According to a corporate plan submitted to the government for approval, SAA will morph into a group holding company, which would have under it a property company, an aircraft asset management company and the airline operation.

SAA will then finalise its divestiture from Mango Airlines, a low-cost subsidiary it owns and which has been in business rescue since July 2021. While these structural changes aim to address key challenges, they do not guarantee improved efficiencies or competitiveness. 

SAA is now debt free, out of business rescue and armed with a R1bn-plus windfall from the sale of the landing slot at Heathrow. But Hanekom says the airline’s expansion will be “cautious”.

He says a smaller SAA will now focus on limited regional and international routes. It plans to expand existing routes — which include Mauritius, São Paulo in Brazil, Lubumbashi in the Democratic Republic of Congo and Dar es Salaam in Tanzania — and open at least 10 new routes, including flights to Sydney and Melbourne in Australia, and Nairobi, Kenya.

The FM understands that the SAA board is floating the idea of reopening the Joburg-Mumbai flight route. This has not been officially confirmed by Hanekom and SAA. The flight route was a hallmark of state capture as Gigaba, Kwinana and Dudu Myeni (the now late former SAA chair) allegedly conspired for SAA to scrap its profitable Joburg-Mumbai flight route and hand it over to a Gupta-linked airline, Jet Airways. 

If SAA gets it right, the airline might finally get back to contributing to South Africa’s economy and fiscus instead of taking away from it. An Oxford Economics Africa study, released in October 2024, indicated that by the 2029/2030 financial year, a restructured SAA has the potential to contribute R32.6bn gross value to South Africa’s GDP, support 86,700 jobs and contribute R6.4bn in fiscal revenue. 

However, SAA’s turnaround has a long way to go.

It doesn’t operate enough flights or carry sufficient passengers to generate the revenue needed to cover its operating costs such as fuel, leasing of aircraft and salaries. 

This has been happening every year since 2018, as seen in six years of annual financial statements that SAA tabled in parliament. 

SAA’s passenger numbers soared to their peak in the mid-2000s, when it carried about 5.6-million people in 2005 alone. For several years thereafter, the airline maintained relatively stable passenger volumes, navigating a landscape marked by rising competition, escalating costs and operational hurdles. 

Financial and structural challenges gradually eroded this momentum. Now, as SAA steadily rebuilds after a turbulent period of Covid lockdowns and business rescue proceedings, passenger numbers have begun to recover, reflecting cautious optimism for the airline’s future. 

Transport economist Joachim Vermooten has questioned whether SAA’s profitability is genuine, saying that the airline’s positive equity of about R4.7bn in its latest financial statements (2022/2023) stems largely from a revaluation of assets rather than operational cash flow. While this accounting treatment technically makes SAA solvent on paper, Vermooten points out that it does not provide the airline with the financial strength to absorb short-term losses from major route expansions.

Second, SAA’s headcount (at a group level) has increased since emerging from business rescue, going against its ambition of wrestling down its remuneration costs. The staff contingent at SAA has gone from 2,000 to nearly 5,000. 

New aircraft will be acquired; growing SAA’s fleet from 18 to 21 by the end of 2025, then increasing to 24 by 2026. Older aircraft will be modernised. 

SAA’s choice of aircraft is peculiar. The airline wants to replace its smaller fleet of aircraft with (mostly) bigger Airbus A320s, which have a maximum passenger seating capacity of 180. The A320s were largely used during the heyday of SAA — built for the airline to its 2010 specifications. 

However, South Africa’s aviation market is different from what it was 14 years ago; fewer airlines are now operating and the air travel industry is still depressed. This means that SAA, now a smaller airline with fewer passenger numbers but with bigger aircraft ambitions, is likely to incur higher costs, considering that fuel is expensive, as are spare parts.

Vermooten says the only way to determine if SAA is truly profitable and turning around, is for the airline to publish financial statements on time. “Instead of talking about profits, SAA should rather be conservative and publish accounts supported by the auditors in an unqualified opinion so that financial institutions can trust the figures and the reasonability.”