According to the International Air Transport Association (IATA), aviation contributes to 2.6 % of Africa’s GDP and supports an estimated 6.2 million jobs. The aviation sector is one of the worse impacted during this crisis.
The COVID-19 crisis has indeed caused border closures and country lockdowns that have forced airlines to ground their fleets and stop all but essential flights such as humanitarian aid, cargo and repatriation flights for citizens stranded abroad. The regional situation in Africa does not differ from the situation worldwide. The main question on everybody’s lips is whether African aviation will survive this unprecedented shock, given that for African economies to recover, a vibrant aviation industry will be critical given the sector’s significant role in social and economic development.
In South Africa alone, SA Express, a domestic and regional airline owned by the South African state, has been pushed over the cliff, having been declared on provisional liquidation on 30 April 2020, one month after suspending all operations. Further, after over seventy years of profits, Comair, the Johannesburg Stock Exchange (JSE) listed operator which owns Kulula and has the operating licence for British Airways, resolved on 4 May to commence with voluntary business rescue proceedings and applied to the JSE for the suspension of trading in the company’s shares. However, the UASA trade union has recently warned of possibility of legal action against Comair, stating that its members had not been told of the business rescue plan, nor how it would affect them. Last but not least, South African Airlines (SAA), the state owned flagship airline, is in business restructuring since December 2019, and after a request for Rand 10 billion was rejected by the government on 10 April, the business rescue practitioners indicated they are not able to run the airline post 8 May, after which all operations would cease. As of May 12th, SAA still had some operations running. There is some contention between the government and the business rescue practitioners, as the government’s objective was a business rescue and not a wind-down process. In this context, Mr Pravin Gordhan, the Minister for Public Enterprises, indicated to a Parliamentary committee that meetings over finances were due to take place in order to give continuity to SAA beyond 8 May, and that a new airline to replace SAA was in the planning stage. In addition, on 8 May, the Labour Court ruled that the retrenchment notices issued to almost 5,000 workers were ‘procedurally unfair’ under section 136 of the Companies Act because the SAA rescue practitioners have not presented a decisive plan on how the airline will be rescued1. On 15 May it was announced that a memorandum of understanding between the Department of Public Enterprises (“DPE”) and SAA’s business rescue practitioners has put a freeze on the unilateral sale of the airline’s assets, at least until 30 June2 . The document commits the parties to a ‘defined interim period’ where the DPE will be given an opportunity to formulate proposals that will go into the final business rescue plan, either for a restructured SAA or the new airline. Airlink has indicated it could be interested getting involved in a public-private partnership with the new or restructured entity replacing SAA, provided “it makes sense” according to Airlink’s CEO Rodger Foster, meaning if the airline can run on commercial principles, proper governance, and without political interference. Various options are being discussed, but the main questions remain: where will the money for the new airline come from, as airline investors globally have little interest since they are busy saving their interests due to the devastating impact of COVID-19 on the airline industry, and what will happen with SAA’s liabilities which are backed by government guarantees? Liquidation of SAA for the creation of a new airline may not be the solution, according to aviation experts which have been appointed to assist with the formation of the new structure. On the investors side, Ethiopian Airlines CEO, Tewolde Gebremariam indicated on 6 May that while there are no negotiations currently taking place with South Africa, he would be willing to take part in a proposed revival of SAA3 (Ethiopian last held discussions with the South African government about SAA in early January).
Elsewhere in Africa, Air Mauritius board of directors announced on 23 April that the airline would be put into voluntary administration to try and salvage the business. Ethiopian Airlines has also indicated it is in discussions with the airline to revive it.
RwandAir, the national carrier of Rwanda has announced that it will slash the net salaries of its staff by between 8 and 65 % as part of measures to cushion the airline from the adverse effects of the coronavirus pandemic.
Kenya Airways has on its side converted some of its passenger planes into cargo freighters in an attempt to keep some operations going during the lock down, shipping fresh produce and horticulture products to Europe and on its return necessary medical items, industrial equipment, packaging materials and courier packages.
Ethiopian Airlines has also increased its presence in the cargo market with more than 70 cargo destinations now being served as compared to the 10 destinations it served at the beginning of the year. At the same time, the airline announced it could need financial support if the crisis were to last another three months.
African airlines could lose $6 billion of passenger revenue in 2020, 50% of the current jobs (3.1 million) and lose 51% of traffic this year compared to 2019. And losses will not be confined to airlines: airport companies, regulators, air navigation companies, handlers, airport concessionaires are all facing unprecedented financial losses.
Because airlines play a pivotal role in economies through trade and commerce, and because they will be crucial in any economic recovery, to avoid a total collapse of the industry, all airlines need to get some kind of support or another from states or by the end of COVID-19 there will not be any airlines left to fly. Some countries have set up stimulus packages, and IATA is calling for direct financial support, loans, loan guarantees and support for the corporate bond market, and tax relief. Such relief should not be limited to further subsidisation of state owned carriers but also be aimed at private owned airlines.
With many uncertainties on the recovery of the sector, heightened by the fact that demand for scheduled passenger flights may dwindle for some time, the aviation industry is not likely to fully recover anytime soon. While travel restrictions make it impossible to fly to certain destinations, many people will likely shun air travel for fear of contracting the virus. There could however be some opportunity hidden in the crisis, and some analysts view is that the crisis could be a blessing in disguise. Consolidation will happen in the market, and could be used by airlines to utilise assets more effectively. It could be an opportunity for airlines to open up more to partnerships, and regional cooperation will be paramount.
The biggest opportunity will be getting the single African Air Transport Market (SAATM) pushed through finally. The SAATM is a flagship project of the African Union Agenda 2063, an initiative to create a single unified air transport market in Africa to advance the liberalization of civil aviation in Africa and act as an impetus to the continent’s economic integration agenda. SAATM will ensure aviation plays a major role in connecting Africa, promoting its social, economic and political integration and boosting intra-Africa trade and tourism as a result.
Removing this barrier would enable all African carriers to compete on a more level playing field and allow smaller carriers to establish connexions which will really stimulate the economic recovery of Africa.
Analysts would also like to see each African sub-region having a couple of airlines criss-crossing the region offering affordable, reliable and competitive services plus a mega transcontinental carrier. This idea would be a revival of what was tried in its time by Air Afrique and that Ethiopian Airlines seems now eager to try, especially now it is talking with Air Mauritius and would be happy to discuss with SAA.
At the end of the day, if the COVID-19 crisis ends up forcing African stakeholders into realising that national borders are meaningless in today’s aviation landscape, and that pan-African airline groups, run on commercial terms without excessive government interference are the future, then it could become a true opportunity for African aviation. The coming up online of the AFCFTA (between 2020 and 2021 depending on the COVID-19 impact for its implementation) could be the unique opportunity to give effect to the SAATM and creating the enabling environment for this to happen.