The South African government has concluded and signed a sales and purchase agreement for the sale of 51% of South African Airways with its preferred strategic equity partner, the Takatso Consortium, according to an announcement by the Ministry in the Presidency following a Cabinet meeting on February 23.

“The next step involves the approval of this transaction by various regulatory bodies,” it said in a statement.

The Department of Public Enterprises (DPE), SAA’s shareholder representative, had been locked in negotiations with Takatso for months, but aims to finalise the partial sale of the loss-making national carrier in early 2022, according to National Treasury’s 2022 Budget Review, also tabled on February 23. The terms of the sales agreement were not disclosed, but Takatso is to inject ZAR3 billion (USD196 million) in operational cash, while the government funds are to be used to settle SAA’s historical debts.

Takatso is a joint venture between asset fund manager Harith General Partners, the majority shareholder in the SAA transaction, and ACMI specialist Global Aviation Operations (GE, Johannesburg O.R. Tambo). “The Takatso deal is progressing well,” the DPE spokesman confirmed to ch-aviation.

Meanwhile, the government will pump another ZAR1.8 billion rands (USD119.3 million) into SAA during 2022/2023 despite the carrier continuing to rack up losses since resuming operations on September 1 last year.

By December 31, 2021, it had operated a total of 1,023 domestic and regional flights. Within those four months, it had also incurred a ZAR2.7 billion (USD179 million) loss against a budgeted deficit of ZAR2.3 billion (USD152 million), according to a National Treasury briefing to Parliamentary on February 15.

The latest financial support represents the balance of ZAR16.4 billion (USD1 billion) set aside for SAA in the 2020 Budget Review to settle state‐guaranteed debt and interest costs.

“To date, Government has paid ZAR14.6 billion (USD967.5 million) of this amount, with the remaining ZAR1.8 billion to be paid in 2022/23,” according to the government’s 2022 Budget Review tabled on February 23.

An additional ZAR10.5 billion (USD695.8 million) was allocated to SAA in 2020/2021 for the implementation of its business rescue plan. Of this, ZAR2.7 billion (USD179 million) was diverted to its subsidiaries in terms of a special appropriation bill in 2021.

Further state support of ZAR3.5 billion (USD232 million) is required over the next three years to implement the business rescue plan – as outlined in an interim business plan in June 2021 – but still needs to be approved. “Government will honour its commitment to implement the SAA business rescue plan,” a DPE spokesman told ch-aviation.

SAA intends to introduce long‐haul routes in the second half of 2022. The flag carrier resumed limited commercial operations in September 2021 in line with plans for a conservative re-entry into domestic and regional markets following a protracted business rescue process started on December 5, 2019, following years of continuous losses.

While in business rescue, SAA defaulted on ZAR890 million (USD.58.5 million) of revenue owed to former franchise partner Airlink (South Africa). It still owes Comair (South Africa) ZAR750 million (USD49.5 million) as part of a SA Competitions Tribunal settlement.

Harith General Partners – the majority shareholder in the Takatso Consortium which has been leading the negotiations with the government – is 30% owned by South Africa’s state-owned Public Investment Corporation (PIC). It manages the Government Employees Pension Fund (GEPF), which continues to be “well funded and financially sound”, according to the 2022 Budget Review. “At the end of March 2021, the GEPF had a net cash flow position of ZAR34 billion (USD2.2 billion),” the document states.

Delivering his 2022 Budget Speech in Parliament on February 23, Finance Minister Enoch Godongwana did not mention any allocation to SAA but warned of “tough love” for state-owned companies going forward. He said the future of state-owned companies was under review by a Presidential State-Owned Enterprises Council. “Their future will be informed by the value they create and whether they can be run as sustainable entities without bailouts from the Fiscus.”

“Some state-owned companies will be retained, while others will be rationalised or consolidated. To reduce their continuing demands on South Africa’s public resources, the National Treasury will outline the criteria for government funding of state‐owned companies during the upcoming financial year,” he said.

Source: Ch-Aviation

With many countries beginning to ease their travel restrictions, airlines are eyeing 2022 as a year for recovery. Kenya Airways is once such carrier, with the Nairobi-based operator projecting a notable rise in passenger revenues this year. The airline is hoping for a busy summer despite the uncertainty of an upcoming election.

Revenues up by a fifth

Speaking to Reuters, Kenya Airways’ Chief Executive Officer, Allan Kilavuka, explained that the airline’s worst days in the coronavirus pandemic are likely behind it. He stated that “we have been through the worst patch,” with this likely referring to the early months of the crisis. Indeed, Reuters notes that, during 2020, revenues at the Kenyan flag carrier halved. Since then, it has been on the comeback trail.

While 2020 was the most challenging year for Kenya Airways during the present pandemic, it still faced challenges in 2021. Despite a 21% growth in passenger revenue last year, which narrowed its losses by a fifth, the national airline also lost 11.5 billion Kenyan Shillings ($101 million) in the first six months of 2021.

Moving into 2022, Kilavuka foresees calmer skies for Africa’s only SkyTeam alliance member. He explained to Reuters that he expects passenger revenues to rise by a further 20% this year. This will help establish a consistent recovery path away from the chaos of 2020. However, the projection is dependent on certain factors.

Relying on a consistent market

One of the primary areas of financial concern for airlines amid the present crisis has been the difficulty in adapting to ever-changing travel restrictions. With these regulations liable to sudden changes, it can be hard for airlines to make economic plans with much certainty. Equally, it can take time to respond to positive changes.

With this in mind, Reuters notes that a consistent market will play a key role in enabling Kenya Airways‘ positive revenue projections. Indeed, its CEO told the agency that the forecast “is dependent on no further travel disruption or restrictions caused by any new coronavirus variants.” This, of course, remains to be seen.

For the country of Kenya itself, there is also the small matter of a general election to contend with this year, on August 9th. Kilavuka hopes that the election will be a peaceful occasion, given that the peak summer season has seen ‘promising’ booking levels. However, violence has marred two of the country’s last three elections.

Aiming to return to profitability

As it looks to recover from the impacts of the early months and year of the ongoing coronavirus pandemic, Kenya Airways’ longer-term aspirations include a return to profitability. With this in mind, it has commissioned a report from Seabury, a consulting group. Kilavuka explains that, ultimately:

“We are looking for a more efficient airline. The network should not lose money.”

This may lead to cuts in certain areas, with the CEO telling Reuters that the carrier will take “a critical look at staffing and the renegotiation of contracts with suppliers and plane leasing firms.” It will be interesting to see what comes of these efforts, and how successful Kenya Airways profitability plans will prove to be.

Source: Simple Flying

Ethiopian Airlines has announced that it plans to put its Boeing’s 737 Max back to service for the first time since the aircraft model was involved in a crash that claimed 157 lives three years ago. Chrystal Zhang has studied the business models of airlines. We asked her to make sense of the source of Ethiopian Airlines’ confidence.

When, and why was Boeing’s 737 Max grounded?

By 12 March 2019, two days after Ethiopian Airlines flight 302 crashed, civil aviation authorities in China, Australia, Britain, France, Germany, Ireland, Malaysia, Mongolia, Oman and Singapore had already grounded the 737 Max.

This was in addition to airlines in Brazil, South Africa, South Korea, Norway, India, Turkey and other countries. On March 13, 2019, the US Federal Aviation Administration grounded the entire 737 Max fleet.

The decision was made following the fatal crash of Ethiopian Airlines’ 302 flight enroute from Addis Ababa to Nairobi. The accident killed all 157 passengers and crew members on board.

This wasn’t the Boeing 737 Max aircraft’s first incident.

On 29 October 2018 there was a fatal crash of a flight operated by Lion Air, an Indonesian low-cost carrier. The airline was enroute from Jarkata to Pangka Pinang and the crash resulted in 189 casualties.

Two years earlier, in March 2017, the US Federal Aviation Administration had granted an amended-type certificate to Boeing for the 737-8 aircraft, the first of the 737 Max family. An amended type certificate approves modification, and how such modification affects the original design. The Max is the fourth generation of the 737 model airplane, and is the successor to the company’s 737 Next Generation family of aircraft.

The 737 Max was the 12th derivative model of the 737 aircraft, which was first certified half a century earlier in 1967. Two months after the US Federal Aviation certification, the first 737 Max entered revenue passenger service with Malindo Air, a Malaysian air carrier. Seventeen months later the 737 Max suffered its first fatal crash.

Is there a consensus on the cause of the accidents?

A study has analysed the cause of the 737 Max crashes. The model had a new feature in its flight control computer – the manoeuvring characteristics augmentation system – that has become the centre of scrutiny for Max crashes.

The new system had an ability to trigger flight control movements that challenged the pilots’ command of the aircraft. In addition, the software operated on input from one of the two sensors externally mounted on either side of the aircraft’s fuselage (main body).

For Ethiopian flight, the system triggered four times as a result of false sensor readings, forcing the airplane into a nose down from which the pilots were unable to recover. Faulty sensor data that erroneously triggered the system to repeatedly activate landing played critical roles in the Max crashes.

Given significant advances in aviation safety over the last two decades it was extraordinary for two new airplanes, of a new derivative model, to crash within five months of each other.

While certain facts and circumstances surrounding the accidents differed, a common component in both was the new flight control feature.

Boeing developed the system to address stability issues in certain flight conditions induced by the plane’s new larger engines and their relative placement on the 737 Max aircraft compared to the engines’ placement on the 737 NG.

Is Ethiopian Airlines jumping the gun?

So far, 13 airlines have resumed flying Boeing’s 737 Max. These include The Ryanair Group of Ireland, Air Canada, American Airlines, Alaska Airlines and India-based SpiceJet.

In the case of Ethiopian airlines, the reasons for resuming its flights include:

• The action taken by both Boeing and the US Federal Aviation Administration in terms of product redesign, pilot training requirements, commitment to corporate culture change and certification. These seek to ensure that the aircraft model satisfies all regulatory requirements.
• Boeing’s 737 Max has its unique market positioning to serve the short-medium haul market
• The aircraft is more economically viable for airlines to use to serve their target market
• The airline had made financial commitment to aircraft procurement

Have the crashes been fully analysed and resolved?

The US House Committee on Transportation and Infrastructure conducted an 18-month investigation into design, development, and certification of the 737 Max aircraft, and related matters.

The Committee’s investigation has revealed multiple missed opportunities that could have turned the trajectory of the Max’s design and development toward a safer course. The model resulted from flawed technical design criteria, faulty assumptions about pilot response times, and production pressures.

Boeing failed in its design and development of the Max. The US Federal Aviation Administration, on the other hand overlooked its aviation safety mission. It failed in its oversight of Boeing and its certification of the aircraft.

At the direction of Committee Chair Peter DeFazio and Subcommittee on Aviation Chair Rick Larsen, the 245-page report is being released to help inform the public’s understanding of what went so horrifically wrong and why.

What are the lessons learnt?

Never be complacent: Boeing is renowned for its disruptive innovation and novel products. It has served the global aerospace and aviation markets throughout its one-century history. But the company has become more of a financially successful business than a great engineering firm. It was the intent of Harry Stonecipher, its President and Chief Operation Officer in 2004, who championed the corporate culture change. But past glory does not warrant future success. Staying competitive in the market requires innovation, but more importantly, respect and protection of customers and stakeholders.

Do things right and do the right things: These are the fundamental ethical values that a good engineer upholds to be accountable for the safety, health, and welfare of the public. Driven by the desire to outpace its rivals – while designing, developing and introducing B737 Max to the market – Boeing failed to meet both criteria. Boeing, and any other business, need to adhere to these fundamental values and be accountable for its conduct.

Improve safety cultures: There is an ongoing debate that upholding highest safety standards and nurturing safety culture jeopardises a business’s financial success and operational efficiency. However, safety is the foundation of aerospace and aviation business. A safety culture ensures trust, accountability and responsibility. It eventually leads to a firm’s sustainability.

Face the truth and act honestly, and with integrity: When in a crisis, the most effective way to win trust from the public and society is to face the truth and act honestly and with integrity. Any attempts to cover up the truth or mislead the public are doomed to fail.

Source: The Conversation