“The aviation industry is in trouble.” Is this necessarily true?

The latest financial report of the South African Civil Aviation Authority (SACAA) weighs-up the possibility of a collapse, blaming COVID-19 and SAA. Is this really the worst-case scenario for this year?

The regulatory body reported a near-total loss in revenue over the past 12 months of 98% as reported by various other publications.

The latest report also confirms that shareholders will be asked to provide ‘financial assistance’. SACAA’s revenue is down by an eye-watering 98%, blamed due to the huge drop-off in passenger numbers exacerbated by SAA problems and COVID-19 restrictions.

It is reported that more than seven-tenths of their profits are generated by user fees and fuel levies: With aircraft grounded, the impact has been devastating, or so we are told.

Another massive problem is the dire state of South Africa’s state carriers.

Both South African Airways (SAA) and SA Express are in financial meltdown, despite attempts at business rescue.

With two domestic airlines now rendered wholly unreliable, the future of the South African airline business has taken a massive knock.

But is it all really doom and gloom?

SAFAIR and AIRLINK are operating from strength to strength, and the recently new airline LIFT should mean correctly run and managed airlines can survive, maybe even thrive by identifying old and new routes that turn out to be profitable. This will surely increase revenue to SACAA.

SACAA annual report for 2020/21.

“Over 70% of SACAA’s total revenue is derived from Passenger Safety Charges. Cumulative revenue in the first three months of the 2020/21 financial year was approximately 98% lower than our 2019/20 revenue during the same period. Also, our liquidity has been impacted, which required us to engage with our shareholders for financial assistance.”

“As previously stated, the main sources of revenue of the entity are the passenger safety charges, such as user fees, and fuel levies generated from the airline industry. The pandemic has caused a significant reduction of air travel both locally and globally, hence the impact on the revenue of the entity.”

“The lockdown and its effect on the aviation industry is a disastrous reality on its own. With this reality, conjoined with the news of the possible closures of three key South African airlines, the situation’s turned into a distressing calamity. 

A material uncertainty exists that may cast significant doubt on the entity’s ability to continue as a going concern.”

With this release, is the SACAA really forecasting their demise, or is it a way to punt for:

  • A hand-out?
  • A reason to raise user fees?
  • Or both?
  • Or…

Only time will tell whether the SACAA is going the same way of other state run enterprises?