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South African Airlines Financial Woes

Is South African Airways really a risk?

Liesl Venter, Travel News Weekly, Johannesburg for eTurboNews  Apr 21, 2009

Financial troubles notwithstanding, experts say agencies need have no fear when dealing with South African Airways.

This follows concerns raised by industry members that, under SA corporate law, directors would be held personally liable if they knowingly allowed their company to trade with what they call an insolvent entity.

Alan Trotter, lawyer and retired director of Touchdown Sports Travel, says in the case of SAA, what this means is that customers booking through a travel agent or tour operator would have recourse against not only the agent, but also against every director of the agency or operator.

But, as top liquidation litigator Colin Strime from Fluxman’s Attorneys makes very clear, SAA is not an insolvent entity. This is despite the continuous government bail-outs, the latest of which amounted to R1,6bn.

Strime says he has never heard of a parastatal being declared insolvent. “SAA has state backing and that makes all the difference. I don’t think insolvency is an issue as the government will provide the funds when necessary. Thus doing business with (SAA) is not a legal risk.”

Dawie Roodt, chief economist for the Efficient Group, agrees saying as long as “Big Brother” is on the airline’s side, the trade has little to worry about.

Roodt says as long as the airline remains a parastatal it will never face liquidation. “In practice the State will always bail them out and that has been proved time and again. Even the huge outcry over the latest R1,6bn payout to the airline did not stop the government from doing it.”

But it is not good enough to assert that SAA is government owned and government will therefore prop it up, persists Trotter. “The Swiss government did not prop up Swissair for example, and that airline ceased trading with massive customer fall-out resultant issues.”

To not use the national carrier would also be extremely irresponsible, says Robyn Christie, ceo of Asata. “If all agents were to suddenly not use them as they pose a financial risk, the airline would definitely suffer tremendous losses. At least 85 percent of their revenue comes from the retail trade. Therefore we continue to book with them and would advise agents to do so.”

The consumer, says Christie, would also be negatively affected by a decision to not use the national carrier. “SAA remains a great product. Locally they dominate on availability, they offer competitive prices and we need their capacity.”

Is South African Airways really a risk?
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