Business

African airlines in dire straits

Airline sector in Africa continues to struggle, with most of them in the red, even as startups and most existing airlines will struggle to overcome the obstacles that have repeatedly prevented most airlines on the continent from succeeding. WOLE SHADARE writes

 

Wrong step

 

Many years ago, African airlines dominated the skies of Africa. Gross mismanagement and corruption saw to the end of promising airlines like Nigeria Airways, Ghana Airways, Air Afrique and others that connected many parts of the continent. Worried by the situation, leaders in the continent have continued to pursue revival of national airlines despite the turbulence occasioned by COVID-19 and serious financial dire straits the airline industry is confronted with.

 

Aside that, many of the state-owned airlines have seen competition from European and Gulf carriers right inside their territory and one that threatened their existence.

 

Obstacles

 

New start-ups and most existing airlines will struggle to overcome the obstacles that have repeatedly prevented most African airlines from succeeding. Foreign airlines dominate the African market and have a huge competitive advantage. Africa is an extremely challenging market for any LCC or new start-up.

 

However, a long list of airline failures has not dissuaded more start-ups from entering the market. Nigeria’s Green Africa Airways is the latest to seek to break the logjam, well funded and with strong credentials.

 

Over the past half-century, the financial outlook of African airlines has often been more turbulent than the flights themselves. Many carriers formed in the post-independence era had entered receivership by the early 2000s, including Uganda Airlines, Air Tanzania and the West African Air Afrique.

 

Yet, after the economic downturn from 2007 to 2009, African leaders recommitted public resources to general aviation, allocating billions to new international gateways and airlines to service them. Aiming for the same heights

as Ethiopian and Singapore airlines, these carriers had additional backing from international creditors bullish on growing passenger numbers and record industry profits.

 

Existential crisis

 

The global aviation industry now faces an existential crisis without precedent and African airlines have not been spared this pressure. Major carriers, including SAA and the reconstituted Air Tanzania, hover on the brink of collapse, while governments facing serious deficits are being called upon to cover debts.

 

In this uncertain landscape, a few trends are emerging, highlighting the industry’s weaknesses and its surviving carriers.

 

Which carriers will survive is largely dependent on what new group of investors and governments can assemble. Rwanda’s 2020 deal to sell 49 per cent of its flag carrier to Qatar Airways represented a unique pre-pandemic tentative agreement that a few peer states can replicate.

 

Regional and transnational SAA flights have been grounded since September 2020 while government entertains three bids from investor groups to salvage a portion of the airline. Competitors such as Air Tanzania are rapidly approaching this impasse.

 

Uncertainty

The difficulties faced in creating a deal palatable for governments highlight uncertainty in the industry.

 

It is not known how many people SAA will employ if service resumes, but what is clear is that the group will employ a fraction of its 10,000 employees from just four years ago. In the case of SAA and other national carriers that failed in the first wave of bankruptcies in the early 2000s, this has highlighted the need for leaner operations that bloated public corporations were unwilling to accept.

 

Provided governments can recognise this inevitable change and accept the political costs, questions about foreign influence are a greater hurdle.

 

The most viable deal for SAA is the one being offered by Ethiopian Airlines, but between responsibility regarding debt and the control handed to a rival African power, the South African government seems open to waiting for any other investor. Kenya Airways has similarly struggled to find regional private funding and hopes for an ideal credit arrangement with British interests have failed to translate into any meaningful action.

 

Some countries, including Tanzania, have even claimed xenophobia to attack other African states who impounded their aircraft. In the event that governments can strike some Faustian bargain with foreign investors, underlying fundamentals on company balance sheets minimise the possibility of long-term success.

 

When Malaysian Airlines was absorbed by that country’s sovereign wealth fund in 2015, political interference with in-flight operations and continuous delays with re-listing stock and cutting debt gave most private equity firms cold feet.

 

Investors’ confidence

 

It is unlikely that investors will react any differently to the indefinite suspension of Kenya Airways’ parent stock, KQ, or the $3.9 billion in SAA debt accrued since 1994. A few investors could reasonably justify long-term support for these carriers in Africa’s current aviation market.

 

Restrictive regulations on fifth freedom rights — the ability of an airline to carry passengers between multiple international destinations on a route — make it difficult to establish robust regional networks.

 

Where sufficient demand may exist to connect multiple West African destinations to hubs such as Lagos or Dakar, national interests have blocked these connecting flights, leaving entire regions without inter-African air service.

 

In the aviation business, it is incredibly difficult to scale up to risky transoceanic routes requiring larger aircraft, yet this is the position many African airlines find themselves in.

 

Future without legacy carriers

 

A possible future without the few legacy carriers that have regional fifth freedom, such as SAA and Kenya Airways, only underscores the severity of Africa’s aviation crisis.

 

The continent is yet to fully liberalise its airspace, airport charges are high and lack of route network coordination has prevailed over the years.

 

Not a few believe that sub-Saharan  Africa’s three major carriers would not exist by 2050 as stand-alone airlines. In order to survive, sub- Saharan Africa’s three major airlines – Ethiopian Airlines, Kenya Airways and South African Airways – would have to become part of a global alliance and cede ownership to foreign operators.

 

Sub-Saharan Africa has 20 airlines that are members of the International Air Transport Association (IATA), which represents some 230 passenger and cargo airlines comprising 93 per cent of scheduled international traffic. Only three of these airlines are major carriers.

 

IATA estimated in 2016 that Africa’s aviation industry supported 6.8 million jobs on the continent and, by 2035, the market would face an annual demand of 350 million passengers. In the short-term, the disappearance of some airlines may provide a lifeline to others.

 

Already, Kenya Airways has received much-needed cargo traffic in the wake of SAA’s grounding. Yet the continent’s problems with attracting investment in this sector and creating sustainable air routes go much deeper than which carriers survive.

 

For general aviation to thrive, governments will need to make unpopular decisions and pursue regional cooperation.

 

Last line

 

The carriers need support as lack of support, especially in post-COVID-19, may further push them behind and may signify a point of no return, especially for sub-Saharan African airlines

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