Billion-rand bonanza awaits SAA if sale of Heathrow landing slot flies

27 Oct 2024

The SAA board is weighing up the sale of a landing slot at Heathrow Airport in the UK to free up cash. A valuation by the government a few years ago valued the slot at R1-billion. It is now believed to be worth considerably more.

South African Airways (SAA) might walk away with a windfall of at least R1-billion from the potential sale of a valuable landing slot at Heathrow Airport in London.

SAA wants to raise money by selling assets to fund its flight operations and expansion after a plan to introduce private-sector investors into its ownership structure collapsed.

Read more: SAA privatisation deal reaches the end of the runway, but fails to take off

The deal’s collapse means that investors will no longer inject R3-billion into SAA, leaving a hole in the airline’s financial books and no investors available to fund its expansion plans.

To free up fresh capital, SAA’s management and board are considering selling one of the two landing slots at Heathrow Airport, the rights of which are owned by the airline. SAA doesn’t use both landing slots because it no longer operates flights in and out of the UK but currently leases them to British Airways and Qatar Airways. The lease with Qatar Airways ends in March 2025, paving the way for SAA to sell the slot to another airline while retaining the one currently leased to British Airways.

No decision has been made on the sale, which would be subject to approval by Transport Minister Barbara Creecy, who oversees the governance affairs of SAA.

This is not the first time the sale of SAA’s landing slot at Heathrow Airport has been floated.

Daily Maverick understands that before the start of Covid lockdowns that grounded the aviation industry, the Department of Public Enterprises (DPE) commissioned a valuation of the slot and tested market appetite for it, with a view to starting a sale process. Before the end of the sixth administration the DPE oversaw the governance affairs of SAA. However, the airline is now overseen by the Department of Transport as part of the recently implemented ANC resolution to dissolve the DPE and for all state-owned entities to be housed in their line departments.

A source who worked at the DPE and was involved in SAA affairs told Daily Maverick that the airline’s landing slot at Heathrow was originally valued at R1-billion, according to the department’s valuation process, which took into account, among other things, recent slot sales at the airport.

“That valuation was conducted before 2020. That slot is now worth more than R1-billion as Heathrow is one of the world’s busiest airports. Global airlines want to land at the airport, grow their market share in the UK post-Covid lockdowns, and be able to compete,” said the source. “A second valuation could easily put SAA’s slot at nearly R2-billion.”

SAA growth plans

SAA interim board chairperson Derek Hanekom was not prepared to go into details about the valuation of SAA’s landing slot, saying only that it would be determined by a new valuation process.

“We need to test market appetite for the slot if we decide to sell it. There are early indications that other airlines are interested in buying the slot,” said Hanekom in an interview with Daily Maverick.

Qatar Airways, which currently leases the slot from SAA, would be the first airline to be allowed to buy the slot, also known as the right of first refusal.

The UK was a big market for SAA before the airline went through a business rescue process from December 2019 to April 2021. Before SAA entered business rescue it leased about 52 aircraft, flying more than 40 times a day on domestic, regional and international routes. The SAA of today is smaller, leasing 16 aircraft and flying about 20 times a day.

Hanekom said SAA does not have any immediate plans to operate at Heathrow because long-haul routes are expensive to run, competition is intense, and the airline is facing a capital crunch. “We are not in a position to compete with Virgin Atlantic or British Airways. We just don’t have the aircraft that would be required. We’d have to invest quite a lot of money, which we don’t have. Our approach is to hold off on expansion plans for a couple of years. When we are ready, we’ll go back to the London route,” Hanekom said.

Whether SAA’s landing slot at Heathrow is worth R1-billion or R2-billion, a successful sale would free up much-needed capital for the airline, which is still in financial distress. Since 2018, SAA has racked up financial losses of R28.9-billion and received bailouts of R48-billion from taxpayers. SAA last turned a profit in 2011. However, there are now talks of profits returning to the airline.

Read more: After the Bell: Is state-owned airline SAA really flying into profitability?

Hanekom said a smaller SAA will now focus on limited regional and international routes. SAA plans to reopen 11 routes including Mauritius, Australia’s Perth, Brazil’s São Paulo, theDemocratic Republic of Congo’s Lubumbashi, Tanzania’s Dar es Salaam and Kenya’s Nairobi. DM

Categories:

Tags:

DM is much better if you are signed in...

Business Maverick

SAA growth plans