Africa’s Second-Biggest Airline is on the Verge of Bankruptcy

South African Airways' financial situation has been grim for a while now — the airline has lost money in each of the last seven years. Just like perpetually cash-hemorrhaging Alitalia, Africa's second-largest airline (behind the also-beleaguered EgyptAir) has consistently relied on government funding to keep its operations going.

As reported by the BBC on Thursday, financial statements shown to South African government officials reveal that the airline is out of cash and may soon be unable to pay salaries. The state-owned airline is desperate for a short-term loan of 792 million rand (US$59 million) from the South African government, which will prop it up just enough to make it through October. Then, it's predicted that the carrier will need another loan in December to fund its operations.

The airline, already short on money, took a liquidity hit after it was forced to settle a 2.3 billion rand (US$170 million) loan to Standard Chartered bank in June. With the airline's investment rating downgraded to "junk" status in April, understandably the bank wasn't interested in extending its loan.

While the airline is essentially insolvent, it's not likely that it will go under any time soon. The South African government is a guarantor on the airline's estimated 19.1 billion rand (US$1.43 billion) in outstanding loans. For both financial and political reasons, it's in the government's interest to continue to fund the airline through its recovery. A recent statement from the South African government reiterated this point:

Government will do everything in its power to ensure that the airline's turnaround strategy is implemented. The airline remains a strategic asset and in its role as the flag carrier, it serves as an economic enabler with direct and indirect benefits across a wide range of economic activity.

With that said, it's safe to assume that anyone traveling with SAA doesn't have to be too worried about flights being grounded in the short-term. The airline is still rolling forward with its snazzy new A330 business-class product, which is far superior to its aging A340 biz product.

Hopefully some of that money can make it into the economy cabin as well. A month ago, I flew from Cape Town (CPT) to Johannesburg (JNB) and then onto Hong Kong (HKG) on an South African Airways A340-300 in economy. The easiest way of describing the flights is that it was straight out of the 1990s. The flight had wide seats, good service and decent food. But, for 15 hours of flying, the rudimentary seatback in-flight entertainment systems, aging seats and lack of power and Wi-Fi were downright painful.

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