Market Overview

Struggling Flag Carriers On Three Continents Are Running Out Of Options

Struggling Flag Carriers On Three Continents Are Running Out Of Options

Three financially strapped flag carriers — Air India, Alitalia and South African Airways (SAA) — are running out of options to remain aloft.

After several attempts to sell Air India, Prime Minister Narendra Modi's government is considering a change to airline ownership restrictions that currently require that operational control rest with Indian nationals, according to Indian media reports. The requirement has been a major stumbling block to the government's ability to sell the carrier, which is shouldering about $9 billion of debt.

Scrapping the "substantial control" clause may make the sale more palatable to investors, while allowing the government to maintain its 49% cap on investment by a foreign airline in Air India. The government hopes to conclude a sale by March 2020. Unions are opposed to privatization, fearing job losses.

Efforts to sell a 76% stake in Air India in 2018 for about $1 billion failed to attract a single bid. Potential buyers expressed concern about possible interference in the carrier by the government, which would have retained the remaining 24% stake. Eliminating the clause would allow foreign investors to take control of major business decisions affecting the carrier.

Air India's cargo operations cover a network of 82 domestic and 41 international destinations.

Alitalia Floundering 

After receiving approval from the European Commission (EC), the Italian government green-lighted a €400 million ($443 million) bridge loan to Alitalia on Dec. 2 to fund operations while the search for investors continues. Alitalia entered bankruptcy protection in early May 2017.

A deal led by Italian state-run railway group Ferrovie dello Stato (FS) and Italian holding company Atlantia cratered in late November as potential investors were unable to agree to terms demanded by the government as part of a €1 billion rescue scheme.

The government also extended until May 31 a deadline to rescue the airline, which has been struggling to survive against a growing number of low-cost carriers on European short-haul operations despite a profitable long-haul business. If no solution arises by the deadline, temporary nationalization is a likely scenario until the carrier again goes on the block.

The new loan follows a previous €900 million loan. Both are required to be repaid, or they will be deemed unfair state subsidies. Under EC state aid rules, loans are only permitted on terms that a private operator would have accepted under market conditions and provided that interventions do not confer an economic advantage to the borrower that is unavailable to rivals.

Alitalia unions have scheduled a 24-hour strike for Dec. 13 to protest uncertainty concerning the carrier's long-term survival.

Alitalia has no dedicated freighter aircraft but uses the belly-hold capacity of passenger aircraft for cargo operations.

Meanwhile, highly leveraged South African Airways (SAA) may be on the brink of collapse, with government officials clashing over whether another bailout is in order.

Adding to the carrier's precarious financial state, Flight Centre, one of South Africa's largest travel ticket retailers, has stopped selling SAA tickets. The move is expected to have a major impact on SAA's revenue, especially coming at the peak year-end tourism season.

Flight Centre announced to customers that its preferred travel insurance provider, TIC, and underwriter Santam were no longer willing to cover SAA due to "doubts concerning the long-term viability of the airline."

In a statement, TIC said that "the risk associated with SAA's going-concern status has been an issue for many years. However, in light of recent events, the risk is now considered to be too significant by re-insurers to continue cover for new ticket sales."


SAA Cargo uses belly space on SAA's passenger flights for cargo carriage and also operates two dedicated B737-300 cargo aircraft.

Image Sourced from Pixabay

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