State may have no choice but to bail SAA out again

South African Airways (SAA) has revealed itself to be the most diabolically run company in the country. In less than two months, the airline has to pay back R6.8bn worth of debt. It has no cash to settle this and is bleeding more cash at an alarming rate.

It is hoping lenders will roll the debt over into new loans, but Standard Chartered refused in July to extend a R2.2bn loan and others may do the same.

In documents presented to Parliament on Friday, SAA’s own cash-flow projections show that in August it is going to be R936m short of what it needs after using all the facilities available to it.

It has rung up a cumulative operating loss of R1.35bn in the financial year to date. The year started only in April. The endSeptember debt deadlines are already the result of previous extensions by lenders.

When Standard Chartered refused to roll over its debt, the government had to step in and make good — as it will have to again should other lenders refuse to extend their loans. To deal with this disastrous position, SAA is planning to get another R13bn capital injection from the state. It does not look like the government, and thus the taxpayer, has much choice.

Without the capital injection, SAA will cease operations and probably have its creditors try to liquidate it. In order to get auditors to sign off its last financial statements, the government had to increase a guarantee of the airline’s liabilities to R19.1bn, so it is on the hook even if SAA is put out of business.

Despite this, when grilled in Parliament last week, officials of SAA were hesitant in confirming that it would even be able to pay salaries in August.

How did the national airline end up in this unmitigated disaster? That is a long story, one that will include chapters on corruption in procurement, bad strategic decisions over routes, poor decisions on aircraft acquisitions and terms, shockingly poor leadership from a succession of terrible boards, huge turnover in executives and a competitive market place.

The challenge is how to turn it all around. There have been serious attempts in the past. In 2014, the airline was moved from the Department of Public Enterprises to the Treasury under then finance minister Nhlanhla Nene. That was in recognition of SAA’s growing financial crisis, yet it did little to stem the disaster.

The problem seems to be the continued presence of Dudu Myeni as chairwoman of the board. During his term as finance minister, Pravin Gordhan appointed a more qualified board around her, but even that has had little result so far.

These board members apparently boycotted the parliamentary hearings in June because Myeni had not showed up at several board meetings. A schedule of attendance presented to the parliamentary hearings showed Myeni did not attend four of five board meetings in April. This is, to put it mildly, dysfunctional.

Finance Minister Malusi Gigaba now says Myeni will only serve out her current term as chairwoman. But she was reappointed to a three-year term in September 2016, so we have more than two years to go.

Some positive steps have been made. Last week, a CEO was appointed for the first time since Monwabisi Kalawe resigned in April 2015 after clashing with Myeni. He didn’t even make two years in the post. Two acting CEOs followed him before last week’s appointment of Vuyani Jarana, who was head of Vodacom Business. Much will depend on him.

He is walking into an airline that is subject to several fraud and corruption investigations, while haemorrhaging cash. It is a hugely demanding role that he will have to perform under a notoriously difficult chairperson. The hope is that the other board members appointed in 2016 will keep her contained and provide the new CEO with the support he will need.

There is little serious airline experience to be seen at either board or executive level. However, Parliament’s standing committee on finance has become more muscular in its oversight of the airline.

SAA stands out as the most dramatic financial disaster currently in the portfolio of stateowned companies, although Eskom and PetroSA are also terrifying problems. The national airline shows how bad things can get, when the operations of a business decay to such an extent that the government is left holding all the liabilities.