SAA sucks up all our oxygen
There’s a narrative being put about within the boards of some of SA’s most financially challenged state-owned companies that seeks to divert attention from the more scandalous disclosures of capture and corruption by blaming their woes on the leadership of the distant past.
In the case of South African Airways (SAA) chairwoman Dudu Myeni, the past she has tried to blame is very distant indeed. Appearing this week before Parliament’s standing committee on public accounts, Myeni had a go at persuading the committee that the airline’s American CEO of almost two decades ago, Coleman Andrews, was at fault for the billions of rand of fruitless and wasteful expenditure in the most recent financial year. It was his 2001 lease-back agreements that did the damage, claimed Myeni, who seems conveniently to have forgotten that she has been on the SAA board for the past eight years, during which time she surely could have repaired any remnants of the damage done 20 years ago.
In her disastrous tenure, SAA has burned through five CEOs and a vast quantity of cash. It was now profoundly insolvent, with negative equity of more than R12bn, its chief financial officer told Parliament this week. Not only that, but the airline is so short of cash that it cannot be certain that salaries will be paid and has had to arrange terms to pay suppliers. Crucially, it is entirely unable to repay R6.8bn of loans from a syndicate of bankers — backed by government guarantees — that mature at the end of September. Already one member of the syndicate, Standard Chartered, has pulled the plug, forcing the Treasury to hand over R2.2bn in cash to avert a default. Citibank has said it would be unwilling to roll over its loans at the end of September. If that happens, guarantees will have to be activated, and the government will have to cough up the full amount to prevent a default.
SAA may be quite small in the scheme of things in the public sector and arguably is not particularly developmental or strategic for the government. But because of the cross-default clauses in the covenants that many lenders have with SAA and other state-owned companies, even a single default at SAA would trigger a domino effect in which not only would the airline’s loans go bad — forcing the government to activate the entirety of the R19bn in guarantees for SAA — but the contagion could spread across the public sector as it triggers defaults at other state-owned companies.
Letting SAA default, then, is not an option for the government. That, evidently, is why the Treasury has gone to the Cabinet with a R10bn appropriation bill to legitimise the R2.2bn it has already handed over, as well as the R6.8bn it will soon have to pay — plus some working capital. To fund this in a deficit-neutral way, as promised, the Treasury will sell assets — specifically the government’s R14bn stake in Telkom.
That means at least the money won’t be taken away from hospitals or policing to pay for the mess at SAA, but it means too that the government will have sold off the only really valuable and immediately marketable asset it has. After this, there is no more if others come along with the begging bowl.
Disturbingly, Myeni is in complete denial about the perilousness of SAA’s financial state and claims that appointing a new CEO will mollify the lenders.
Disturbingly, too, Parliament was told this week that SAA itself is not on the block. It’s not that anyone would buy such a rubbish asset — that opportunity was missed, again, in 2014 when directors recommended it, but Myeni declined. And the message seems to be that the government still believes SAA can be turned around without too much pain — even though all the indications are that it would take immensely tough decisions and painful action to effect a turnaround. But in the current contested political environment, hardly anyone is taking any policy decisions at all, least of all tough ones.
A DEFAULT AT SAA WOULD TRIGGER A DOMINO EFFECT ACROSS THE PUBLIC SECTOR