Cutting loose SAA albatross will be brutal
So, thanks to Carol Paton’s front-page lead in Business Day on Wednesday, we now know that South African Airways (SAA) is looking for R21.7bn over the next three years to “turn itself around”. Cue loud laughter. Another breathtaking amount of money for an airline that has already squandered R55bn in government bail-outs. In any reasonable world it would have by now been closed down or given away.
Not in an SA governed by the ANC. I have lost track of the number of public enterprises ministers who have sworn this or that bail-out would be the last. The last time SAA made money was in 2010 — former CEO Khaya Ngqula left the airline with money in the bank.
Ngqula hired a fearsome Canadian consultancy, which pored over every invoice, every coffee, every taxi ride, every drop of fuel, and decided whether or not to pay it. It was brutal. Ngqula, like almost every CEO before and after him, loathed the SAA pilots. He thought they were spoiled. One route, Johannesburg to Paris, was cancelled because it was loss-making partly due to pilots’ right to fly their families abroad first class free every year. The Paris flight was great for skiing holidays in the Alps. Eventually he cancelled first class entirely and even stopped giving away peanuts with drinks. Some of the pilots lived abroad, flying in to SA for their rotations.
Ngqula ran foul of the unions, which once broke into his office and wasted it. He was also reckless with his own reputation and spending.
But since he left, SAA has struggled. It has the wrong aircraft and Johannesburg is no longer a competitive Africa hub. That place is now being created by Ethiopian Airlines in Addis Ababa. Jacob Zuma’s government made things worse, obviously, by imposing an incompetent chairwoman, Dudu Myeni, and by opening political routes to Brics capitals that didn’t make money either.
But it is one thing to lament the state of the airline and another to do something about it. Try to imagine the country without SAA, or South African Express (which is worse off than SAA) or Airlink, a privately owned carrier linked to the state airlines.
Ngqula started a low-cost rival to Comair. There was an outcry over Mango, but with sound management at the start, it seems to have thrived.
Still, here we are again. A new minister, a new CEO, a new plan and a new bail-out. So embarrassing is it that the ANC tried to hold a briefing from SAA management about its new plan
in camera in Parliament on Wednesday. Opposition parties objected and the hearing was called off.
SAA is still under Treasury management, but former finance minister and now Public Enterprises Minister Pravin Gordhan has taken control of the beast. And he can surely have only one plan in mind: fix the finances and be shot of it once and for all. Yes, 11,000 jobs are at stake. They were poisoned long ago.
What could the new plan possibly be other than to force a merger between SAA, Express and Mango, raise the required R21.7bn in guarantees and equity and then put the whole lot into business rescue?
The business rescue practitioner wouldn’t have to tippy-toe around the pilots and unions. SAA alone has about 700 pilots. He would simply fire 300 and redistribute them around what remains. South African Express would not survive.
Next on the list would be to find a strategic equity partner (it was going to be Etihad but Myeni vetoed it, possibly for the Guptas). No one would touch SAA if they couldn’t run it their way, so the unions, pilots and others would have to be dealt with. It wouldn’t be pretty.
Internationally, airlines are doing well. In December 2017, the International Air Transport Association said global airline profits in 2018 would reach more than $38bn, the fourth straight year of profit for the industry. Ethiopian is doing brilliantly and might itself be an ideal African partner if the conditions were right.
Don’t count on it though. The Ethiopians have seen SAA’s soft underbelly in their own African backyard and are investing in new operators in Zambia, Chad, Mozambique and Gambia in 2018 alone. They’re already in the Democratic Republic of Congo and Equatorial Guinea, Malawi and Togo. Ethiopian is a tight ship. It runs without much political interference. And whatever SAA does to save money, it is rapidly running out of viable strategic options.
Perhaps it will be saved by an Etihad or an Emirates, which might see Ethiopian as a long-term African threat. But no one is going to buy SAA’s debt or its labour relations. SAA Technical is arguably still the best repair and maintenance facility on the continent, but that cannot be guaranteed forever.
Nothing better illustrates the folly of ANC industrial thinking since 1994 than the demise of SAA. They thought it would be easy. But it isn’t. Managing businesses in competitive markets is hard, and the moment managers think the public purse has their back they begin to make bad decisions. And the more beach the politicians pile around their sand castle, the worse it gets.
ETHIOPIAN IS DOING BRILLIANTLY AND MIGHT ITSELF BE AN IDEAL AFRICAN PARTNER IF THE CONDITIONS WERE RIGHT. DON’T COUNT ON IT THOUGH