SAA is an investment dud

After the fantastic Comair results in October and all the negative articles on SAA, I was wondering what the investment return is for both airlines.

Comair made just over 5% profit in 2017, a lot of it not aircraft related. The International Air Transport Association said 2017 was one of the most profitable years in the airline business, with companies making an average of 5%. Normally airlines seem happy with 2.5% profit on turnover.

So the government has to make hard calls. Unfortunately their cookie jar is empty. If they pull the plug on SAA now, they lose R19.1bn. To get to the 2020 profit scenario (we have all heard this before) they need R21.7bn.

If they invest R21.7bn and get a 2.5% return on their current R30bn turnover, that is a profit of only R750m. That means the return on the R21.7bn investment is 3%. For the entire R40.8bn, the return is only 0.1%. If SAA magically earned profit of 5%, which is very good in the airline industry, the return will be 7% and 4% respectively. Most people can make 7% in the bank without risk.

So there is no economic argument to justify the recapitalisation of SAA; it is only the pride of the ANC that could possibly justify this madness.

Its CEO, Vuyani Jarana, has not laid off one person in a year, even though he has 164 employees per plane compared to United Airlines, which has 71 people.

But he cannot lay anyone off as it is against government policy. He also needs to procure against BEE policies, which guarantees middlemen and things cost more. This is impossible to fix as it is about racial social policies. The government is a bad shareholder it doesn’t look at returns. —

Rob Tiffin Cape Town