SAA is not struc­tured to com­pete

The state must give up a size­able por­tion of its eq­uity in the air­line and cap­i­talise it ad­e­quately to at­tract in­vestors, writes Tha­bang Mot­sohi

CityPress - - Voices - Mot­sohi is an or­gan­i­sa­tional strate­gist at Lenomo Strate­gic Ad­vi­sory TALK TO US Do you think SAA should be a com­mer­cial en­tity?

There has been much le­git­i­mate anger and ex­as­per­a­tion ex­pressed about the un­end­ing fi­nan­cial woes at SAA. This is so be­cause of the strato­spheric amounts of sub­si­dies ea­gerly dished out to the air­line with­out scru­tiny, and with­out con­fronting and find­ing so­lu­tions to fun­da­men­tal ques­tions about its ex­is­tence.

Should SAA ful­fil a com­mer­cial or de­vel­op­men­tal pur­pose?

The an­swer to the first part of the ques­tion is easy, and must take into ac­count man­age­ment ca­pa­bil­ity and con­duct, board ca­pa­bil­ity and fidu­ciary at­ti­tude, fund­ing struc­ture, profit mo­tive, and ac­count­abil­ity frame­work and op­er­at­ing pro­cesses.

The an­swer to the sec­ond part of the ques­tion de­pends on govern­ment’s po­lit­i­cal man­date. This would de­ter­mine the board’s man­date and the fund­ing struc­ture to meet this man­date. It usu­ally leads to high­risk be­hav­iour by man­age­ment and ex­poses cit­i­zens to po­ten­tially un­lim­ited fund­ing sup­port in times of cri­sis.

The above ques­tions are not new and have trou­bled many gov­ern­ments, es­pe­cially in the late 1980s and 1990s as they dealt with the dis­rup­tive trans­for­ma­tion of the air­line in­dus­try. This was trig­gered by the new world or­der fol­low­ing the col­lapse of the Soviet Union, the open skies poli­cies and dereg­u­la­tion, ad­vances in air­line tech­nol­ogy and grow­ing tourism traf­fic.

Our new demo­cratic govern­ment could not es­cape these global chal­lenges. The cor­po­rati­sa­tion of SAA was, at the time, part of an ef­fort to re­design Transnet’s struc­ture (for which I was re­spon­si­ble as chief of strat­egy) as a fi­nan­cial hold­ing com­pany with di­ver­si­fied stand-alone business en­ti­ties. How­ever, the ques­tion raised above was not ra­tio­nally and com­pre­hen­sively pur­sued to its nat­u­ral con­clu­sion.

The chal­lenge of de­ter­min­ing and ac­cept­ing the value of SAA as an ex­clu­sively state-owned en­tity is a se­duc­tively pow­er­ful and emo­tion­ally test­ing one in the con­text of the apartheid legacy and the coun­try’s ex­cep­tion­ally high un­em­ploy­ment lev­els.

The prag­matic ques­tion we must con­front is whether, in the cur­rent com­pet­i­tive con­text, and given the re­al­ity of a stag­nant econ­omy and a pop­u­la­tion growth rate that ex­ceeds our gross do­mes­tic prod­uct growth (and will most likely con­tinue to do so for years to come), as well as in­creas­ing de­mands on our so­cial and wel­fare bud­gets, govern­ment can af­ford to own an en­tity such as SAA.

The an­swer to this crit­i­cal ques­tion must fac­tor in the fol­low­ing con­sid­er­a­tions:

. The ma­jor­ity of SAA’s cus­tomers are in the mid­dle- to higher-in­come de­mo­graphic;

. The ma­jor­ity of the coun­try’s vis­it­ing tourists are car­ried by their host air­lines;

. The quan­tum of high-value ex­ports from South Africa is mi­nus­cule com­pared with im­ports car­ried by com­peti­tor air­lines;

. SAA has lost nat­u­ral African en­dow­ment routes to more com­pet­i­tive and ef­fi­cient op­er­a­tors such as Ethiopian Air­lines, de­spite fight­ing vig­or­ously to pro­tect these routes and even re­sort­ing to un­com­pet­i­tive be­hav­iour against the likes of SunAir and ku­l­ula.com. In ad­di­tion, SAA’s fleet com­po­si­tion is un­suit­able for the cho­sen routes, while, ac­cord­ing to its bal­ance sheet, it is tech­ni­cally bank­rupt.

Con­text is a fun­da­men­tal is­sue for any business. A business that does not main­tain res­o­nance with the dy­nam­ics of the mar­ket al­ways faces a def­i­nite ex­is­ten­tial threat.

SAA’s glory days were un­der­pinned by dom­i­nance in the do­mes­tic routes, as well as in lim­ited African and in­ter­na­tional routes in the late 1980s and early 1990s.

The open skies pol­icy, dereg­u­la­tion and the sub­se­quent en­try by es­tab­lished and large in­ter­na­tional air­lines at the be­gin­ning of the demo­cratic tran­si­tion con­sti­tuted an ex­is­ten­tial threat to SAA – which would have been avoided if a com­pre­hen­sive restruc­tur­ing plan was put in place and ex­e­cuted. We failed spec­tac­u­larly in this. Un­der the cur­rent lead­er­ship, there is no hope the business de­cline can be stemmed and turned around. I am con­vinced that pro­to­cols gov­ern­ing the cur­rent lend­ing to SAA will make fur­ther loans im­pos­si­ble. What must be done now to re­struc­ture and re­po­si­tion SAA for sus­tain­able growth?

The ques­tion I laid out at the out­set must be an­swered un­equiv­o­cally. With­out doubt, the state must give up a size­able por­tion of its eq­uity in the air­line and cap­i­talise it ad­e­quately to at­tract in­vestors.

The will­ing in­vestors must have a con­trol­ling man­date to pop­u­late the board with com­pe­tent per­son­al­i­ties of their choice, and to re­struc­ture the air­line suit­ably and hire com­pe­tent man­age­ment.

This will not be easy, but if we mean to stay as com­pet­i­tive as Ethiopian Air­lines, these steps are un­avoid­able.

How­ever, it is im­por­tant to un­der­stand that Ethiopian Air­lines is gov­erned by a pro­to­col that re­quires the air­line be man­aged by ex­pe­ri­enced and pro­fes­sional ex­ec­u­tives, and a com­pe­tent board. The state has stayed faith­ful to this creed since the time of my man­age­ment at­tach­ment with it in the mid-1970s.

This op­er­a­tional in­de­pen­dence sets it apart from many African air­lines and un­der­pins its suc­cess.

Clearly, there are se­ri­ous pol­icy is­sues and chal­lenges that must be solved be­fore a re­al­is­tic restruc­tur­ing of SAA can pro­duce tan­gi­ble re­sults. To this end, bring­ing new chief ex­ec­u­tive of­fi­cer Vuyani Jarana on board may have been pre­ma­ture. SMS us on 35697 us­ing the key­word SAA and tell us what you think. Please in­clude your name and prov­ince. SMSes cost R1.50

SAA chair Dudu Myeni

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