SAA like an addict always in rehab

WHILE the argument about nationalisation continues to fester, not much attention is paid to state-owned institutions, which are supposed to be run efficiently and whose officials are charged to exercise the duty of utmost care to prevent any prejudice to the financial interests of the state.

The best examples of these nationalised businesses are the three airlines, SAA, SA Express and Mango, as well as utility Eskom. And all are deep in the pooh. Given this track record there is really no need to debate nationalising anything else. The proof is in the pudding, and this pudding is inedible.

Since 1997 the government has issued guarantees for, or provided additional funds to, SAA amounting to R16.6bn (including the most recent R5bn). When is this going to stop? According to former finance minister Trevor Manuel it stopped long ago — he told Parliament in February 2009 that he was providing R1.5bn and trusted “this will not be a recurring allocation”.

His director-general at the time, Lesetja Kganyago, was more forthright and definitely more realistic. He said SAA and other public institutions were “unreformed alcoholics. They come and ask you for money and tell you they are on rehab and once you give it to them you meet them in the street drunk the following day.”

In a detailed op-ed article in Business Day yesterday, Chris Christodoulou, a former SA Express director, explained how an examination of the management methods employed by Lufthansa in 2008 provided a model for the future financial success of both SAA and SA Express.

“These discussions (referring to detailed talks between the boards under the auspices of the Department of Public Enterprises) and valuable time and effort and, by implication, state funds, came to naught with a succession of minis- ters being appointed to steer the state-owned companies, resulting in a loss of impetus in the process.”

That’s a polite way of saying that successive African National Congress ministers holding the public enterprises portfolio did not have a clue. What has happened now? SAA has been handed yet another blank cheque (and you don’t really think it will stop at R5bn, do you?) and has been told by the Treasury to produce yet another plan showing how it will become successful.

No wonder Comair has challenged the latest award. CE Erik Venter says that, in effect, the continued subsidisation of state-owned airlines nullifies basic competition rules. He points out that, since 1992, nine of the 11 private airlines competing with SAA have failed (a couple due to dirty tricks applied by SAA’s managers).

What Venter does not say in Comair’s press release is how he will challenge this. The most logical instrument is the Public Finance Management Act, which has a great deal to say about transparency, honesty, integrity, the utmost due diligence and the protection of the state’s assets. In terms of the act, the Treasury is charged, among many other things, to “intervene by taking appropriate steps … to address a serious or persistent material breach of this act by a department, public entity or constitutional institution”. SAA has persistently breached so many sections of the Public Finance Management Act that it’s hard to know where to begin.

It’s fascinating to look at the Kenyan example. Kenya Airways was privatised in 1996 and is currently a public-private partnership with the Kenyan government as the largest shareholder (29.8%) and KLM, the operator and manager, with 26.7%. The rest of the shares are held by the public and the counter is quoted on all three of the East African stock exchanges.

Over financial 2012, Kenya Airways returned a pretax profit of R212m. If this country’s state-owned airline could return even that modest number, taxpayers would be delighted. It’s all very well for some commentators to say that no one would ever buy SAA — that depends entirely on the way a sale is structured. The alternative, that taxpayers just keep on doling out rehab money forever, is unacceptable.

I am now fed up with this endless airline saga so next week I’m going to stick my wooden spoon in someone else’s porridge.

E-mail: david@gleason.co.za Twitter: @TheTorqueColumn