Cut costs so SAA can be­come prof­itable

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The re­turn of Tito Mboweni to main­stream pol­i­tics is rapidly be­com­ing as po­lar­is­ing as it was un­ex­pected.

Hav­ing spent the bet­ter part of SA’s lost eco­nomic decade on the side­lines rather than at the heart of it all, Mboweni pre­dictably grav­i­tates to­wards log­i­cal and eco­nomic anal­y­sis when com­ment­ing on the state of pub­lic en­ter­prises.

As the cab­i­net min­is­ter in charge of a pub­lic purse that has been de­pleted through bail-outs of state-owned en­ti­ties, he has to align his eco­nomic anal­y­sis with the po­lit­i­cal nu­ances as­so­ci­ated with his post. So far his ef­forts have been dis­mal.

On a re­cent trip to the US, Mboweni said the best thing to do with the un­prof­itable air­line was to sim­ply shut it down. This was days af­ter he had an­nounced, as fi­nance min­is­ter, an­other bailout/guar­an­tee for the air­line.

At this stage, the dis­tinc­tion be­tween the bail-outs, which are ac­tual cash trans­fers, and the guar­an­tees, which are po­ten­tial cash trans­fers from the fis­cus to SAA, has be­come mean­ing­less. This is be­cause, given the state of the air­line’s bal­ance sheet, po­ten­tial pay­outs that will ma­te­ri­alise should SAA de­fault on its var­i­ous obli­ga­tions are now in­evitable. As it strug­gles to gen­er­ate cash to sus­tain op­er­a­tions, its ca­pac­ity to re­pay its loans is nonex­is­tent, in­creas­ing the risk of de­fault.

Mboweni’s po­si­tion is at odds with that of his two po­lit­i­cal part­ners, the pres­i­dent and pub­lic en­ter­prises min­is­ter. Theirs are pri­mar­ily po­lit­i­cal con­sid­er­a­tions, and they are of the view that the air­line should not be shut down. Rather, it should be kept alive for job preser­va­tion with the pos­si­bil­ity of a strate­gic eq­uity part­ner down the line.

The idea of pri­vati­sa­tion is not new in the SAA con­ver­sa­tion, but for an air­line with the scale of SAA’s prob­lems it is not the an­swer. The an­swer is prof­itabil­ity. In the ab­sence of a path­way to prof­itabil­ity, no pri­vate player will con­sider bid­ding for the air­line.

The point of de­lib­er­a­tion is whether prof­itabil­ity can be achieved with­out pri­vate-sec­tor par­tic­i­pa­tion. Such par­tic­i­pa­tion could range from cap­i­tal in­jec­tions to a man­age­ment con­tract — with no po­lit­i­cal in­ter­fer­ence. When politi­cians con­flate in­flu­ence with in­ter­fer­ence you end up with the gov­er­nance paral­y­sis that has de­fined SAA’s re­cent his­tory. It doesn’t help that ac­cord­ing to SAA’s 2017 fi­nan­cial state­ments — the 2018 ver­sion is late — the board is not even sure of the true state of the bal­ance sheet. When such ele­men­tary er­rors dom­i­nate the dis­course, it is dif­fi­cult to imag­ine any pri­vate sec­tor player tak­ing the plunge.

As Pres­i­dent Cyril Ramaphosa said, shut­ting the air­line down now would trig­ger all sorts of debt obli­ga­tions, not only for the air­line but also for the state. In other words, all the ex­ist­ing guar­an­tees will im­me­di­ately be­come cash out­flows for the state.

Such a process will trig­ger re­pay­ments on other state en­ti­ties that also have stateguar­an­teed debts be­cause of the ill-ad­vised cross-de­fault clauses the state is stuck with. Even if such clauses didn’t ex­ist, large out­flows from the fis­cus to fi­nance the shut­down of SAA will not only make lenders to other state-owned en­ter­prises ner­vous enough to re­call their own loans, but will worsen the credit-rat­ing pro­file of the coun­try. The re­al­ity is that costs must be cut so SAA can be­come prof­itable. Politi­cians fear that pri­vati­sa­tion will lead to job losses, and they are right.

● Sit­hole (@cor­us­cakhaya) is a char­tered ac­coun­tant, aca­demic and ac­tivist.


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