Cut costs so SAA can become profitable
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.