State needs to relax SAA grip

Business is, for the most part, not rocket science. Take an airline: At the heart of it, you need the right planes on the right routes, with a low enough cost base that you can offer seats to customers at competitive prices. It sounds easy enough, yet billions of dollars in shareholder money have gone up in smoke over the decades as entrepreneurs — and governments — failed miserably at getting these basics right.

SAA is one example where a government is throwing good money after bad. Some state-owned airlines manage to survive and thrive, but very few of them do so without significant state help, including by offering regulatory protection against competition and cross-subsidisation from airport services. This used to be the case in SA; Ethiopian Airlines is a current example.

Some also play an important developmental role, with governments successfully using the airline to boost their tourism sectors, as is the case in Mauritius.

At SAA, much of the ire about what appears to be its perennially loss-making operations has been directed at what is seen as incompetent management. The revolving door of executives has been blamed for the airline’s inability to implement an untold number of turnaround plans, with the government always ready to provide another lifeline as a crucial payment deadline nears.

The revolving door of SAA’s political masters, however, hardly hogs the spotlight. Current CEO Vuyani Jarana, who has been in the hot seat for just more than a year, has had to report to four ministers to date: former finance ministers Malusi Gigaba and Nhlanhla Nene, current finance minister Tito Mboweni and, as its most recent shareholder representative, public enterprises minister Pravin Gordhan. This is a tall order at a time when the airline is going through significant change and needs political backing for its R21.7bn turnaround plan, which it believes would bring it back to profitability within three years.

Support has come through piecemeal efforts from the government, but the reality is that sufficient resources — of both financial and, crucially, political capital — are never made available to allow SAA to fully implement a turnaround plan and get on with its business, free of political interference.

There is no doubt that many poor commercial decisions have been made by SAA’s management over the years. Running its Johannesburg-Heathrow flight for more than a decade without earning even a gross profit would be one example. But the management’s hands were often tied by a government-appointed board — most controversially chaired by Jacob Zuma’s confidante, Dudu Myeni, from 2012 to 2017.

It is understandable that the fiscus cannot continue financing state-owned enterprises at which there is no chance of longterm financial viability. SAA also has much to do to get its house in order, such as stamping out supply-chain fraud and closing lossmaking routes with no reasonable chance of success.

The reality is SAA is to a large extent overly indebted. Without a huge restructuring and capital injection, it will remain a problem child, unable to compete with private sector operators with the financial flexibility to respond to commercial opportunities.

Uncertainty over SAA’s future also weighs on its costs in different ways, with suppliers demanding much shorter payment terms and its weak cash flow position making hedging against fuel price and currency movements impossible.

The truth is not so much that SAA can never be commercially successful as that the government can never be a successful majority owner. There is only one way to get the airline to flourish, and that is to free the government’s stronghold — whether by deciding to sell a majority stake; split up the business and sell it piecemeal; or put in sufficient capital to turn it around and then find private investors to buy it out and recoup some losses.

As long as the shareholder doesn’t have the guts to make a firm decision, taxpayers will continue to foot the bill.

WITHOUT A HUGE RESTRUCTURING AND CAPITAL INJECTION, IT WILL REMAIN A PROBLEM CHILD