SAA tests Treasury’s resolve to reduce public expenditure
IF IT CAVES ON SAA, SURELY IT WILL STAND NO CHANCE OF REDUCING THE PUBLIC SECTOR WAGE BILL
If the Treasury is unable to hold the line on further bailouts for SAA we can conclude that it is unable to hold the line on anything. That is the sense both inside and outside the Treasury, as officials — director-general Dondo Mogajane in particular — come under formidable pressure to bend and extend one last lifeline to SAA.
Through almost a week of intense discussions in which public enterprises minister Pravin Gordhan has shuttled between SAA, the Treasury and lenders, trying to broker a deal, the Treasury has so far stood firm. Much hinges on whether it can continue to do so or whether Gordhan — who has the support of President Cyril Ramaphosa — can push the Treasury to provide the resources to keep SAA on life support.
If it caves on SAA, surely it will stand no chance of reducing the public sector wage bill, a much bigger and more difficult reform to pull off. And if no headway is made with that, the Treasury will officially be out of ideas and the levers needed to reduce public expenditure and bring debt under control.
The same argument goes for the banks. It is important too that they hold the line against being pushed into lending they do not think is wise. So far, they too are standing firm. A meeting on Friday between Gordhan and the consortium of banks appeared to bring about little movement. Bank CEOs have already complained to Ramaphosa through Business Unity SA about being put under pressure to lend to state-owned enterprises that are not creditworthy.
And, as with the Treasury, banks also have a bigger moral issue to consider. It is important they convey the message that fiscal consolidation has to take place if the country is to face any prospect of economic recovery. This is very unfortunate for the 5,000 people who work for SAA. Their continued employment is now secondary to a much bigger problem.
After no success in securing new money over the weekend, what had been expected was a statement from Gordhan announcing liquidation. Instead, on Sunday the statement released by his department said SAA was determined to remain in business. Marketing efforts would be expanded to ensure the airline kept flying. Gordhan appealed to the “collective responsibility” of South Africans and the industry to keep SAA flying, to have faith and to buy tickets. The airline would undergo “radical restructuring”.
While one has sympathy with Gordhan’s determination to hold on to at least some of those 5,000 jobs and avoid another blow to tourism and the aviation industry, it is difficult to see how the “radical restructuring” can be implemented.
Restructuring must inevitably mean closing or rationalising routes, cutting staff, increasing partnerships where possible, shifting domestic passengers to lowcost carrier Mango and probably breaking up the SAA group. But SAA has only just signed an agreement with unions to increase wages from March and hold off on restructuring talks until January. With these agreements so freshly made and the December shutdown upon us, no urgent and radical restructuring looks possible.
The National Union of Metalworkers of SA (Numsa) has begun to talk of supporting Solidarity’s application for business rescue as the best way to hold on to some jobs. But it is debatable whether business rescue is a possibility for SAA since to trade its way out of trouble it needs to continue flying, which requires funding.
The best way for a radical restructuring to be implemented might be under the auspices of business rescue, in terms of which the legal tools exist to negotiate with creditors, cut staff and cut wages. It is hard to see how steps such as these could be achieved by consensus with the workforce.
The inability to reach a decision on SAA is also symptomatic of what has become the Ramaphosa problem. The president does not like to say no, disappoint anyone or be the unpopular guy in the room. His tendency is always to hang on, against all probability, believing things will work out for the best.
Gordhan and Ramaphosa also share a misguided belief in the depth of the patriotism of South Africans, believing that with the right combination of charm and coercion everybody can be cajoled to put their own interests aside for what they believe to be the greater good. Gordhan’s call on people to take “collective responsibility” for the crisis at SAA is ludicrous. No-one buys an air ticket out of patriotism.