SAA plan set for takeoff
Gordhan says fate of state-owned airlines will soon be resolved
● The government is reviewing the future of its three state-owned airlines and is doing its best to stabilise those that can be made to work, public enterprises minister Pravin Gordhan said this week.
“We are looking at alternatives for all the state-owned airlines and will make announcements shortly,” Gordhan said in an interview on the sidelines of the World Economic Forum on Africa in Cape Town.
He added that the government would decide in the next couple of weeks on options to resolve Eskom’s debt crisis.
His comments come after SAA’s chief restructuring officer, Peter Davies, stepped down this week, with the airline seeking an urgent R3.5bn bailout to help it pay back short-term debt, while ailing SA Express has said it wants a R300m bailout, on top of the R1.2bn it received earlier this year. Technical issues have resulted in more than half of SA Express’s fleet being grounded.
Budget airline Mango is a subsidiary of SAA while SA Express is owned directly by the state, which also has a 3% stake in SA Airlink, with SAA having code-sharing arrangements with all three smaller airlines.
Gordhan, who spoke this week of the “great difficulty” involved in stabilising the airlines, said two years ago the government was considering merging them and bringing in a 25% strategic equity partner.
Now the government is understood to be considering pulling its airline assets together to enable them to operate more optimally and reduce staff costs. A private sector partner could be brought in later to whatever entity results. SAA, meanwhile, has to restructure R9.2bn of debt due at month-end.
A cabinet memo is being prepared on the review of state-owned airlines with a view to tabling it next week with an announcement expected in the next few weeks.
Azar Jammine, chief economist at Econometrix, said: “It’s quite a complex issue. I don’t think there is an inclination on the part of many economists to just say privatise the whole thing.
“There are some services in society that need to be accommodated irrespective of whether they make money or not. An argument can be made for having airlines supplying secondary cities for the national good even if this is at a loss. But the question is how come Airlink is managing to do it profitably and SA Express is not.”
An industry analyst, who declined to be named, said merging SAA and SA Express is complex due to different types of aircraft that require specialised training, infrastructure and maintenance that could drive up costs.
The reason SAA reorganised its structure is “because up until 2002 they had a complete dog’s breakfast fleet of aircraft of different types, different manufacturers, and it was costing them an arm and a leg in terms of support, maintenance and procuring parts, in terms of training. It just becomes a logistical nightmare. Its fine if you’re a huge mega-carrier and you’ve got economies of scale, but SAA [is] a 50-aircraft operation.”
When it comes to SA Express, “that’s one headache SAA could do without”, the analyst said. “Other than try to appease unions, I can’t see any other real reason other than some sort of ideological dogmatic fixation with [SA Express]. I question whether Pravin Gordhan has really applied his mind to it. This has been something he’s spoken about for donkey’s years as finance minister and public enterprise minister. It never gets anywhere precisely because it’s such a big challenge,” the analyst said.
Meanwhile, the government has promised a special paper on Eskom setting out a roadmap for it to be unbundled into generation, transmission and distribution units. Gordhan said the paper would address Eskom’s debt issue “to the extent of creating a transmission subsidiary, for a start”.
He said options for restructuring Eskom’s debt would be finalised by the end of the month for consultation with lenders.
Neither Eskom nor SAA has a permanent CEO following the resignations of Phakamani Hadebe and Vuyani Jarana (who cited government interference in the airline’s turnaround programme as a reason), and Gordhan confirmed that almost none of the state-owned enterprises (SOEs) — other than Denel and the South African Forestry Company — have permanent CEOs.
He emphasised how difficult it was to undo the damage caused by state capture, which resulted in the loss of many competent executives and the capture of key posts in SOEs. A process was under way to recruit executives to vacant posts which he hoped would be completed before year-end.
He urged “good professionals” to help the state and give five to seven years of their lives to rebuilding these institutions. SA’s skills base was one of the things the government had committed to look into. If necessary it would consider recruiting foreign skills for a short while. Gordhan said it would take two to three years to get Eskom to the point where it could ensure a stable power supply and get ahead of economic growth.
The question is how come Airlink is managing to do it profitably and SA Express is not
Azar Jammine
Chief economist at Econometrix