How to save SAA — if the government is willing to make hard decisions

The South African Airways strike has, bizarrely perhaps, done SA a favour, forcing decisions about the bankrupt airline’s future that might otherwise have been ducked yet again. It comes down to a simple binary option: either SAA must be liquidated and its assets sold, or the airline, and indeed the entire state-owned airline sector, must be radically restructured. Tinkering is no longer an option. Nor is it likely that a government that has failed over at least two decades to make SAA viable can be left to do the much-promised restructuring on its own.

It’s impossible to assess just how bad SAA’s finances were before the strike, because the airline hasn’t published financial statements since 2017.

But we know it continued to bleed cash and last month’s one-week strike worsened that, costing SAA at least R50m a day. And now the full costs are starting to emerge. The department of public enterprises said during the week that the cancellations of bookings caused by the strike resulted in a sudden deterioration of SAA’s financial position. One of the largest travel agency groups has stopped selling SAA tickets and one of the largest insurers — Santam — will no longer provide insolvency protection on SAA bookings.

The airline’s finances are nose-diving but SAA seems to have managed, belatedly, to pay its November salaries. However, if the trade unions that won their 5.9% pay increase (hardly a defeat given that inflation is now below 4%) believe this is a genuine victory, they are delusional.

SAA has said it needed R2bn in working capital just to stay aloft and the strike will have made that figure much larger. The bankers were refusing to lend any more without a government guarantee — a guarantee that by late Friday was not forthcoming from finance minister

Tito Mboweni, who has long said there is no prospect of the airline becoming financially viable and that it should simply be shut down.

The airline, as Mboweni has pointed out, serves the rich and the middle classes. It has consumed a shocking amount of taxpayer money that could otherwise have gone to improving the lives of poor people. It’s had almost R21bn of fiscal support over the past three years, and the government has agreed to provide another

R9.2bn over the next three years to repay SAA’s government-guaranteed debt. By some estimates, the airline has received R57bn in bailouts over the past two decades.

Now it is finally crunch time. The business rescue that trade union Solidarity favours is not an option because the business cannot be rescued without more bailouts. Nor is liquidation a cheap option, at least in the short term because the leases and loans of aircraft to SAA would immediately have to be settled, at an upfront cost that the board estimates to be about R40bn.

That may well be worth it to save taxpayers the continued drain on the fiscus in the longer term. There is a strong case to be made for letting it sink, especially since the airline does have some valuable assets, such as its routes and landing rights, that could be sold to better owners, raising at least some cash to pay its creditors. Nor would the flying public necessarily be hard hit; about 50 airlines fly in and out of SA and the gap left by SAA could easily be filled.

If the government is indeed willing to make difficult decisions, the better option would be to put in a capable and assertive leadership to oversee a far-reaching and urgent restructuring of the entire state-owned airline sector that could salvage what is worth salvaging and get rid of the rest. There should not be any commitment to keeping any of the pieces in state hands if others are willing to take these on. Successful airlines, such as Emirates, Ethiopian and Virgin, have expressed interest in doing deals and the options must be seriously and urgently considered.

Put in a capable and assertive leadership to oversee restructuring