Plan for SAA means unions will lose clout
Airline was like a patient experiencing multiple organ failure. Something had to be done quickly to protect our fiscal position
Last month’s week-long strike was the straw that broke SAA’s back, destroying the confidence of customers and lenders, doubling monthly losses to R1bn and making business rescue inevitable.
But by bringing the airline to the brink, unions have ensured they will have no say in the fate of staff, Business Times columnist Hilary Joffe writes today.
Leader page columnist Peter Bruce says if business rescue works at SAA, Eskom should be next.
And writing for the Sunday Times, public enterprises minister Pravin Gordhan says one of the key lessons from the SAA debacle is that “public enterprises need capable and skilled leadership teams that are knowledgeable about the sectors in which they operate”.
● We are in a period that requires us to take difficult decisions in the national interest.
We must act with urgency and resolve as we deal with the tasks and challenges at hand if our country is to emerge from a testing period and take a high road to social and economic development. This we have to do while stabilising and protecting our fiscal position.
This calls for creative and bold approaches to navigating complex challenges. The usual narratives and obsolete methods have to be fundamentally transformed. This is the context of the decisive announcement about South African Airways.
It had reached an untenable state. At some stage it was likened to a patient experiencing multiple organ failure. Something had to be done, and done quickly, to stop the decline and uncertainty. Under the conditions that presented themselves — that of urgency, financial distress and the rapid deterioration of revenue exacerbated by the strike — there were only two options left: liquidation or business rescue.
We were not prepared to let the airline fail in an uncontrolled fashion, resulting in thousands losing their jobs, and causing social, economic and financial damage in its wake.
This is the context in which we announced to the public our resolve to institute a radical restructuring process. The continuous bailouts, without evidence that they were making concrete and substantial changes to SAA’s financial and operational position, were also making the public increasingly impatient. Lenders were more demanding before they would provide further funding.
Despite many attempts to reposition the airline over the years, including many turnaround strategies being presented, the failure of effective implementation by successive management teams put SAA in increasing difficulties. This was worsened by blatant corruption. This decline was exacerbated by the ill-timed salary demands by some of the labour unions last month. This put SAA in an unsustainable position.
Leaving it as it was, with continuous bailouts, was no longer viable. The liquidation of SAA would have been disastrous. The government was in agreement with the assessment of the SAA board that putting the company into business rescue was the optimal route.
One of the other options was putting SAA into liquidation. It would have led to the immediate grounding of the airline, with severe consequences. Operations would have ceased. Passengers all over the world, already at airports, would have been left stranded. The costs of their repatriation would have been enormous. The same would have happened at domestic and regional airports. Passengers already at the destination of their first leg would not have been able to return to their origins in an orderly manner.
SA’s international reputation would have been affected among business and leisure travellers. It would have cost us dearly in terms of future tourist and business revenue. A big part of SAA’s staff of around 10,000 people would have been affected, without the normal protection of the Labour Relations Act. It would have meant further redundancies in associated aviation-related businesses. Creditors would also have competed for every available cent left.
We were concerned about contagion in the rest of the aviation industry.
We had to manage certain unpredictable events that would have had an impact on other aspects of government business. SAA’s situation had become symptomatic of the broader picture with our stateowned enterprises. Something had to be done.
The aviation industry is a key part of the economy and is held in high esteem globally. The better course was business rescue. The government agrees with the board of SAA on business rescue. A business rescue practitioner has been appointed by the board and will take decisive actions. The practitioner will have total control of the company. The government is ready to make inputs should the practitioner invite these.
The process is the best chance of retaining viable parts of SAA and transforming the airline into a stronger company that can attract an equity partner.
Business rescue will allow the airline to operate in an orderly manner. It keeps SAA’s planes and passengers flying. It also protects as many jobs as possible and the interests of the airline’s lenders.
In addition, it is an opportunity to critically review the cost structure of the airline, in line with a highly competitive global aviation industry. This sector is known for its volatile costs due to, among other things, the cost of oil and low profit margins. Any operator in the aviation sector has little room for poor judgment.
Customers should still have confidence in SAA and its safety record. There will not be any unplanned cancellation of flights.
The interventions are just the beginning. There is a lot of hard work ahead. There is a direct relationship between how state-owned entities perform, and economic competitiveness. We are committed to turning our SOEs into agile and efficient businesses that are weaned from the fiscus. They must be transformed into centres of innovation that can crowd-in private investment. Our work is determined to strengthen governance in the SOEs. We will do that by adhering to the principles of nonracialism and appoint capable teams of leadership with an emphasis on transformation and reflecting diversity.
We welcome the rigour with which the public has engaged with our recent actions. This is reassuring, especially when that is juxtaposed with the constructive tone displayed by most of the unions and other stakeholders after implementing the radical restructuring process, and the business rescue plan.
Many lessons need to be learnt from this SAA experience. One is that we need to be more diligent about governance. Public enterprises need capable and skilled leadership teams that are knowledgeable about the sectors in which they operate. Also, we have to manage the relationship between cost and revenue because no business can succeed if costs are higher than revenue. A business is doomed if every effort is not made to increase revenue, which means selling more tickets, attracting more customers, getting a bigger market share.
SA has a government that is determined to act decisively and systematically to change the current economic picture and create solid benefits for generations to come. This requires bold leadership and creative partnerships based on constructive compromises so that society can advance. We rely on the nation’s fortitude as we implement deep reforms to our institutions and our companies. It requires sacrifices from all to create a dynamic and inclusive society and economy.