SAA is undeserving of any more public financing
It is reckless to insist on continuing to subsidise the broke national carrier
● “We cannot continue along this path. Nor can we afford to stand still,” President Cyril Ramaphosa warned on February 13. He was delivering the state of the nation address, following his election the previous year on the promise of economic rejuvenation. In this address, at the beginning of the first year of his tenure as elected president, Ramaphosa was cautioning the country that his presidency might not actually deliver economic revival.
A major impediment, according to the president, was the usage and levels of public finances. Revenue was dwindling, and the little that the tax agency was able to collect was going largely into consumption. This meant that there was little, if any, to put towards investments that generate economic activity. The solution, the president said, is to cut down on consumption and redirect the resultant savings towards investment. This is what Ramaphosa promised to do, saying finance minister Tito Mboweni, would provide details in his budget speech.
When his turn came, Mboweni did not provide the details the president said he would. Instead, he harped on about the severity of SA’s finances, even resorting to poetry, comparing the republic to a plant: “Our Aloe ferox can withstand the long dry season because it is unsentimental. It sheds dead weight, in order to direct increasingly scarce resources to what is young and vital.”
The country is looking at a budget deficit of R370.5bn for the financial year. Mboweni still managed to sound optimistic, though. The country would grow at 0.9%. That level of growth, however, depended on the global economy continuing as forecast. “The coronavirus,” warned Mboweni, “is a source of uncertainty to this forecast.” Both the scarcity of resources and uncertainty about the future explain why Mboweni never announced funding that would finance the restructuring of SAA. He only promised enough, about R16bn, towards settling debt and interest. Mboweni did not make an announcement about financing SAA’s restructuring because the National Treasury simply does not have the money. This was confirmation of what was already evident. The Development Bank of Southern Africa had earlier taken the unusual step of lending SAA about R3bn to fund its operations.
Public finances today are worse than they were in February. We had not felt the effect of Covid-19 then.
Now we not only have the additional costs caused by the pandemic, we are also going to generate even less revenue. This makes Mboweni’s counsel both prescient and immediate.
However, SAA is not shedding “dead weight, in order to direct increasingly scarce resources to what is young and vital”. Pravin Gordhan, minister of public enterprises, appears to be stuck. His presentation to the parliamentary committee two weeks ago was uncharacteristic and utterly unconvincing.
Placed under business rescue in December 2019, the airline is now set to be closed down. Gordhan is not pleased with the business rescue practitioners (BRPs), Siviwe Dongwana and Les Matuson, for seeking to shut the airline. His source of unhappiness with the BRPs is the lack of a rescue plan, expenditure of about R5.5bn in four months and the hiring of consultants for about R30m.
In their various responses and submission to the court case where the unions seek to block their retrenchment plans, the BRPs are contesting Gordhan’s insinuation of sloppiness and wasteful expenditure.
Their explanations are plausible. The amount reportedly paid to aviation consultants is not surprising — they’re overseas-based and charge in foreign currency. Nor is it clear why spending R5.5bn in four months would be uncharacteristic in the case of SAA. The airline has not been generating revenue, and its workers were on strike last November for about eight days at a cost of R52m per day.
When the strike ended in late November, those who had booked flights for the December vacation possibly cancelled them and others simply avoided the national carrier, as they feared it would not honour their bookings. One would not be surprised if SAA had fewer flights this past December compared to previous years. The airline was unlikely to regain public confidence in a month or two.
While still battling lack of confidence from travellers, it shut down in late March. Why wouldn’t SAA absorb R5.5bn when beset by all these crippling problems?
Equally noteworthy is that the government never committed any money towards financing a restructured SAA. This explains why the BRPs had difficulty finalising their rescue plan. One can’t have a plan without the commitment of funds to shape it and provide assurance of its successful implementation.
Lack of financial commitment is not surprising either. Mboweni and Gwede Mantashe, the minister of mineral resources & energy, want SAA shut down. One doubts that Gordhan has enough support in the cabinet to get the Treasury to fund SAA.
And without money, why bother trying to work out a rescue plan? It makes sense to shut it down.
Gordhan, together with the unions, thinks he can still rescue the airline. It is not a bad idea to keep SAA, but it is undeserving of public financing. To insist on continuing the subsidy is simply being reckless and irresponsible. That’s how we got into this financial mess in the first place. Let’s move on to direct our “scarce resources to what is young and vital”.