Airline needs R21bn more
TOO LATE: CAN’T SELL, CAN’T CLOSE IT DOWN
Independent assessment is critical if SAA is to be saved from itself and taxpayers rescued from its excessive demands.
R21 billion: that’s how much SA’s beleaguered national carrier, South African Airways (SAA), says it needs to keep running. It has reached this point through persistent mismanagement and cronyism with government, as its main shareholder, refusing to take tough decisions about it. But such decisions can’t be delayed any longer.
In theory, it is government that supports SAA and bails it out in times of need. In practice, it’s the country’s already-struggling taxpayers who foot the bill.
The Free Market Foundation estimates SAA has already cost taxpayers close to R60 billion in the past 20 years.
I have argued for some time that SAA is nothing more than a government vanity project and should be sold.
In March 2016, when I first said this, it might have been feasible; then it was still financially viable. That moment has passed.
President Cyril Ramaphosa says closing SAA would destabilise other state-owned entities (SOEs) and the broader economy.
Finance Minister Tito Mboweni disagrees. In his medium-term budget policy statement, he warned that failing SOEs are “no holy cows” and would be expected to pull their financial weight.
SAA can’t afford any more delays. Strong players in the continent are eating into its already-weakened base.
In the meantime, taxpayers are caught between a rock and a hard place. The country can’t afford SAA any more and can’t afford to close it down. What’s the next step?
The only option left
I believe there’s only one option: an independent cost-benefit analysis into SAA’s continued existence and the implications of its sale or closure. This should be an independent process; both SAA and government have vested interests in the outcome.
This would be a first and its successful completion could set a benchmark for judging the continued viability of other problematic SOEs.
This is urgent. Chief executive Vuyani Jarana said it will not be profitable by 2020, as was initially announced, but by 2021.
One reason it has fallen short is that management got its oil price forecasts wrong. It planned for an average oil price of $45 (R613) per barrel. The actual average has turned out to be $75.
It doesn’t take a lot of competence to understand that a single oil price can’t be used in profitability forecasts for a company sensitive to oil price fluctuations.
It has also emerged that senior managers at SAA earn enormous monthly salaries – Jarana earns R6.7 million a year.
Professor Jannie Rossouw is head of the School of Economic & Business Sciences at Wits This article was first published on The Conversation