SAA’s troubles continue
The beleaguered national airline has been given yet another state handout but shows no signs of taking off
‘If it wasn’t for taxpayers it would’ve closed down a long time ago’ – DAWIE ROODT
IT’S always the same old story: South African Airways is in deep trouble. It needs money – lots of it. And it’s always the taxpayer that ends up footing the bill.
It feels like a bottomless pit. We pay and pay and pay and yet SAA just keeps sinking further into the financial mire. Recently the national carrier needed a further R3 billion lifeline to stop it from defaulting on its loans.
But will SAA ever be able to soar like an eagle instead of hanging around our necks like a giant albatross? And does South Africa really still need a national airline? These are the questions fed-up consumers are asking in the wake of the latest multi-billion-rand bailout.
TURBULENT TIMES: SAA’S LATEST WOES
The national treasury recently greenlighted the payment of R3 billion to help SAA meet some of its immediate debt obligations. This happened as rumours swirled that the government was considering raiding the Public Investment Corporation (PIC), which manages civil servants’ pension funds, to keep SAA afloat. There was also talk that the state was planning to sell its shareholding in Telkom to free up R10 billion to help the airline overcome its short-term debt challenges.
What makes the latest bailout so unusual is that it wasn’t even a loan. “It was basically a handout,” says Dawie Roodt, chief economist of the Efficient Group.
But finance minister Malusi Gigaba insists he had no choice. He argues that if SAA defaulted on the loan it had taken from influential American institution Citibank, uncertainty would arise about the state-owned enterprises’ (SOEs) ability to pay their many creditors.
This latest handout means that within the space of three months SAA has received help from government to the tune of more than R5 billion. And even more depressing is this isn’t the end of its woes – watchdog body the Free Market Foundation estimates that once SAA has paid off Citibank, the money left over from that R3 billion will only keep it going until December.
But Gigaba’s hands were tied, Roodt concedes. Had SAA defaulted on Citibank it could have caused a “nasty” ripple effect. Creditors that offer the government long-term deals could’ve immediately called in these loans, for example, and other SOEs and state institutions might have started defaulting.
Yet Roodt says he’s alarmed that the latest SAA handout didn’t come with any conditions forcing it to get its house in order. “The blatant mismanagement at SAA is mind-boggling,” he says.
It’s hard to see the case for pouring further public money into SAA, agrees Seán Mfundza Muller, a senior economics lecturer at the University of Johannesburg. “At various points it might have made sense to do this . . . to stabilise SAA or prepare it for large scale privatisation. But this scenario has been repeated so many times that the argument is no longer credible.”
According to Misheck Mutize, a finance lecturer at the University of Cape Town, the plundering of SOEs and economic mismanagement has contributed
directly to South Africa’s current economic crisis.
“Many are in deep trouble. Sheer incompetence and corruption has pushed entities such as SAA and the SABC closer to financial collapse.”
BOTTOMLESS PIT: LIFELINES, GUARANTEES, HANDOUTS
SAA’s problems started as far back as the year 2000 but have steadily worsened due to factors such as difficulties in the air travel industry worldwide, mismanagement, poor decision-making and political interference.
“Politicians are spot-on when they refer to SAA as “a bottomless pit”, says Ulrich Joubert, an independent economist based in Johannesburg. Recent estimates that the government’s rescue packages and loan guarantees to SAA alone come to a total of R30 billion over the past 10 years, seem accurate, Roodt says.
Not to mention the hefty packages paid to a string of top officials that came and went. Currently SAA loses about R350 million a month – and its critics say much of this is down to gross mismanagement.
Earlier this year Guy Leitch, editor of SA Flyer magazine, calculated that SAA loses about R500 on every flight ticket it sells.
Roodt fears SAA is a company in name only. “Because it’s kept going artificially,” he says. “If it wasn’t for taxpayers it would’ve closed down a long time ago.”
WHAT NEEDS TO HAPPEN
Does SA really need a national carrier?
Professor Jannie Rossouw, head of Wits’ school of economic and business sciences, says South Africa has to accept that the time has passed when national airlines crisscrossed the skies as symbols of national pride. Worldwide the idea of a national carrier as the “natural property” of nation states has lost currency. Private entrepreneurs have taken over the market.
“Governments are getting rid of their airlines,” Roodt says. “Switzerland is a good example. Their government simply said, ‘We’re not going to help you, you can go bankrupt”. And so Swissair shut down.
With innovative ideas and more costeffective business models the so-called budget airlines have placed conventional operators under tremendous pressure, Roodt explains.
“Ryanair is an excellent example of this.” Having started small in Ireland, it now dominates the European market.
America only has private airlines, Joubert points out. British Airways was already fully privatised almost 20 years ago. It’s a franchise partner of Comair (the owner of Kulula), which is run and owned by South Africans.
Joubert believes private airlines – including Safair, which recently entered the local passenger market – could be “just as proudly South African” as a national airline. Many of the foreign airlines that stop over locally also fly to most destinations on SAA’s routes these days.
GOING PRIVATE
To become competitive and profitable in this tough industry requires true discipline and many experts reckon that private operators are better at stringent cost cutting and implementing the nifty footwork needed with everything from fuel purchases to route planning.
Joubert says in a government department, which is what SAA has essentially become, there isn’t the same pressure to manage effectively and be profitable. “When a government department gets into trouble it simply asks the taxpayer for more money. This is one of the main reasons why [SAA] doesn’t work.”
But SAA’s indebtedness could make privatisation tricky, Roodt warns. “You might not even be able to sell it because it’s lacking in value. And you can’t simply shut it down now because then many creditors probably won’t get their money back.”
Mmusi Maimane, leader of the Democratic Alliance (DA), says the SAA trademark should be retained and leased to private companies who’d then be in charge of running it.
“SAA should be stabilised, professionalised and sold as soon as possible.”
However with the ANC’s electoral conference imminent and the 2019 general election not far off, Joubert doubts SAA will be privatised or shut down soon.
HEADS NEED TO ROLL
Chair of the SAA board Dudu Myeni’s term has been characterised by spending blunders, ill-advised contracts and interference regarding the allocation of tenders.
Her critics say she has survived purely because of her close friendship with President Jacob Zuma. Former finance minister Nhlanhla Nene was fired after he repeatedly clashed with her.
But Zuma’s loyalty to Myeni comes at a high price. Apparently Citibank, which had already given SAA loan extensions four times in the past, refused any further postponements when it became known that Myeni was to stay in her position. Though her term was up at the end of August, Gigaba indicated she’d be there until at least early November – and she herself has said she wants to stay on for another year.
“With politically affiliated Myeni at the helm SAA is simply a massive straw through which the political elite can suck our fiscus [public treasury] dry,” Maimane says.
EXTRA SOURCES: FIN24.COM, THECONVERSATION.COM, POLITICSWEB.CO.ZA, TIMESLIVE.CO.ZA
‘SAA should be stabilised, professionalised and sold as soon as possible’ – MMUSI MAIMANE