Is SAA heading for a crash?
SAA is in a deep crisis. Can the national carrier be saved? We asked the experts
IT WAS once the jewel of the skies – an award-winning airline praised by passengers domestic and international and a source of patriotic pride to the nation. But these days, South African Airways can barely get off the ground. Years of mismanagement and corruption have seen SAA haemorrhage cash and teeter on the brink of crashing and burning.
The recent labour strike – which resulted in SAA planes being grounded as more than 3 000 employees downed tools – only added to the airline’s woes. SAA has estimated that the strike action cost it R50 million a day and that the dispute “endangers the future of the airline and threatens jobs”.
But the crisis has been building up for years. SAA is drowning in debt of more than R20 billion, of which the government has committed to pay R9,2bn over three years. And the airline recently announced a “restructuring process” which could see nearly 1 000 jobs slashed.
Can it be saved? Or should the government just cut its losses and run?
Flying high
SAA “is not a bad airline”, says Guy Leitch, an aviation expert and publisher of SA Flyer magazine.
“It is, in fact, a good airline. At both the Skytrax Awards and the World Airline Awards this year SAA took second place in Africa’s best carriers category.
“There’s nothing wrong with its operation.”
But the airline has a long history of woes. Things were looking good in 1998 when Coleman Andrews, an American turnaround strategist, was brought in as CEO.
SAA reported a net profit of R350 million in the year ending March 2000 under Andrews’ watch. But an investigation later established this figure was inflated by the once-off sale of aircraft.
Controversially, Andrews received a golden handshake of R232m in 2001, even though the airline posted a net loss of more than R700m for that year.
SAA’s annual financial statements show that it was last in the black in 201011, when it made a profit of R782m, Africa Check reported. Those results were boosted by the soccer World Cup held in South Africa in 2010.
Since then, it’s been in a nosedive.
SA, we have a problem
Bad management and corruption are responsible for the airline’s woes, experts say.
Former CEO Vuyani Jarana, who resigned in June after less than two years at the helm, said almost none of the airline’s international routes was profitable.
Dudu Myeni, the carrier’s former chairperson who was appointed by then-president Jacob Zuma, “allowed and encouraged” corruption, Leitch says.
“Staff told of how tenders were being diverted and of how Myeni was bringing in her own people to push funds and contracts to her cronies. She bullied and pushed and tried to get contracts cancelled to give to colleagues,” columnist Ferial Haffajee writes on News24.
“The price is now being paid. Myeni and her appointees are alleged to have connived on everything from fleet leasing arrangements, to catering and fuel contracts, and even tried to interfere in apron services. It was real banana republic stuff. And the era explains why SAA is out of money and relying on the public purse.”
William Gumede, an associate professor at Wits University’s School of Governance, says SAA put routes in place and dropped other routes for political business purposes.
In 2015 SAA shut its profitable Johannesburg-Mumbai route, a decision said to have been influenced by the Guptas. Indian airline Jet Airways and Abu Dhabi-based Etihad Airways took over the route. An Indian foreign ministry source claimed the Guptas wanted to benefit Jet Airways, according to reports at the time.
Jet Airways was grounded in May this year when it ran out of cash and was unable to pay salaries, fuel or services. A South American conglomerate is in the process of making a bid
to take over the airline.
Political connections have also seen junior staff appointed in senior positions at SAA, and union influence has meant managers have been unable to fire staff who aren’t performing, Gumede says.
It still shocks him that SAA gives freebies to members of parliament and their families, he adds.
Blowing billions
SAA has received about R65,24 bn in taxpayer funding since 1999, according to a Daily Maverick estimate.
SAA told Parliament’s Standing Committee on Public Accounts earlier this month that it’s “technically insolvent” and needs R2bn by the end of November for working capital if it’s to survive beyond the month.
Dr Azar Jammine, director and chief economist at economic consultancy Econometrix, says because state-owned enterprises’ only shareholder is the government, “people who work there don’t feel obliged to run the enterprise profitably because they know there’s a big daddy behind it and there’s no accountability”.
Effects of the strike
Jammine believes the recent strike – which caused chaos domestically and internationally – could spell the end of the airline. “Who’s going to fly SAA from now on? I’m too scared because you don’t know when there’s going to be another strike and your flights will be cancelled,” he says.
“I’d rather fly British Airways. SOEs [state-owned enterprises] may have to collapse before things start getting better. This could see them being bailed out by private owners. That’s what we have to hope for.”
He also doesn’t believe the government has the appetite to pump any more money into SOEs.
Where to from here?
Dawie Roodt, chief economist at financial services company Efficient Group, doesn’t see privatisation as an option for SAA.
“It’s been run into the ground,” he says. “Nobody would want to buy a destroyed institution like SAA.”
But he also doesn’t see how the state can shut it down because that would claim 10 500 jobs and anger the unions.
“There are other repercussions. There will be questions about [the future of SOEs] Eskom and Prasa and the creditors of those organisations will start getting really jittery. Even [ finance minister] Tito Mboweni, who’s a tough guy, will give them (SAA) some of the money and I don’t think it’ll shut down.”
But if the government does shut down SAA, it would still cost the taxpayer about R20bn to do so.
President Cyril Ramaphosa explained last year what it could mean if the airline were to be shut down.
“It basically means that the debt would become payable immediately,” he said. “That debt will immediately have an impact on the debt carried by all other state-owned enterprises, which may even collapse our fiscus.”
Selling the airline’s assets is not an option either, Roodt says. “You’re not going to get R20bn. There’s very little to sell.”
‘It’s been run into the ground. Nobody would want to buy a destroyed institution like SAA’
What can be done to save it?
Gumede says running a profitable airline isn’t easy. “It’s not only SAA [that’s battling]. If you look at the rest of the world, almost all the state-owned airlines are in trouble – and even the private sector. Look at what happened at Jet Airways in May.” Airlines should try to get the basics rights, Gumede stresses. “Get the best and most competent people to run the airline and focus on profitable routes.” He thinks SAA can be revitalised by partnering with other airlines in Africa, by cutting loss-making routes, appointing competent, qualified executives, and leaving politics out of the running of the carrier. But Roodt believes there’s little that can help SAA. “There’s nothing left. You can’t fix it. Finish and klaar.”