‘Not too big to fail’ – Govt draws a line in the sand on SAA

The state-owned enterprises in South Africa have been performing dismally with ratings agency Moody’s describing them as the biggest and most dangerous economic stumbling blocks to the country’s economy. Top of the pile sits Eskom, blowing a cloud of toxic, pollutive smoke all over efforts to recover the economy from the years of corruption under President Jacob Zuma. Cyril Ramaphosa’s government has been urged by the business sector within the country, the international community and ratings agencies to get a grip on the SOEs and has been warned that bailing out these state companies is pulling the country down a drain. His government has hinted that the bloated wage bills of the SOEs would need to be tackled, but this meant squaring up to the alliance partners, the unions with which they have had a cosy relationship since 1994. When South African Airways announced that it would have to cut jobs to stem severe financial losses; the two unions at SAA went into battle mode announcing an indefinite strike, and they rejected a second offer for salary increases despite a warning from bosses that it could collapse the airline. SAA is seen as a test case of the upcoming fight between the unions and government at other state-owned enterprises who are trying to trim their bloated wage bills. Finance Minister Tito Mboweni questioned last year whether South Africa needs a national airline and now Public Enterprises minister Pravin Gordhan has drawn a line in the sand.  Speaking at a conference in New York last night, he warned that SAA is “not too big to fail.” – Linda van Tilburg

South Africa ready to make tough SAA decisions, Gordhan says

By Andres Guerra Luz

(Bloomberg) – The South African government signalled it’s going to take a hardline approach to its cash-strapped national airline as labour unions prepared to strike over pay and job cuts, forcing the carrier to cancel almost all its flights over the next two days.

“If some tough decisions need to be made, we’ll make them,” Public Enterprises Minister Pravin Gordhan said in a speech at a conference in New York Thursday. South African Airways is “not too big to fail.”

Two unions representing more than 3,000 staff at SAA have said they’ll go on strike Friday to protest the carrier’s failure to meet their pay demands and plans to fire 944 employees. The two sides held last-minute talks Thursday in an effort to make a deal, but the labour groups rejected an offer and the walkout will go ahead.

The government will repay loss-making SAA’s outstanding government-guaranteed debt of R9.2bn ($620m) over the next three years, the National Treasury said in the medium-term budget policy statement in October. Lenders are demanding a firm repayment plan as a condition for agreeing to extend more funding, SAA has said.

The airline, which has lost more than R28bn over the past 13 years and relies on financial support from the government to remain solvent, says it has no option other than to restructure or place the entire business at risk. The unions counter that their members shouldn’t have to pay the price of years of mismanagement and misappropriation of the airline’s funds, and that alternative solutions need to be sought. South Africa’s jobless rate is more than 29%, the highest in at least 11 years.

The state is talking with potential investors in the airline to ease the continuing burden the company puts on the national budget. “I am pleased to learn that there are conversations involving South African Airways and potential equity partners, which would liberate the fiscus from this SAA sword of Damocles,” Finance Minister Tito Mboweni said last month.

Some of the unions are politically motivated, Gordhan said.

“They’re risking the future of the airline and the jobs of everybody else,” he said “Hopefully they come to their senses before we go too far.”

SAA said it will apply a “no work no pay” principle to those who participate in the strike. While the carrier cancelled all domestic, regional and international flights scheduled for Friday and Saturday, partner airlines including Mango, SA Express and Airlink will continue to operate, it said.

“Those who participate in the strike action will not be permitted back to work until the strike is over,” said Martin Kemp, SAA’s acting general manager for human resources. “The rest of the employees who report for duty will be allowed to work.”