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South African Airways (SAA) has guzzled taxpayers’ funds, with an estimated R26bn needed to keep it in the air over the past six years. This is largely, as Forensics for Justice founder Paul O’Sullivan pointed out earlier this week, because it has been the site of rampant corruption and financial irregularity. The finger of blame has pointed at former President Jacob Zuma and his close friend Dudu Myeni, who was appointed chair of the airline even though she had no relevant experience in business. As O’Sullivan says: ANC corruption has brought SAA to its knees. But, SAA has also carried the national flag. What’s more, it is a significant employer, facilitates commerce and has been known for good service, as Guy Leitch, publisher and editor of SA Flyer and Flightcom. Leitch sets out a rescue plan to salvage the parts of SAA that work. – Jackie Cameron
SAA – Killing the rape victim?
By Guy Leitch*
Once again the talk of the end of SAA is premature. Pravin Gordhan sounded the death bell when he said no more money in a letter to the business rescue practitioners. Yet he now appears to be buckling to political pressure from cabinet cronies who want yet another report on the options for SAA.
This is just a delaying tactic. Whatever slim chance the business rescue practitioners (BRP) had of saving the airline has been wiped out by Covid-19.
Tito Mboweni has made it clear that there is no more money for SAA – and rightly so given the competing demands from far more worthy claimants for state funding. The R16bn provided in the February budget for a restructuring is no longer on the table – and in fact government has failed to meet any of its promises to SAA since the start of the BRP in early December last year.
The R7.7bn proposed by the BRP is also no longer real as that plan has been wiped out by Covid-19. The BRP say there is no money to pay salaries or aircraft leases – or to put fuel in the tanks. The airline is unable to borrow locally or abroad, and its balance sheet is hopelessly insolvent. There can be no doubt that it should be liquidated. And with the lockdown, for once the airline can be closed without leaving passengers stranded in airports, as the Civil Aviation Authority likes to do.
Most taxpayers welcome the prospect of no longer being slowly bled by the two state-owned airlines. But there is a huge cost in closing it down. 9,000 SAA group jobs will be lost, with little hope of employment in an airline industry that has been devastated by Covid-19. Further, much long term damage would be inflicted on the already reeling SA economy through the lack of air connectivity provided by SAA to transport people and goods affordably. And when foreign carriers step into the void left by SAA, the ticket revenue will be exported, with more harm to the local aviation industry and the country’s balance of payments.
And perhaps most poignantly, as a pilot friend plaintively asked me – how can it be that after the airline was raped by the Zuma cronies, why is it that the victims who were doing their job, are punished?
Back to the proposed report requested by the cabinet. Let me pre-empt it by outlining the alternatives: The BRP looked at three broad options:
A) Restructure the airline to a small but profitable size. This option was going to cost R7.7bn.
B) Have a ‘structured wind-down’. This would enable the airline to negotiate more favourable terms with its creditors – particularly the aircraft lessors, the banks and yes, even government. Employees would be offered voluntary severance packages, of possibly two weeks pay for every year served (as per the Eskom precedent).
C) Just throw in the towel and liquidate it, letting creditors enjoy the ‘cold comforts of a concurrent claim’. Every airline creditor might hope to get a few cents in the rand – including employees.
Option 1 is off the table because there really just isn’t the money to save the airline.
Option 2 is preferred by the creditors, but NUMSA and SACCA (the cabin crew association) just don’t seem to understand that Option 1 is no longer possible and so aren’t buying into Option 2.
Option 3 has its appeal as it cuts the cost of severance packages to a manageable amount and everybody gets the same small pay out.
There is however a fourth option: As happened to Swissair in 2001, the airline could be spilt into two.
An ‘Oldco” which is left with all the corrupt preferential procurement contracts and toxic debt. These are then ring-fenced and government negotiates hard with the creditors on repayment terms, being careful to avoid detonating the R300bn nuclear bomb of the cross default clauses on other state loans.
A ‘Newco’ that arises phoenix-like from the ashes of SAA, unencumbered by the baggage of the past. There is no reason why, like Air New Zealand, Qantas or LATAM, it cannot be profitable, with quality management, the correct route structure and sound labour and procurement contracts. It will be able to attract a private sector partner – preferably with a majority shareholder, to keep things professional and free of political meddling.
This Newco would be an airline with similar branding and name (‘South African Airlines’ anyone?). It will provide the essential long haul connectivity to keep the foreign airlines that would try move into the vacuum created in the South African market honest. It will ensure that key tourism and trade routes were well served, and that the revenue from ticket sales remained local.
The best bits of SAA would be cherry picked for continuation – its ‘Best in Africa’ customer service standards, its institutional knowledge and pilot training expertise, and its routes and slots at key hub airports, to name but a few. Key subsidiaries, SAA Technical and Air Chefs could be saved and Mango will continue to operate the domestic and select regional market routes.
A good precedent exists: transport economist Joachim Vermooten this month published a detailed study on the SWISS lessons for SAA. He concludes that, “A planned closure and restart (or carve-out) of a smaller and more focussed successor state-owned airline is a better alternative than a sudden service interruption of SAA and related economic impact. The establishment of SWISS International Air Lines as a successor airline to Swissair’s liquidation represents a real-life example of closure and restart (or carve-out) that can be applied to SAA’s viable operations to establish a smaller and more focussed successor state-owned airline as an alternative to a sudden liquidation of SAA.”
What is of note though is that the transition to the SWISS Newco was not without its pain – and it was only when Lufthansa effectively took SWISS over and integrated it with its route network that the new airline became viable. But long run, this would be a good thing for ‘SA Airlines’ and South Africa.
- Guy Leitch was born in England but grew up in South Africa. He has a Masters Degree in Development Finance, is working on a PhD on African airlines and is a pilot with night and multi-engine ratings. He is also the publisher of Africa’s leading aviation magazine, SA Flyer.
Message from High Commissioner Nomatemba Tambo to the staff and crew of South African Airways:
“I have never been prouder of our National Carrier, South African Airways, than I was today.
On Easter Sunday, at 03.30am, SAA London turned up in full force at Heathrow airport, to oversee the repatriation of 300 South Africans. From top management, down, they had all taken the decision to leave their families on this Holy day to support the South African Government through the Department of International Relations and Co-operation, to ensure that our people returned to their loved ones.
Today, in this COVID-19 era, SAA has one many, many new loyal friends, from the passengers, to their families in South Africa.
Some people were in tears, because an opportunity had been provided for them to go home. Some (not expected), drove through the night, from Glasgow, in the belief, SAA would not let them down. They didn’t.
SAA went two steps further. All elderly and vulnerable citizens, were immediately taken to the Business Class Lounge after check in. Amazing.
The SAA ground team were so organised, patient, collaborative and accessible to us, and the South Africans travelling that the mood within the terminal was calm and patient.
In closing, I would like to applaud the entire team for a sterling job and look forward to working with them again, under less trying circumstances in the future. Job well done!”
Comment from Brad Bennetts:
The need for a National Airline
To whom it may concern
I have just read a media article regarding South Africa Airways which was published yesterday. I agree so much with the sentiment of; why should the people and staff at SAA pay the price for the corruption of Zuma and his cronies? But I believe that the question should be, should the entire country pay the price?
National Treasury recently published a parcel of proposed economic reforms online at the same time that they were emailed to cabinet in the second half of 2019. Everyone had access to the same information at the same time – a political masterstroke as it ensured that the document could not be undermined before it was publicly available. It laid out plans to encourage labour intensive growth in areas such as tourism. Tourism receipts tend to pick up when the currency is weaker. As a long-haul destination that is expensive to reach, the country really has to fight for every foreign visitor in a highly competitive global tourism market. With the relaxing of the lunatic changes to our country’s visa regime, which in the past saw a reported 10 000 families turned away at foreign airports and undermined tourism growth, it will take a concerted effort by South Africa to convince the world that it is a serious destination for real money. And real money in terms of foreign currency is what the country needs.
So is there a need for a Flag Carrier or National Airline, which represents its home country internationally, to aid the country’s economy particularly in the area of tourism?
I believe the answer to be an emphatic YES! If we are serious in showing the world that we are not a failed state, we need to show them that corruption does not go unpunished and neither does it lead to further misery amongst the people and within the economy. South Africa deserves better. South Africa deserves the Legacy Carrier it once had that flew the rainbow flag, the carrier that was invited year on year to participate at flypasts and airshows around the globe, the carrier that provides the foundation for some of the most advanced pilot training to other carriers in America. The country deserves the carrier that represented who we were as a nation in the Mandela years and not one that precipitated a disease ridden corpse of corruption. R17-billion will soon seem like a drop in the ocean.
I believe that everyone in the country and specifically in the aviation industry should be fighting for the survival of our once pristine National Airline. The job losses that will occur should SAA fail are far more widespread than the aviation industry alone. The thousands, if not millions of jobs that will be lost in the tourism industry are going to add to the misery of an economy that desperately needs to hold on to foreign income to survive.
The pilot body has for many years outlined the solutions of what is needed to get the airline back on track to profitability. It is not rocket science but does need proper leadership and qualified management. The public have been drawn into supporting the negativity that surrounds this once world class airline without understanding that it’s not the dead horse they assume it to be. If other airlines can do it, so can South Africans! Let’s build on the recent positive sentiment that we have experienced surrounding the imminent closure of our airline and show the world that we are still open for business.
Captain – South African Airways
Cyril Ramaphosa: The Audio Biography
Listen to the story of Cyril Ramaphosa's rise to presidential power, narrated by our very own Alec Hogg.