Mailbox: Do we REALLY have to carry debt-ridden SAA for another 3 years?

JOHANNESBURG — Beleaguered airline SAA thinks it can turnaround its operations in three years. However, it does sound ambitious considering that it’s bleeding billions in losses. This reader has voiced his scepticism about the possibility of SAA resuscitating itself. Maybe it’s time for the government to call those private investors. – Gareth van Zyl

“SAA should be sold to the private sector so that more travellers can benefit”. More magic available at jerm.co.za.

By Kyle Erasmus*

Given the history of South Africa over at least the past 15 years, I have learnt to adopt a continuous policy of erring on the side of caution, and believe something only when you see it. (The signing of IPP agreements being case in point)

Now, if my lack of trust in the ANC government’s ability to do anything successfully, even under new management in the form of Cyril Ramaphosa makes me a pessimist, then so be it, but so far my mistrust and caution has served me well, and ensured that I always look to other alternative possibilities for a back-up rescue plan when making decisions. (I have not swooned under Ramaphoria)

Looking at the current upheaval at SAA, yesterday’s suspension of the Ex-CEO and current CFO as reported in an article published on Biznews today, it once again confirms my suspicion, as with all SOEs and Government departments, that the corruption and malfeasance is more than skin deep, and that it is going to take more than board and senior executive changes and a few adept moves to recover any of them from the current state that they are in, and maximum force to ensure that the change take place without the proverbial “Fear or Favour”.

Vuyani Jarana.
New SAA Chief Executive Officer Vuyani Jarana

The question I have to ask is, is the new CEO capable and does he have the muscle to bring about all of the changes necessary that are based on sound business, and not political principles to attain the desired objective of bringing SAA out of the Red and into the Black (figurative) in three years as he has proposed.

Since cost cutting persé has never rescued any business in real debt as SAA finds itself, an urgent boost to revenue is also required and so far we have seen no proposed plan to create enough value to drive a revenue increase, which should have already started.

My major concern is that the new SAA CEO has proposed that he will bring the required turnaround at SAA within three years, however he has confirmed that SAA debt will increase over the next three years during the turnaround.

The debt in question will either have to be funded by the fiscus or guaranteed by the fiscus and obtained elsewhere at a premium, and given the precarious position that both SAA and Government find themselves in with the ratings agencies, and in addition the latest Auditor General’s report confirming that which everyone already knew, that SAA in its current position is no longer a “Viable Going Concern” is this even possible and at all feasible from a sound business perspective.

From the professional angle that I am looking at it, the possibility could vaguely exist if SAA were to become even marginally profitable from today, and start reducing its existing debt without haemorrhaging a further cent. (To be clear I would also consider this an outside chance, much like betting on Markus Jooste to recover Steinhoff)

South African Airways (SAA)

Another area of major concern to me is that of the actual Vision the new CEO has for SAA, right now if he has any hope of convincing me or any other taxpayer, his Vision, Mission, Goals and Objectives should be made clear to Joe Public, and include more than cost cutting as I have already mentioned.

It is my personal opinion that the new CEO finds himself in a position where he cannot see the “wood for the trees”, and that he is going to be fully occupied with attempts to stop the current malfeasance and financial haemorrhaging over the next three years that he will have no insight and vision as to the changes that will occur in the global aviation industry over the next three years. (Of course does not even include the “Millstone” that Mango is fast becoming)

Read also: SAA is not a parastatal, it is a PARASITE and unconstitutional – van Staden

This means that three years from now, despite possibly massive amounts of work and changes, he will find himself back where he started today, totally out of sync with the modern aviation industry, and still in debt.

“Talk is Cheap”, but real money ”Buys the Whisky”, and I’m not referring to the local affiliation to Johnny Walker in all of its various status label colours.

I would like to see the new SAA CEO place his next three years “cost to company” on the table, as a guarantee that he is firmly in the pilot’s seat, and that he will pull off the change from Red to Black on the financials that he has said he will do.

Read also: SAA mess: 1944 book on management incentives provides insight

If the CEO is not willing to do that, well then, keeping SAA alive is just extending the line of the gravy train.

It is my Professional Opinion and I am sure having read much about SAA, that most other professionals are also of the same view that SAA should be canned right here and now, since attempts to find equity partners or extending and increasing the current debt for a technically insolvent entity and other political circumstances is a no go.

There is no sound reason under the sun whatsoever that can justify funding SAA from the pockets of taxpayers for a further three years based on a “maybe” recovery after the purported period.

  • Kyle Erasmus is an Operations Management Professional.