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CAPE TOWN — For anybody wavering over whether SAA should be immediately sold off to save the fiscus billions, this analysis might provide that final nudge. The Free Market Foundation (FMF), believes SAA is a vanity project driven by outdated socialist ideology and apartheid-like thinking which centralises everything in a command economy. It’s so out of step with global practice as to be frightening – yet the government insists on continuing this fiscal kamikaze dive in the midst of a perfect thunder storm of wider SOE debt implosion. The FMF even has a magic palette to feed the vanity – after a sell-off. Already adjudged technically insolvent by the Treasury, SAA is projected to increase its major existing losses by R12bn by the 2020/21 financial year. Besides the madcap thinking cited above, there is no rational, logical upside to keeping SAA under government control. Tito Mboweni certainly couldn’t find one in his budget reasoning. Like his President Cyril Ramaphosa, he has two implacable groups of opponents. One is the unions (both men know negotiation is the only way through), and the other is the communist ideologues and Zuptoids, who for very different reasons, believe centralised control is the best thing since sliced bread. – Chris Bateman
FMF media release
South African Airways’ (SAA) days are numbered if Mboweni gets his way. Yet, he has allocated a further R6bn in state guarantees to the bankrupt national airline in the 2019 budget. The Finance Minister knows that SAA survives because many in the ANC are committed to an outdated socialist ideology and are against privatisation or even strategic equity partners. This is the only reason why, despite years of losses and government bailouts, SAA is still flying the rich – including politicians – at the expense of the poor. Forget development role, flag carrier or strategic national asset. Forget even the cross default clause in state owned enterprise (SOE) bank loan contracts. SAA represents the clinging on to apartheid notion of the state owning big national entities although the rest of the world, including global aviation, has moved on.
Mboweni recognises this problem of an attachment to outdated communist ideological notions within government. In his pre-budget media briefing he said, “We need to understand we are in a post-Soviet Union era… I suspect some of us are still in the Soviet Union era. We need to move with the times.”
He continued, “Hard questions need to be asked about where government should put its money: in loss-making SAA, or taxis which daily transport millions of South Africans, or the railways that transport the working classes? I have answers. I know what needs to be done. If I were to put my answers, we might have a strike tomorrow. We can’t have that. So let’s have a conversation.”
Let’s get real. SAA cannot be saved no matter how many billions are diverted from essential public expenditure into this very expensive government vanity project – R6bn more for SAA in budget 2019 on top of the R5bn bailout in October 2018; R3.5bn from the banks announced last week backed by a government guarantee and a begging bowl of R4bn for March. Projected losses are R5.7bn for FY 2018/19; R5.2bn for FY2019/20 and ‘only’ R1.2bn for FY 2020/21.
Only then, according to SAA’s CEO Jarana, will SAA break even and start to make a profit. But this won’t happen if he does nothing to reduce SAA’s bloated labour force. He is surely going to lose the R100,000 wager with FMF executive director Leon Louw who challenged him to make good on his predictions that SAA will be “profitable” by 31/3/2021. Mboweni’s signal that he will not support more SAA bailouts could mean that Jarana has already lost the bet.
Jarana publicly accepted Louw’s wager but has since declined the FMF’s repeated offer to clarify exact terms. Profitability is easy to manipulate. Jarana has stated that SAA needs R21.7bn in the next three years to become profitable. With the economy teetering on the edge of a debt implosion, R21.7 bn is cloud cuckoo land thinking.
SAA’s announcement last week of restructuring into three business units in a bid to increase accountability and force management to operate like a private entity is too little too late and akin to rearranging the deckchairs on SAA Titanic.
SAA, according to Treasury’s own statements, is technically insolvent* and therefore not a going concern hence the Auditor General South Africa cannot even sign off financial statements for FY 2017/18. SAA management and many in government cannot face reality: SAA should be closed down or sold off to the private airline sector while there is still something to sell. Many SAA jobs could be saved and assets utilised, and part of the deal could be to keep the SA flag on the planes. Tourism and international business air traffic will improve and consumers will win as competition brings ticket prices down. Best of all, no more tax payer funds will be required.
When SA Express was temporarily grounded over technical safety reasons, the private sector, including Airlink, Safair and Comair, immediately took up the slack in passengers. If SAA should disappear, apart from a few diehard communists, hardly anyone would notice.
*Page 73 2019 Treasury ENE (Estimates of National Expenditure)
Cyril Ramaphosa: The Audio Biography
Listen to the story of Cyril Ramaphosa's rise to presidential power, narrated by our very own Alec Hogg.