SAA reached end of runway – time to stop bailouts, kickstart privatisation: DA

JOHANNESBURG — Government’s latest bid to save SAA can only end in tears after it gave the airline a R3bn bailout on Friday. DA leader Mmusi Maimane says it’s time to stop the bailouts and start privatisation efforts. Meanwhile, the Free Market Foundation (FMF)  (prior to Friday’s bailout) questioned why South Africa needs a national airline in the first place. In a globalised, competitive world, South Africa could save billions by allowing itself to be serviced by other airlines; or even by selling off SAA to private bidders. In the meantime, taxpayers are being fleeced. – Gareth van Zyl

By Mmusi Maimane*

There is an ongoing debate about whether or not a country should own an airline. Many countries do so for national pride. Like many, I am proud of SAA as a national carrier. It is one of the oldest airlines in the world still operating. But it is simply wrong that poor South Africans are subsidizing rich people’s flights. The answer is to retain the SAA brand and lease it to private companies who can own and manage the airline. That way, it could soon be making a positive contribution to our tax revenue. The DA’s position is that SAA must be stabilized, professionalized, and sold off as soon as practically possible.

Leader of South Africa’s Democratic Alliance (DA) Mmusi Maimane. REUTERS/Siphiwe Sibeko

Perhaps this will be the week our government is finally forced to concede that SAA has reached the end of the road – or shall we say runway – as a state-owned entity. Loans of R6.9 billion are due tomorrow, 30 September. National Treasury has yet to reveal where this enormous amount of money will come from. And this is only the most immediate, not the greatest, of our SAA-inspired headaches. Treasury has already conceded that the airline will need another R13 billion in cash injections over the next two years – and that’s under an optimistic scenario in which the airline “turns around”.

SAA has become a bottomless pit into which government continues to pour precious public resources that should be spent on lifting 30 million South Africans out of poverty. It is hard to believe that any government hoping to be re-elected would take money from the poor to subsidize travel for the rich.

For almost two decades, the airline has relied on government bailouts and guarantees for its survival. The cumulative total of bailouts since 1999 is R14.4 billion, and National Treasury is currently trying to source another R10 billion for the airline in the next 24 hours. Government has already extended R19.1 billion in guarantees – meaning that nearly R35 billion of ordinary South Africans’ hard-earned money has been dedicated to keeping SAA in ‘business’. By 2019, that number will have risen to around R50 billion – an amount which could have given a million South Africans a decent home for the first time in their lives – think how life changing that would have been.

Over the past five years, under the control of Board Chairperson Dudu Myeni, SAA has made a cumulative loss of R15.7 billion rand. Yes, R15 700 000 000. It is important for South Africans to realise that government continues to retain and protect Myeni in her position, not in spite of this cash haemorrhage, but because of it. With politically affiliated Myeni at the helm, SAA is simply a massive straw through which the political elite can suck our fiscus dry. It is no more than a mechanism for large scale theft. The fact that SAA aeroplanes still fly is simply a necessary requirement to give the looting an outward show of legitimacy.

The reality is that SAA is insolvent and bankrupt. Its fortunes will not change if we continue down the current tried, tested and failed path. It could be a profitable company but it will never be so while it is beleaguered with political interference and corruption. SAA should be put into business rescue immediately. Myeni must be removed entirely. The board must comprise only independent individuals with suitable aviation and business experience. Once SAA is returned to a healthy financial position, it should be sold off. This ought to include an employee share scheme, making a portion of shares available to SAA employees in order to empower them and give them a real stake in the company’s future successes.

Unlike Eskom, SAA is not a strategic asset. South Africa does not need a national carrier any more than it needs a national supermarket or a national car wash enterprise. And it plays no role in the developmental agenda of government – on the contrary, over the last two decades it has cost our country dearly and delivered no tangible benefits to ordinary South Africans. Yet national government is hell-bent on hanging onto it – for the opportunities it opens up for corruption.

The Public Investment Corporation, which administers the pensions of teachers, nurses, police officers and other public servants, has confirmed that they were approached by Treasury for a R6 billion bailout for SAA. That our government would even consider risking the pension funds of public servants is deplorable.

Section 195 of the Constitution stipulates that: “Public Administration must be governed by the democratic values and principles enshrined in the Constitution, including … Efficient, economic and effective use of resources … The above principles apply to … Public Enterprises.” The management of SAA has become the very antithesis of the requirements set out in the Constitution. Malusi Gigaba and Dudu Myeni, in their respective official capacities, have breached the Constitution by allowing such a staggering waste of public resources at SAA.

This week, Business Leadership South Africa (BLSA) suspended Eskom and Transnet, to put pressure on government for its flagrant looting of state owned enterprises. We must all join BLSA in rejecting and condemning government corruption, and the best way to do this is at the ballot box.

  • Mmusi Maimane is the leader of the DA.

SAA is dead in the water – why bother with a bailout?

By FMF*

Who is fooling whom? Government seems to have lost the plot over SAA. The debate whether bailout funds should come from Telkom or PIC and the government pension scheme is irrelevant.

FMF executive director Leon Louw said, “SAA is bankrupt with no place in the modern world of aviation. No amount of capital injection can turn it into a profitable commercial airline. It is too late for privatisation – no one will buy it. The only choice is to liquidate and sell the few remaining assets of worth. That way we will at least save the R370 million cash SAA is hemorrhaging every month. That equates to R1 billion every three months that could be better spent on providing the poor with basic services, infrastructure, housing and welfare”.

Bailouts imply that the entity can move forward as a going concern. The R10 billion is not a bailout at all. It is a temporary stopgap to plug a huge hole in the airline’s ability to pay back maturing debt and inability to fund working capital to pay for every day operational expenses. It looks backwards not forwards.

The reality is that R10bn will cover the R9bn of debt maturing at the end of September leaving R1bn for working capital. Given that SAA is losing R370 million every month, at the end of December, SAA will be back cap in hand to the Treasury for taxpayer money. “R10bn will not get SAA out of trouble and the taxpayer is not off the hook. Irrespective from where the funds come, it is not enough and never will be,” said Louw. “Total state aid over 10 years is close to R24bn.”

A government guarantee is a promise to pay. It is a taxpayer backed, solid, financial commitment. Government has provided guarantees of R19.1bn to SAA to date. SAA has raised loans against R17.9bn so far. Standard Chartered Bank demanded repayment of R2.3bn and Citibank wants its R1.8bn back by end September. If SAA defaults, the remaining guarantees automatically become payable due to the cross default clauses in the lender contracts. A further R7.9bn is due between 2019 and 2022. SAA will never be in a position to pay back the loans or be a financially viable competitive airline.

Chairman of the Jacob Zuma Foundation Dudu Myeni – real life example of the way “entrepreneurial politicians” pull State levers of power for personal benefit.

Geography and technology have played a significant role. South Africa used to be the gateway to Africa, and, due to government stifling of competition via bilateral agreements and limited airport slots, SAA could and did dominate southern African skies. Apartheid isolation also played a role. No longer. Competition is tough from Middle Eastern airlines, including Emirates and Turkish Airlines, that now fly all over the African continent. Technology has changed the game with more fuel efficient aircraft able to fly longer distances. There is no need any longer to refuel in Johannesburg. SAA has only 17.6% of international market share against Emirates 24%. This is not good enough to generate economies of scale. Bailouts, guarantees and misplaced national pride cannot change hard facts.

Government is pushing an emergency Appropriation Bill through Parliament to facilitate this latest bailout. “Emergency” implies an unexpected, unanticipated event. No one can pretend that SAA’s financial crisis was not known.

The question is why is government so determined to press ahead with this “bailout”? The threat of all of the R17.9bn in guarantees becoming immediately repayable is an obvious factor. But is there more? Is it the threat of a domino effect across all state-owned enterprise debt – some R434.1bn?

  • FMF is the Free Market Foundation.