Business / Business News

Nastassia Arendse
5 minute read
3 Oct 2017
7:45 am

SAA: Beyond the point where it can be rescued or even privatised

Nastassia Arendse

‘If we stopped running SAA every South African could have a house,’ says FMF executive director, Leon Louw.

NASTASSIA ARENDSE:  We are going to be talking about SAA. I feel we are always talking about state-owned enterprises, but it’s worth having a conversation as to whether it really matters who owns the airline. Are we making a profit, is it competitive, are we able to create jobs?

Leon Louw is executive director of the Free Market Foundation. Leon, thanks so much for your time this evening.

LEON LOUW:  It’s my pleasure being with you and the listeners.

NASTASSIA ARENDSE:  On Friday there was that announcement that Treasury would source funds from the National Revenue Fund in order for it to meet their debt with Citibank, Even though they paid that amount of money, there is still that little bit where they talk about operational costs. I have a feeling at the back of my mind that SAA is going to be going back to National Treasury, because they are going to need more money to be able to run the airline, to pay salaries, to be able to meet the day-to-day running of the business. Am I right to assume that’s going to happen?

LEON LOUW:  Yes. One must understand that this is not operational money at all. I don’t know what they were smoking to be saying that. They are very clever, informed people there, and they really shouldn’t talk such nonsense. This is more historical debt. The first R1.9 – nearly R2 billion – of the R3 billion goes directly to Citibank. Then just short of R800 million of the billion or so that’s left goes directly to existing service providers. That leaves about R300 million, and that is its monthly loss. In other words it’s not enough money to keep SAA going, even for one month. So what will happen at the end of the month we will have to see.

And then that does not take into account a R1.9 billion judgment against it in favour of Comair. Comair is applying to court for that to be increased so we are looking at something maybe over R2 billion.

That doesn’t include what it owes Airports Company. That’s not public knowledge, but it’s probably a billion or a few billion. And so it is completely insolvent and it is completely un-rescuable. The reason I say that is quite straightforward. Its existing lease agreements over planes – it owns virtually nothing, people must understand. SAA Airways doesn’t own aeroplanes, or at least very few. It leases them. It’s an empty shell consisting only of debt and contractual obligations, and the best airline manager in the world would not be able to fulfil those contractual obligations profitably – in other words, run other suitable airline plans, which most of them are, for the routes it services – profitably. It can’t be done.

The only thing you can do with SA Airways, which has been the case now for a few years, is close it down. And for some very perverse and strange reason the government wants an airline. Modern civilised democratic governments don’t have or want airlines anymore.

Then if they want it for kickbacks or patronage or, I do know, pride or ego or some funny perv reason, they should close it down and start a new airline from scratch, and then try and run it properly. But SA Airways is beyond the point where it can be turned around or rescued, or even privatised. It’ll be silly to pay R1 for it, even if all the debts were liquidated by the government.

NASTASSIA ARENDSE:  But they continue to say it’s a strategic asset. If the banks don’t see it as a strategic asset, and they are not trying to roll the debt any further, why risk taxpayers’ money to save the thing? I suppose then it doesn’t really matter who owns SAA. The point and objective should be that it should be a business that’s able to meet all its obligations.

LEON LOUW:  It’s not actually about who owns it. That’s not the important issue. This term “strategic asset” is a weasel word. It’s a meaningless term. There is absolutely nothing strategic about it. On the contrary, what we must understand, this comes out, as you said, out of the General Revenue Fund. What that means is money is taken away from other things government was going to spend it on in the budget – for example, housing. The R30 billion which was received over the last decade or so is the equivalent of three million RDP houses. That is more than all the shacks. In other words, if we stopped running SAA every South African could have a house. It’s that crazy.

Now, there is nothing strategic about it at all. It flies a few silly routes to a few African cities which are not viable for anyone to fly to. All of them, every single one, is very easy to fly to with another airline. In other words, there is nothing, zero, that SA Airways does which adds anything to the traveller’s needs. What it does do, it diverts billions of rands from the poor – for whom the money was budgeted – to the rich to fly, which is a bizarre apartheid dinosaur which does what it did under apartheid, which is to serve the rich at the expense of the poor.

Now why the ANC, why the modern post-apartheid government wants to continue doing this is an extraordinary mystery. And to use the word “strategic”, which is a word also by the way, inherited from the apartheid regime. That’s what it said. To even use that world is embarrassing.

NASTASSIA ARENDSE:  Leon, this is a conversation we’ll definitely have with you as this journey with SAA progresses. But thanks so much for your time this evening.

LEON LOUW:  My pleasure. And to your listeners.

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