SAA: A R16 billion vanity project, or a crucial asset?

Why should South African Airways, an airline mired in alleged corruption, maladministration and mismanagement spanning over a decade, be saved? This was the question posed by experts as unions insist that it was worth rescuing.

One answer may be that over 4,00 employees of the airline would be thrown into South Africa’s shrinking job market if it were to close. According to the National Income Dynamics Study – Coronavirus Rapid Mobile Survey (Nids-Cram), approximately three million people have already lost their jobs over the course of the lockdown this year.

Pius*, a 44-year old customer service agent had been working for SAA for 19 years before the lockdown threw the future of his career at the already ailing airline into further uncertainty.

“There are so many young people in SAA who still need their employment and they will be affected by these retrenchments and it is very sad. I can not afford to even take those (voluntary severance packages) because things are hard in this world,” he says.

“I am starting to lose hope that things will work out, because at the end of the day the people who got us into this kind of situation are the people themselves who are always running away from this situation. What must you do if your own board is running away from its duty? That means that you will never trust that board anymore,” he laments.

Pius, like many in his position is adamant the company needed to be saved against all odds.

Spokesperson for National Union of Metalworkers of South Africa (NUMSA) Phakamile Hlubi-Majola says people who insist that SAA should be done away with in favour of the private airline sector did not care about the 34,000 workers and companies along SAA’s value chain, which would go down with the carrier.

“Anyone who makes that statement is being extremely reckless and actually doesn’t care about the long-term effects of unemployment and poverty in our society,” she says.

“We know that the collapse of SAA has nothing to do with the [Covid-19] virus. The virus may have fast-tracked it, but it was never the virus that caused the collapse of SAA. The problem of why SAA has been such a burden on state coffers is primarily because of two issues. Massive problems around maladministration and corruption which has allowed to continue over a very long period of time.”

How did we get here

SAA has last shown a profit in 2011, but has been on a downward spiral since the 1990s, racking up more than R55 billion in bailouts. Government has been unable to exercise any oversight for the past few years, as the airline repeatedly failed to submit its financial statements for auditing, leaving everyone in the dark to the true state of affairs.

A meeting of SAA creditors on Tuesday afternoon saw 86% of the airline’s creditors voting in favour of the business rescue plan, which will attempt to rehabilitate the airline.

Among the voters, and holding 65% of the voting power at the meeting, were several commercial banks, which are owed at least R16 billion by SAA. If all goes according to plan, they should be paid out this outstanding debt through the business rescue process.

This will, however, likely cost the taxpayer a significant sum, as one of the plan’s preconditions is that Treasury will have to agree to shell out the money for the restructuring process. At least R26 billion in total will be required to settle all SAA’s debt, as well as pay agreed upon retrenchment packages, and get the airline flying again.

The deadline for Treasury to agree to this is 25 July, and failure to do so would most possibly see the airline being liquidated.

An expensive “vanity project”?

Economist Dawie Roodt, a firm believer that SAA was a lost cause, argued that the thousands of workers who would lose their jobs upon the airline’s demise could be reabsorbed, should the state create a friendly environment for private airlines to take over SAA’s share of the market. He said the continued fight to save the airline was only in the interest of saving South Africa’s most expensive “vanity project” with money which could be invested elsewhere.

“I do agree that the country needs airlines  air travel infrastructure… But you do not have to own an airline. That is a total vanity project. If you, for whatever reason need to fly to a specific city or destination for political or for economic reasons  or for social reasons then you can pay Khulula to do that. There is no need to have an airline.”

South African Cabin Crew Association (SACCA) spokesperson Zazi Nsibanyoni-Mugambi pointed out that SAA was established as a developmental airline, with a mandate to stimulate the economy and create jobs.

“It had a developmental mandate but at some point the airline could not carry it. But for many years, it flew routes that it didn’t require … It made big losses. But the airline was created to develop the economy, not necessarily for profit making but obviously not meant to cost the country as much as it did.”

Political analyst Ralph Mathekga said it was clear at this stage that SAA was surviving by sheer political will, but economic constraints may soon see the government’s priorities shift away from it.

“People say it will affect the markets and so forth. I do understand, but it’s also about the balance which we fail to strike here. Can we afford this airline at a moment like this? That is the question.”

Roodt predicted that the next power struggle in the SAA saga would be between Gordhan and finance minister Tito Mboweni, on whether the latter would actually agree that Treasury continues to rescue the airline.

Simnikiweh@citizen.co.za

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