The latest R2.3bn bail-out for South African Airways (SAA) is one in a long series, always justified on the basis that yet another long-term turnaround strategy is in the making. The problem is these strategies are not implemented, or not implemented well.
"SAA has been on life support for far too long and it’s time to pull the plug," Cape Chamber of Commerce and Industry president Janine Myburgh said in a summary.
"SAA is an essentially commercial operation and, as such, is not entitled to regular financial transfusions from the fiscus.
If it stopped operating tomorrow it would not be missed. Other airlines would simply step in to fill the gap and we would no longer have to pay billions of rand every year to keep it going. It is wasteful expenditure of a kind.
"The airline has been given every possible opportunity to sort itself out and it has failed every time," she said.
Whether the causes are poor management, corruption, undercapitalisation, the legacy of past poor decisions or the inability to keep up in a highly competitive market, the truth is that SAA is in a nosedive. It has made losses for the past five years and continues to do so at a rate of about R370m a month, which makes a further bail-out in the future likely.
The decision by Standard Chartered Bank not to roll over its loan to SAA, which triggered the need for the bail-out, could be followed by other lenders in future.
In fact, when Finance Minister Malusi Gigaba announced the bail-out at the weekend, he said the recapitalisation of the airline would be dealt with in the medium-term budget policy statement in October, suggesting that more than the R2.3bn already granted is in the pipeline.
The aim would be to improve the financial position of the airline. But the question has to be asked whether this is just postponing the inevitable.
SAA has notched up net losses of R24bn in the 17 years since 2000-01. It made a profit totalling R5bn in eight of those years and losses amounting to R29.3bn in nine years.
What is extraordinary is that the loss trajectory since 2012-13 — a total of R12.8bn — after four years of profit has been always under the chairmanship of President Jacob Zuma’s key backer Dudu Myeni.
No wonder then that the airline has had to repeatedly resort to state guarantees which total R19bn. The guarantees have climbed from the R1.3bn granted in 2006-07 to R5bn in 2013-14 and then sharply by R14bn between then and now.
The R19bn excludes the repeated cash injections that have been made — R744m in 2007 as a labour restructuring grant and R1.6bn in 2009-10 for working capital.
The DA’s calculations reveal that there have been at least 10 turnaround strategies at the airline, none of which seemed to have worked.
Now a new one is in the offing, fine-tuned by global aviation consultants Seabury and expected to be submitted to the Treasury soon. Also under consideration is the report by Bain & Co on the merger of the state-owned airlines which include SAA, Mango, SA Express and a 2.9% stake in SA Airlink as well as a possible introduction of a strategic equity partner.
The wheel of policy decisions on such matters grinds slowly but there are immediate things that can be done to strengthen management and restore public confidence. The most obvious being the removal of chairwoman Myeni, largely seen as a disruptive force. No turnaround strategy can work if there is not a strong board which includes aviation specialists as well as a professional management team led by an inspired CEO. SAA has been without a permanent CEO since November 2015 when Musa Zwane took over in an acting capacity.
All this could be tackled immediately by decisive leadership from the Treasury, which took over oversight of the airline in 2014.
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