Finance Minister Malusi Gigaba makes his first medium-term budget policy statement in Parliament next week. He can’t increase our debt and he can’t not rescue South African Airways (SAA). Nor can he ignore Eskom’s shattered balance sheet. If he sells the state’s entire stake in Telkom he could, in theory, raise the R13bn SAA needs to stand on its own feet again.
Fortunately, Gigaba last night finally made some headway. No doubt with President Zuma's support, he finally got rid of Dudu Myeni as SAA chair, replacing her with a respectable chairman and a much stronger board.
It means that he can knock on creditors’ doors with a much firmer hand.
The move clears the way, perhaps, for some sort of renegotiation of SAA’s debt.
Gigaba needed all the help he could get. He has trapped himself. He should have stood up to Zuma in 2011 when he was given orders to sack the chairs and boards of a string of state-owned companies and replace them with people who turned out to be Gupta proxies.
I don’t think he appreciated then that he was officially starting the state-capture project, and the mud will stick to him forever. Former Eskom CEO Brian Dames’s testimony about Gigaba to Parliament’s state capture hearings on Wednesday was devastating to even my charitable view.
But while Gigaba remains dutiful, it doesn’t mean everything he does or thinks is tainted. His defence of SAA has some merit. As a citizen, I don’t want to lose SAA. We can’t simply close it down.
But nor do we have to accept the status quo. Gigaba should be looking to halve the R13bn recapitalisation bill SAA needs. One way might be to split it into separate domestic, continental and intercontinental operations and find partners for each. Another way would be to break it up, sell the good bits and cautiously try to revive, or euthanise, the bad.
They did that when African Bank collapsed. It split into a good and a bad bank. The good one is slowly reviving, with the support of creditors, and may even list on the JSE. The bad one limps along, paying back creditors and bondholders when it can.
At SAA, profitable routes and efficient aircraft could easily be hived off into a new airline along with Mango, which runs efficiently and seems to make money, and whatever works at South African Express.
The state would own 0% of this new airline but could achieve a significant degree of control through a golden share that controls which foreign airline it can partner with, and to mandate minimum domestic route services
You do this by drawing in the private sector, perhaps specifically new black owners, and find them an experienced and hard-nosed partner such as Virgin or Ethiopian. You let the private sector recapitalise this bit and get the Public Investment Corporation to invest. You keep Zuma away from it.
The state would own 0% of this new airline but could achieve a significant degree of control through a golden share that controls which foreign airline it can partner with, and to mandate minimum domestic route services.
SAA’s bad bits are hived off into a state-owned entity reporting to the Treasury. Gigaba has to find sufficiently credible skills, of whatever colour — probably also in the private sector — to persuade creditor banks not to pull their loans to this part of the company.
There’s no point in recapitalising this operation. Put it on a very short leash and toughen it up. Put creditors on the board and get an airline genius to run it. Give him or her five years to make something of it. Don’t interfere. Pay on results.
Sadly, in a state so riddled with corruption, it is impossible to get anything done straight. SAA has escaped the scale of corruption allegations at Eskom and Transnet but rumours lie thick on the ground about all sorts of kickbacks, especially by fuel suppliers to people who deliver contracts to them.
And while Gigaba, like Pravin Gordhan before him, is forced by Zuma to keep Myeni in the chair or even merely on the board, he can kiss private sector funding goodbye.
Gigaba knows a lot of the pressures on him are self-inflicted. His involvement with the Guptas has hobbled his credibility. Had Gordhan still been finance minister, he might have been able to talk SAA’s creditors into not pulling loans recently.
However, with the right management, it wouldn’t be impossible to turn around even the bad airline. SAA was making a loss when the unlamented Khaya Ngqula became CEO in 2004. By the time he was hounded out in 2009, it was in the black.
Ngqula hired a Canadian airline consultancy, Seabury, to help him restructure the business. They pored over the tiniest expenses and clamped down on costs. There was blood on the floor by the time he left, but there was also money in the bank — R3bn, to be precise.
With a brute of a manager, Gigaba could do the same thing again.
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