South African Airways (SAA) is unlikely to “ever” generate sufficient cash flow to sustain its operations in its current configuration, Finance Minister Tito Mboweni said in his Medium-Term Budget Policy Statement (MTBPS) on Wednesday.
Mboweni said this begged the question: “How long are we going to be on this flight path? Forever? I think not. Operational and governance interventions are required urgently!”
Over the past 13 years, SAA has incurred over R28 billion in cumulative losses and the airline is insolvent.
National Treasury confirmed in the MTBPS that SAA is unable to repay outstanding government guaranteed debt of R9.2 billion.
It said government would repay this debt over the next three years to honour its contractual obligation but stressed that operational changes at SAA are required urgently.
Mboweni said he was pleased to learn there were conversations involving SAA and potential equity partners, which would “liberate the fiscus from this SAA Sword of Damocles”.
“We have essentially chosen to subsidise the middle class and wealthy flying around the country and other parts of the world, rather than the ordinary workers who sit in old trains from the townships every day, often getting stuck and being late for work.
“We are also subsiding the wealthy bond holders, who hold government-guaranteed debt but receive higher yields without additional risk,” he said.
National Treasury admitted that several large state-owned entities (SOEs) are in crisis as a result of governance failures, poor operational performance and resultant unsustainable debt burdens, and are adding to the spending pressures on government.
It said R10.8 billion in funding for SAA, the South African Broadcasting Corporation (SABC), Denel and South African Express in the current year had wiped out almost the entire contingency reserve for 2019/20.
Mboweni said other state-owned companies that require support from the fiscus will be subject to certain preconditions and principles, including that managers and their teams should not receive bonuses or salary increases when they fail to meet basic financial targets and service objectives, but in fact should take a pay cut and – in some cases – be relieved of their duties.
Other preconditions and principles are that government, as a shareholder, should commit to the highest standard of corporate governance and that businesses with outdated business models are a major fiscal risk and should be closed.
In-year spending adjustments to the main budget amounted to R44.5 billion, which have been partially offset by downward adjustments of R21.4 billion by the use of the contingency reserve, provisional allocations, projected underspending and declared unspent funds.
Additions to spending include:
- R26 billion in the Special Appropriation Bill for Eskom
- R5.5 billion for South African Airways
- R3.2 billion for the South African Broadcasting Corporation
- R1.8 billion for Denel
- R429.8 million approved through the Budget Facility for Infrastructure for student housing
- R300 million for South African Airways Express
- National Treasury said government has increased spending to meet its obligations for guaranteed debt, but decisions are required to manage the ongoing impact of these entities on the fiscus.
It said a programme of reforms is being enacted to strengthen governance and operations at these entities and to stabilise those in financial distress.
National Treasury said a sustainable plan for state-owned companies is required to reduce future budget transfers.
“It should include the disposal of non-core assets and options for private sector participation,” it said.