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Airline success is not just about profitability

It’s about delivering on shareholder objectives.
Where a dual mandate exists, the involvement of the shareholder can be a double-edged sword, where backing is helpful but interference in day-to-day operations is not. Image: Supplied

One of the most common responses to the struggles experienced by state-owned enterprises the world over is to suggest that they be privatised. The primary target of such recommendations in SA currently is our national carrier, South African Airways (SAA).

However, while it’s understandable that the long-suffering South African taxpayer has had enough of watching their tax money being thrown at what they consider a lost cause, selling off any state-owned airline to the highest bidder is not really a viable solution to its financial challenges.

For starters, finding bidders will usually prove more than a little tricky: by the time an airline is at the point where people feel it needs to be privatised, there will probably be very little value left to privatise.

Read: SAA can be rescued with requisite funding – administrators

Of greater relevance to the argument against the typical state-owned airline privatisation call, however, is the fact that the long-term success of any airline is not, and should not be, measured solely against its ability to turn a profit.

In reality, such success is a measure of the airline’s achievement of the objectives of its shareholders. As such, the performance of any airline is more often than not a direct consequence of shareholder behaviours and decisions, not merely its ability to pack people into seats.

Read: SAA BRPs granted leave to appeal retrenchment ruling

To understand this broader success metric, it’s necessary to consider that there are essentially three forms of airline ownership:

  • The first, and most common in Africa, is 100% government ownership;
  • The second is full or majority ownership by a large corporation or commercial conglomerate; and
  • The third is individual ownership by an affluent individual, or an organisation that, in turn, has one major individual shareholder.

The reason it is so important to understand these three possible forms of airline ownership is that each creates its own measure of success for the entity.

When we fully understand these unique performance benchmarks, we also have insight into why the shareholders behave the way they do. This, in turn, prevents knee-jerk reactions to apparent underperformance against any one of the metrics, because calling for a change of ownership also effectively means calling for a change of strategic focus. And this will not necessarily be of benefit to the country in which the airline operates, or its citizens.

For most government-owned airlines, profitability is not an end in itself, but rather a means to an end.

And more often than not, that ‘end’ involves economic growth facilitation and/or the avoidance of economic isolation as a result of the country’s location.

Leading examples

Emirates is a good example of a government-owned airline that successfully turned fairly limited capital into significant economic growth facilitation. And Singapore Airlines is a prime example of how a state-owned national carrier can help a country to overcome its geographic limitations and political challenges and remain well integrated within the international economy.

Obviously both of these strategic objectives can, and must, apply to SAA, particularly given the challenging location of the country, which prevents it from becoming a global travel hub. There is also the important role that a national carrier should play in facilitating sustainable economic growth by quite literally bringing people and goods from all over the world to the southern tip of Africa.

An airline with a corporation or individual investor as its main or only shareholder obviously has vastly different objectives, most of which have little, if anything, to do with the national economic good, and everything to do with a growing bottom line.

So, while the natural reaction to a failing national carrier is to call for it to be privatised, one has to question whether such a course of action really is in the best interests of the country or its people. Yes, it may stop the short-term haemorrhaging of tax money to keep the entity in the air, but it also transforms the purpose of the airline, potentially removing any potential it had to drive sustainable economic growth, which might have benefitted all citizens.

Deciding factor

Of course, in all of these ownership examples, there is one factor that has the potential to make or break any airline, and that is the nature and level of interference that the operator experiences from the shareholder.

Irrespective of who owns an airline, if they are putting money into it, chances are they will want to have a say in how it is run.

While such involvement can be positive and supportive of the objectives set for the entity, it can just as easily be negative – and often is, especially when it involves interference in day-to-day decisions and appointments.

Ultimately then, a successful airline is one in which the shareholder behaviour is conducive to the achievement of strategic and/or financial objectives. In the case of a state-owned carrier, that requires a delicate balance between measured profitability and sustainable delivery against clearly identified strategic socio-economic objectives.

It is a tricky balancing act, but certainly not unattainable, as evidenced by numerous global airlines, including some African airlines, that have already successfully attained this balance.

Geldenhuys is head of aircraft finance at Nedbank CIB.

Nedbank is one of SAA’s biggest creditors.

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Thank you for the general lecture Mr. Geldenhuys. You might not have noticed that through a mix of racist BEE policy limitations and through the general quality of the remaining cadre candidates it seems impossible in South Africa for government owned enterprises to create a board of sufficient capable and non corrupt persons. So in the end , considering these glaring limitations there is only one option : Close this tax bleeding charade of an airline down.

You’ve got to understand where this extraordinary argument is coming from.

Yes. The ANC cadres just want perpetual stealing and free flight benefits.

And the banks want perpetual debt depenancy.

Warren Buffet is on record as saying never ask a barber if he thinks you need a haircut. A few seconds into this article and I am thinking this guy has a vested interest. I am sure Nedbank would love to finance the SAA phoenix rising Airbus like from the ashes of Dudu and company’s decades-long malfeasance. Of course, the risk would be shouldered by the SA taxpayer in the form of government guarantees.


Dear James you are talking your book, as such this article is meaningless propaganda. It is not coincidental that on critical issues, where government naturally are getting a lot of push back, that they seem to contact their various ‘scribes for hire’ – another name that pops up around contentious issues is Melanie Verwoerd.

The 2 of you would have done well in the pump and dump, front running era of Lowenthal, Greg Blank and a few others. Punching out timeous bullish articles to maintain momentum as the organisers exited their positions. Greg do you still have your share certificates for Tigon and Brainware?

You mention ‘knee jerk reactions to apparent under performance’!!?? – you are familiar that the term knee jerk is used in markets for a very short term reaction to a news event – exhibit A – Des van Rooyen whole 72 hours as finance minister, resulting in a ZAR crash – but he did what NENE refused and that was, i suppose i should say allegedly, sign off transactions totalling R89 billion transferring them to Abu Dhabi and then thereafter they were disbursed as arranged, allegedly. SAA – 20 years and R57 billion rand later and the growing public disgust of same, is not knee jerk. It is 2 decades in the making and there is nothing apparent about it, only blantant. You mention short-term haemorrhaging of cash – again i point you to 20 yrs and R57 billion, in what universe is this short term.

In this particular case, i can only assume things are about to get interesting, as the major share holder must move soon and needs to justify another injection of cash, this time i am sure from the Covid 19 fund. You are employed not so by one of the other share holders being a vested bank – so you are trying to plant the seeds as to why this train wreck needs to carry on. Only in a socialist Utopia do companies not need to make profits, as long as they can maintain a stream of incoming other peoples money. I assume your boss needs this money to exit their position yes?

Pump and dump away.

Last line should read “Nedbank CIB made one of the leading financial blunders just before SAA went into business rescue” Heaven knows why any bank for that matter financed this nonsense?

Your conclusion is: “It is a tricky balancing act…” The problem is our cadres can’t do anything tricky or difficult because it will require honest and hard work and unfortunately that is a bridge too far. I am pro the idea of closing SAA down because then at least there will be one less institution which the cadres can rob blind.

You can’t spin SAA being ‘about delivering on shareholder objective’ after state capture. Neither can you try claim it has been been the shareholders objective to make such losses for over 10 years in a row.

The objectives of the corrupt cadres is only to steal and have free flights forever. That is not in dispute.

Look I think ou James is your typical SA banker; singing for his supper; screw anyone who gets in the way or stands still long enough; the SA taxpayer in this case. My guess is that “aircraft finance at Nedbank” has done excellently out of SAA. After all an airline premised on looting for ANC personal and party gain is not going to be picky about what interest rates they pay. This was the objective of their “shareholder”; the ANC regime.

James would like it to continue; all at taxpayers’ expense.

State capture always requires the complicity of the capturee, or corruptee.

The reason the ANC is so stubborn about SAA is they all (including family,friends and entourage ) use it for free flights to the coast.

Move parliament to Pretoria and the urge will subside.

Is it right to have a flag carrier when that is part of the reason your people live in squalor? What? You want to show the whole world what you are made of?

Emirates has good reason to be successful. Almost every flight of theirs lands in Dubai that brings revenue in at Dubai airport while you are in transit. The standards of service and quality of everything on Emirates is superb. They have flight attendants who can all speak at least two languages. On flights I have been on, there has been Afrikaans, Russian, Xhosa, Zulu, Dutch, German, French, Greek, etc. that the attendants have spoken. Additionally, they typically have of the lowest ticket prices to any destination in the world.

In SAA we have a failing carrier that is driver by the egos of black men and was steers by a dilinquent school-teacher director. It has lost billions every year since the ANC invaded and has no chance of recovery why subverted under cadre deployment that results in huge over-employment due to incompetence, and flat out rapacious looting of finances by cadre affiliates.

Jokes aside, the most diversity I have experienced on any given flight on SAA was about 10 years ago when one of the attendants that was a “woman” was a cross-dressed black man who was throwing tantrums and hurling insults at passengers.

Hardly an airline to carry any national pride.

Emirates is so 15 years ago now. But hey thanks for the timely review.

What is better than Emirates in your opinion?

15 years ago buddy.
I don’t fly commercial.

The only valid argument for success is quality levels. Service stand out as number one. With as direct result, packed planes. Flying the flag of company or country, proudly. Making the financials happy reading.

Spot on. I stopped flying SAA about ten years ago because of the appalling service of Voyager. I bought it to their attention twice, but they didn’t seem to care about my concerns – so I did what most people anywhere in the world would do: I chose another airline, and I haven’t looked back since. It’s called freedom of choice.

Yes, it is about the strategic objectives of the shareholder, of course. This is the point though. If the shareholder has this strategic objective to buy votes by bribing labour unions and workers, why does he need to do that via an airline business? If the money is supposed to go into the pockets of some influential people, then why not donate the money to them directly? Why waste everybody’s time by laundering the taxpayer’s money through an airline business or any SOE for that matter?

Why appear before a parliamentary committee year in and year out, to promise a turnaround plan and value for the taxpayer, if that is never the intention?

Why not simply state the truth then,- “Listen, guys, we are never going to turn a profit, ever. It is the objective of the ANC to use SOE’s as vehicles for the redistribution of property. We use the SOE’s as a front to nationality the assets of the taxpayer and to redistribute those assets to our cadres.”

This is, in effect, what every SOE is. It is not about efficiency or service delivery or job creation or economic growth. The SOE is used as a front by the “shareholder” to implement his looting objectives to buy votes.

These objectives are unsustainable of course, but then they simply go to the IMF or the World Bank or China. The taxpayer has no choice, he has to fund the looting because that is the law. Our laws do not govern the IMF, so the IMF won’t be fooled. We will have to see how the shareholder adapts his “objectives” now. Our shareholder as reached his “Margaret Thatcher moment”. They have run out of other people’s money. They have succeeded in their “objective” to redistribute the assets of the nation via SOEs. The game is over.

SAA cannot be wound up : it HAS to continue even if it’s one aircraft and one pilot ,as liquidation immediatly triggers R 26 BILLION of govt guaranteed which they can’t manage.Even a SAA Spitfire will do but they cannot not continue.

It will be 1 aircraft, 1 pilot, 5 000 staff.

A proposed alternative solution, is for government to recognize that it is the custodian and rights holder of “brand South Africa”, as well as route allocations and certain airport facilities. There is no need to have operational ownership, or input risks associated with the running of a highly specialized business such as an airline. Such rights could be licensed out (similar to the arrangement of Comair and BA) and earn the country income with virtually no expenses (on the tax payer). License conditions, that are acceptable up to a point by the bidding Licensees, could include reasonable freebie flights for government (again not at the tax payers cost), as well as mandated strategic route requirements to underpin macro / international economic objectives. This way, it’s a win-win-win.

Where’s the kickback. Not seeing it.

We have to stop comparing the current ANC damaged South Africa with countries such as the Emirates or Singapore.

Clearly, the author here has a vested interest in aircraft financing for the ‘new’ SAA. Unless the new SAA is a company where the majority of the shares will belong to investors other than government, then the new company is being set up to serve purposes other than to carry passengers and cargo. I immediately thing of feeding troughs for selected cadre, I think of a gravy train, and I think of ‘jobs for pals once again’.

‘the natural reaction to a failing national carrier is to call for it to be privatised’

That’s a false premise. The natural reaction is to identify what is causing it to fail and take corrective action. All that’s needed is for it to be properly run. The fact that there are non-financial objectives doesn’t excuse gross mismanagement by political appointees and damaging interventions by inexpert politicians.

SAA Cannot be liquidated as that Triggers a R26M Govt guaranteed debt becoming immediately payable : So an old Harvard painted in SAA colours
will probably become the new SAA

Yet another clueless old timer commentator. Hard to take you lot seriously.

I could pretty much pay R26M. Try again.

OK make that BILLION : My Mistake

You don’t say! All your votes reflect on the quality of commentators. And your countries traditional problems with numerical literacy.

Let us just ignore ja apie till he goes away to either Sowetanlive or Netnuus, where the immature and the ignoranant have homes.

For most government-owned airlines, profitability is not an end in itself, but rather a means to an end.

And more often than not, that ‘end’ involves economic growth facilitation and/or the avoidance of economic isolation as a result of the country’s location.

I’m not sure why moneyweb bothers to publish such nonsense when all in South Africa know that SAA does not fit this model at all.

It’s an insult to our intelligence. SAA had Dudu Myeni at the helm for 10 years or so, and the agenda was to loot and pillage the airline. Mission accomplished.

So don’t soft serve us with all the benefits of having a state airline, run by a government that has neither prosecuted anyone for state capture, and has never fired a minister for lying and incompetence.

Sorry Geldenhuys, no. The ANC’s sole concern is party political (as with everything else) to not be known, come election time, as the party that destroyed SAA.

Isn’t that a bit like saying effective Government is not about service delivery.

End of comments.





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