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SA must free itself from the burden of owning a national airline

The costs to the country of maintaining the ownership of SAA are proving to be unbearably expensive.

South Africa needs to accept the reality that the time when national airlines flew as carriers of national pride is a thing of the past. Some national carriers – South African Airways (SAA) as a prime example – have become major liabilities. They must be cut loose to protect the pride of the nation.

Across the globe the feature of national airlines as a natural property of nation states has been in decline. Entrepreneurs have invaded the market and the success of a few national carriers, like Ethiopian Airlines, Emirates and Singapore Airlines is a function of some special features.

With a few exceptions, the situation in developing countries is particularly bad. They can’t afford the huge financial burden that comes with failing national carriers. South Africa, which is facing economic difficulties, is such a case. In raising the alarm over the country’s credit rating, the international agency Standard and Poor warned that the government faced risks from public enterprises with weak balance sheets. It included SAA on its list. The country narrowly missed being downgraded to junk status.

SAA is currently kept in the air on the basis of financial guarantees from the government amounting to R14 billion. This is coming out of over-stretched government coffers. And it must be stressed that it is taxpayers who have provided SAA with these costly guarantees.

This is not the first time the airline has been in trouble. It has a long history as a failed state owned enterprise. Yet it manages to stay afloat by asking for government bailouts and by using every available means to shut down competitors.

Dubious uncompetitive behaviour

The airline has once again been in the news for all the wrong reasons. This time it is making news headlines because of its role in the demise of Nationwide Airlines, one of the few competitors it faced on domestic routes.

The state-owned airline has driven Nationwide out of the market and put another one (Comair) under pressure. This has ensured that there is limited competition in the domestic airline market. This, in turn, has prejudiced customers in a big way.

On August 9 2016 the South Gauteng High Court ruled that SAA must pay liquidated Nationwide Airlines a fine of some R104 million.

Nationwide was liquidated as it could not compete with SAA. The court found that SAA’s abuse of market dominance from 2001 to 2006 contributed to the liquidation.

If interest is added to the damages awarded to Nationwide, the amount can double to some R200 million. SAA seemingly does not have the money to pay this claim. This is obvious from the fact that even before the court case it had asked the government (read: South African taxpayer) for a further guarantee of R5 billion.

There can be little doubt that SAA will attempt to take the court ruling on appeal. After all, when taxpayers “underwrite” failed business ventures such as SAA, appeal is always an easy option. It is expensive, but somebody else carries the cost.

But more is to come. Comair has brought a court application similar to the one brought by Nationwide. In this case the claimed damages amount to R875 million. If interest is added in this instance, the claim amounts to some R1,5 billion. Again this is money that SAA does not have.

Badly managed

That South Africa’s national airline is in a parlous state is no longer in dispute.

It has delayed releasing its financial statements four times over the past 10 months. No convincing reasons have been provided for the delays.

The failure to issue financial statements on time is partly a reflection of the incompetent leadership that has led the airline astray in recent years. To be sure, the airline has been rocked by boardroom shenanigans for some time. It has over the past 10 years or so experienced unprecedented leadership volatility with frequent changes to the board and the CEO post.

The tenure of the current board chairperson, Dudu Myeni, has taken things to a new level of scandalous corporate governance. It is clear that Myeni is unqualified for the post of chairing the SAA board and has only survived due to her close relationship with President Jacob Zuma.

The unceremonious and expensive firing of former finance minister, Nhlanhla Nene, came after he crossed swords with Myeni. And she appears to remain untouchable for the returning finance minister Pravin Gordhan. He has correctly called for the revamp of the airline’s board before advancing new bailout funds. His call has gone unheeded.

Ordinary citizens are the losers

Customers are indeed the losers in all of this. Many are also taxpayers, and it is their hard-earned tax contributions that provide guarantees to SAA, thus giving it the power to squeeze competitors. This action increases the cost of airfares to the detriment of the very same group of people that funds SAA by means of guarantees.

This is clearly an untenable position. There is only one solution. The South African government must simply give SAA away. This is, if anybody is interested in taking it.

SAA clearly has no value. It is not necessary to do any expensive due diligences to ascertain this. The mere fact that it is kept in the air on the back of a guarantee of R14 billion and has asked for another R5 billion confirms the matter.

The South African government can no longer afford to keep its national airline afloat. Neither should South African taxpayers be expected to.

The Conversation

Jannie Rossouw, Head of School of Economic & Business Sciences, University of the Witwatersrand

This article was originally published on The Conversation. Read the original article.

COMMENTS   8

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It would be a very ambitious direction to pursue to take the deep cookie jar away from the ruling party and hand it to a potential honest business concern who would run SAA as a business and not a cash cow. It will not happen until the ANC are unseated from power at a general election. Greed is their motivator, and their grubby fingers are glued to the cookie jar and the wallets they are raping while they are stealing the company cash and assets, and giving their pals free rides to all corners of the globe at taxpayers expense.

Wishful thinking about new administrators, but right now, just a pipe dream.

yes JZ and his mates are going to sell their toys – forget it!!!!

Let me guess you know this why? Oh yes you bugged the chair in the meeting room robert?

Yes, everything true, BUT you fail to mention that it won’t happen under an ANC/Communist government, whose aim, as in all Marxist administrations, is to reduce everything to the lowest common denominator. It’s what commies do, until they eventually see the light. They are totally without brain power to see what the future will bring. Heaven knows why they fall for all the commie rhetoric (e.g. colonial puppets)

Answer to SAA – OLX!

Conversation in bookkeeping department of SAA:
Cha(i)rlady – what are you doing?
Junior clerk – entering the expenses in the ledger
DM – why?
JC – it’s the way it works.
DM – no, we don’t need to do that
JC – why?
DM – cos we are an SOE which flies planes
JC – a what?
DM – State owned Enterprise. Government (my lover) owns it
JC – So what?
DM – we don’t worry about expenses so no need to record them
JC – what happens if our expenses are too much then?
DM – no sweat, the taxpayers bail us out.
JC – wow, any other companies that do this?
DM – ja – Jake’s Eskom, Jake’s PIC, SABC, Treasury, Parliament to name a few.
JC – no s**t? Must bugger up the country
DM – yeah, not to worry, hey!
🙂

too much press on privatisation of state assets but who stands to benefit from all of that?. since we on privatisation we might as well start talking nationalisation of banks as strategic assets to better fast track development in this country. SA media is too bias on such issues cause they serve no purpose in developing this country.

The shareholders benefit or otherwise. They can vote directors in or out to ensure the company continues to do well. This does not happen with SOE’s where the government is the sole shareholder. As such they have no interest in making a profit, because if they lose money, they simply get it from the taxpayers. They use credit-side bookkeeping only. For this reason, it naturally follows that all SOE’s will lose money and not give a damn. The same would happen if banks are nationalized. Other than in stable and advanced economies, nationalization requires no profit responsibility. The banks would become totally inefficient (like Eskom) – in fact they would become just one government monopoly (RSA Bank Unlimited, with no healthy competition) – and would lose money. Imagine that – an institution tasked with doing the nation’s banking undertakes (for that is what it is, however it’s dressed up) to lose money. You think this will fast track development. Allow me to correct you – it will instead lead to hyper-inflation (like Zimbabwe (who did this) and a worthless currency. Industry and agriculture would fall into disrepair. No-one wants to take responsibility, not even the government who started the idea. How many more examples does the world need to show that communism (for that it is in the guise of socialization) is dead in the water for those nations who fall into its stupid, rhetoric filled (e.g. capitalist puppets, illegal regime nonsense) – that the people who use it don’t understand it but it sounds good. The media does precisely the right thing in exposing government stupidity for what it is. You carry on voting for the ANC, once a magnificent instrument of freedom, now perverted into an ugly one-man-takes-all disgrace. Suffer the consequences if you dare.

End of comments.

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