Govt urged to sell loss-making SAA

Government to sell SAA
Government to sell SAA

Government should get out of the commercial airline space and sell the loss-making South African Airways (SAA), according to Cape Chamber of Commerce and Industry president Janine Myburgh.

“SAA has become a black hole that is simply consuming the resources of the country, and it would be irresponsible to pour any more good money into the failing airline.”

In a confidential Cabinet memo distributed to members of the executive, Finance Minister Malusi Gigaba proposed that government sell its close to 40% stake in Telkom to appropriate R10-billion to the struggling national carrier.

SAA continues to make significant losses and the airline’s finances have deteriorated to such an extent that it cannot afford to pay suppliers. In addition, SAA needs to honour debt obligations by the end of September which amount to R6.785-billion.

In the Cabinet memo, Gigaba said the sale of non-core assets, such as government’s stake in Telkom, is the only viable option to recapitalise SAA.

Myburgh, however said it does not make any sense to sell a good asset, such as Telkom, to “prop up a bankrupt airline with a bleak future”.

“The only thing that we can learn from this sorry story is that the government does not understand business and, for the sake of the country, it should get out of the commercial space. It simply does not have the management skill to compete in the market place,” Myburgh said.

She adds that SAA has had “more than enough” time to turn its fortunes around.

“We must remember that SAA’s main competitor, Comair, is doing well and making a profit in the same market. This tells us that SAA is badly managed and unable to compete, despite the resources that have been poured into it. SAA needs drastic surgery, not bailouts.”

In the Cabinet memo, Gigaba conceded that recapitalising SAA will only temporarily solve the airline’s low cash reserves and that unless it refines its business model to include initiatives in the turnaround plan, the airline will continue to be in dire straits.

SAA has a total of R19.114-billon in government guarantees, of which R2.7-billion is not utilised. Government guarantees to SAA increased from R1.3-billion in 2007/08 to R19.1-billion by September 2016, an increase of about 35% per year.

Meanwhile, BusinessLive quoted Gigaba’s spokesperson Mayihlome Tshwete as saying that the disclosure of the confidential Cabinet memo in Parliament on Wednesday added to the “precariousness” of SAA’s situation in that it “strengthened” the hand of SAA’s lenders who demand that the airline meet its debt obligations.

In the memo, Gigaba said SAA’s lenders initially agreed to extend the repayment of its loans to April 30, and then again to June 30 2017. SAA now has to repay an amount of R6.785-billion at the end of September 2017 of which R1.761-billion is owed to Citibank, which did not want to extend SAA’s loan facility beyond the end of September.

Tshwete reportedly claimed the lenders now know that funds would be forthcoming and would choose to take their money. “It has blown the negotiations.”

Alf Lees of the Democratic Alliance, who made the disclosure on Wednesday, however rubbished Tshwete’s assertions, saying in a statement they are “disingenuous at best and grossly misleading at worst”.

“SAA has been in trouble for over a decade and is now in very serious trouble due to the ANC government’s utter failure to turn it around. The bank’s lack of confidence in SAA and the South African government has nothing to do with the DA’s revelations in Parliament and everything to do with a complete lack of confidence, based on the very actions of the ANC government and their mismanagement of SAA’s finances.

“The Minister of Finance would do well to face up to this fact and to finally do what is needed – put SAA into business rescue and to find private equity investors,” Lees said.


Nehawu warns government

The National Education Health and Allied Workers’ Union(Nehawu) added its voice to the displeasure about the proposed SAA bailout, particularly in the event that the Public Investment Corporation (PIC) is roped in to provide funding to the ailing national carrier.

Fin24 earlier reported that SAA in its corporate plan listed the PIC as a source of funding of R6-billion for the 2018 financial year.

The PIC administers among other things the Government Employees Pension Fund.

Nehawu warned government in a statement “not to mess with its loyal servants’ retirement funds”.

“As Nehawu we are prepared to mobilise all workers in the public service against such a move by our government.”

The union ascribed the financial crisis at SAA to a lack of leadership and political oversight.

“No bailout can save the SAA nor will any attempts to throw money at the crisis help alleviate the situation.”

Nehawu said the number of state funds and government guarantees granted to SAA did not resolve the cash crunch at the airline, which came about as a result of years of operational losses.

“The looting and normalisation of profit loss is deeply entrenched and will require strong leadership, prosecutions of those who are lining their pockets and a sound turnaround strategy to save the airline from total collapse.”

Nehawu also called on Gigaba to remove the entire SAA board.

“In our view the current board is responsible for running the airline into the ground. It is under the board’s watch that SAA slowly slid into bankruptcy. The board has dismally failed to curb corruption and operational losses.

“A new board with a new mandate is immediately needed to salvage the SAA.”



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