What is R5 billion among friends?
The South African government is flush with taxpayer funding. But do not take my word for it… Simply consider the Department of Public Works’ decision to bankroll an upgrade to President Jacob Zuma’s private residence to the tune of R200 million, or the la
Pro-SAA commentators are quick to point out that the guarantee is not “real” money, but rather a bargaining chip for the airline to raise funds on global financial markets. This may be true… But any failure by SAA to repay its loans will require government to step in, cheque book at the ready. It is also worth noting that the latest intervention comes on the back of a long line of cash injections and “recapitalisations” for the airline. The reasons for funding requests – and promises by the SAA executive to implement turnaround strategies – are trotted out every couple of years. The ruling party, its youth league and various trade unions should take a long hard look at the national airline’s track record as they fine tune their “strategic nationalisation” plans.
Another strong anti-nationalisation argument
SAA is wholly owned by government and is in effect a “nationalised” asset. Yet instead of generating oodles of profit to redistribute to the country’s citizens it returns, year after year, to demand more cash from them. Central to its profit problem is the belief that South Africa – the economic powerhouse of Africa – should have a national carrier as a matter of principle. The business case is secondary to stoking nationalist pride and political egos.
The other pro-nationalisation case is that, by owning typically private sector resources, government will somehow create thousands of jobs. SAA fails in this regard too, having grown from 7684 employees in 2005 to 10057 at 31 March 2011. Things are particularly messy at the helm of the company where common-sense hiring policies often take a back seat to the ruling party’s cadre deployment. Time and again the preferred candidates to steer the Airship SAA out of harm’s way have jumped ship with the proverbial “golden parachute”, pocketing massive salaries, bonuses and termination settlements, and leaving the organisation with precious little to show for their tenure.
As taxpayers come to terms with the latest bailout the group’s bloated executive has once again promised to deliver a turnaround plan… This turnaround strategy must certainly be in line for an award for the longest duration strategy of its type, worldwide. We have little doubt that the R5 billion “guarantee” will disappear by 2014, and that the airline will be back in the welfare queue as early as 2015. My cynicism is tempered by the fact that government has become increasingly vague about the airline’s operational performance. This is typical of the state-owned institution “what the taxpayer does not know, cannot hurt them” attitude.
Where is the Competition Commission when you need it?
Personal taxpayers are quite used to government doing with their cash as it sees fit. We have become complacent and hardly batted our collective eyebrows at the SAA bailout announcement. But competitors in the domestic airline industry have had enough. The likes of 1Time and Comair (the owner of Kulula Airlines) are competing in the low-cost arena against SAA offshoot Mango. And they are convinced that government is diverting their contribution to tax coffers indirectly back to their competitor. In other words: They pay tax – government uses tax funds for the SAA bailout – the bailout money works its way through SAA to Mango – and Mango then has an unfair advantage by way of a taxpayer-funded subsidy.
All that Comair needed to do to raise their objections to the latest furore was to dust off and reissue their press release of four years ago. In August 2008 they complained bitterly about the use of taxpayer funding to fill “the begging bowl for ailing state-owned businesses”. Back then it was rumoured SAA was asking for R3 billion to bolster its operations post-FY2008. To make matters worse this funding request was made despite government providing as much as R15 billion in assistance in preceding years.
Comair has come out with guns blazing after the latest “guarantee” announcement and intends challenging the decision. CEO Erik Venter (quoted in an article on fin24.co.za) said the company had an obligation to challenge further government support that would benefit SAA’s domestic operation. He shared some chilling facts including that SAA had accumulated R17 billion in losses since its deregulation in 1992 and that nine of 11 private airlines competing in the domestic airspace over that period had failed. Where is the Competition Commission in all this?
“We understand that SAA has to rely on its shareholder to the extent that it is required to deliver a public service, in this case servicing routes that are not commercially viable for private airlines,” said Venter. “However this does not apply in the domestic market – or even on many routes into Africa – where South African based airlines are attempting to compete against SAA”. He suggested spinning off Mango and SA Express from the national “brand” carrier, thereby levelling the domestic and African playing fields.
Smaller carriers going down in flames
SAA is not alone in trading through difficult economic times. Comair recently reported a 76% decline in diluted headline earnings per share for the 12 months to 30 June 2012. Their bottom line “number” dropped from 15.9c/share in FY2011 to just 3.8c! The group’s results press release was unequivocal: “The past year has been the toughest financial period in Comair’s history – and no different from that experienced by the global aviation industry”. Airlines are struggling with escalating fuel costs and weak demand. The only difference between Comair and SAA is that you and I will be dipping into our pockets to keep the latter running over the next couple of years.
Editor’s thoughts: It is difficult to fathom government’s decision making. Even as National Treasury gives the nod for a R5 billion guarantee to SAA there are medical doctors that must wait upwards of four months for the R270k needed for a machine essential to performing cataract operations. Given the social unrest observed in recent months it might be time for a serous rethink of government policy regards state-owned institutions. Should government list SAA and use the proceeds for social development? Please add your comment below, or send it to [email protected]
