SAA’s future should partly be about reducing its risk to the sovereign

POSTED ON: September 22, 2020 IN by Admin

By Busi Mavuso

How would another capital injection into SAA fit into the Presidential State-Owned Enterprises Council’s drive to reform state-owned enterprises.

THE question over the future of South African Airways has so often been pitched as a battle between those in favour of the state ownership and those clamouring for a much smaller government role in the economy. What often gets lost in this age-old ideological debate is that the national airline in its current guise poses a risk to the sovereign. Reducing that risk should be the overall objective.

It’s nowhere near the level of risk that Eskom poses, but SAA does much to affect sentiment on how a fiscally compromised state can boost the economy facing its biggest challenge in 100 years.

Government has committed to mobilising more than R10bn to cover existing liabilities, including retrenchment costs, which need to be honoured. But it needs more to keep SAA flying. For that, we should be asking ourselves whether we should raise billions more for an airline that has long been a drain on our very limited fiscal resources?

As business and society at large, we rightfully can ask: what are the guarantees that another capital injection would prove a final salvation act for the airline? And, most importantly, how does it fit into President Cyril Ramaphosa’s and his recently appointed Presidential State-Owned Enterprises Council’s drive to reform state-owned enterprises and reduce their burden on the state?

By moving SAA into business rescue towards the end of last year, we thought the state had drawn a line in the sand on an airline that had cost it more than R30bn in over a decade of bailouts. The board had run out of cash for wages and funding options had dried up.

Now, more than nine months after moving into that process, we remain as uncertain about its future with news last week that the Department of Public Enterprises will be calling on lending institutions to fund the rescue plan and restructure the airline. Their appetite for the debt will be known in the weeks to come.

As we wait for some finality, what is likely is that SAA will remain a key feature on our political and economic calendar as we head towards Finance Minister Tito Mboweni’s medium-term budget speech next month. If the funding impasse isn’t broken before that and in a deficit neutral manner, pressure will be on the state to be the source of the funds backing the rescue plan. Treasury has already publicly not committed to any further funding at all, only assistance to “mobilise” it.

Should the state manage to “mobilise” funds for the rescue plan, as business we’d want the state to reduce its exposure to the airline and instead play a much greater role in building a competitive industry as a whole. Ultimately, the national airline should be seen in the context of a proper transport policy, not a single government institutional issue.

For business, we need an effective, competitive and low-cost airline industry as an important form of economic infrastructure to support tourism, the movement of goods and business travel. The growth of the industry has in the past been impeded by the dominance of the state-supported SAA and its anti-competitive practices. There’s a long list of collapsed commercial airlines including 1time, Blue Crane, Nationwide and Sun Air. Some of these were black-owned and employed many South Africans who lost jobs.

What has been forgotten in the reform process is the important objective of creating a competitive and sustainable domestic industry. That has to be the focus, while ensuring also that any future form that SAA may take does not allow for uncompetitive practices.

These are the conversations that business, labour and government should be having as the economy opens up. Both the global and domestic aviation sectors have been hard hit by the pandemic. We have an opportunity to recast our airline industry to be more competitive.

We need to reform our airline industry and the pandemic may have just bought us a bit more time for policymakers to ensure greater competition in the industry. If SAA is to emerge from this crisis, it must be an airline that doesn’t pose any sovereign risk to the state. Central to this would be if government accepts a minority position and focuses on overall transport policy.

This column is by Busi Mavuso and was first published in Business Day. 

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