Financial Watch

SAA a symptom of much bigger problem

SAA.jpg

The deep trouble in which South Africa’s national air carrier, costing the country’s taxpayers billions, finds itself in is a symptom of a much wider problem.

It became known over the weekend that one day before South African Airways (SAA) would have gone into default on a R1,8 billion foreign loan, the National Treasury bailed it out to the tune of R3bn.

That the airline is in much deeper trouble than just the loan to Citibank becomes clear from reports that, once the loan is redeemed, there will only remain enough money to keep it going for one month – SAA running at a loss of R12,3 m per day, or R370 per month, and owes its suppliers R75 m.

However, to describe SAA, as some commentators do, as simply an apartheid legacy or relic, now only kept going as a political ‘vanity project’, is a total over-simplification of reality.

SAA’s existence dates to early 1934, when the then South African Government bought privately owned company, Union Airways, possessing five small planes and leasing another two. It on acquisition it became named South African Airways. At that stage, the company employed 40 staff members, and was placed under the control of the South African Railways and Harbours Administration.

What is important to note, is that South Africa was following an international trend at the time of the establishment of national aviation companies because of growth in the size, and with it the cost, of aircraft. Carrying passengers was almost a secondary market for the aviation industry, with air-mail being the main focus.

In 1935 SAA also acquired South West (Namibia) Airways, providing an air-mail service between Windhoek an Kimberley.

Towards the end of 1934, SAA also added to its passenger capacity with three new aircraft that could, besides crew, carry 14 passengers.

Since that time the aviation industry has gone through dramatic developments in terms of both the capacity of planes, boom times in travel and, added freight capacity and demand.

More importantly, the private sector made a return to the industry and so-called national carries found it increasingly difficult to compete during the second half of the 20th century. To add to SAA woes, under apartheid it was refused landing rights all over Africa, forcing it to use longer, and less economical viable routes to connect to the northern hemisphere.

While in much of the rest of the world, where purely national airlines were phasing out, South Africa was stuck with SAA. Post-1994, the country remained so caught-up in its political transition that, like on so many other areas besides aviation, it could not stand-up to increasing international competition. In the case of airlines, especially from the Middle East.

For the sake of the South African taxpayer, the time has probably come to either privatise, or windup SAA. And, the lessons learned from the SAA-experience should be made applicable to other so-called state-owned enterprises (SOEs). Government’ business is not enterprises, but to govern and regulate to ensure the safety of citizens, and to protect them against exploitation.

Wider danger

As the crisis with SAA’s Citibank loan was building, reports and rumours were mounting of pressure on the Public Investment Corporation (PIC) to come to its rescue, using public servants’ pension investments. That danger has been averted, with funds from allocations from the national budget earmarked for government departments tasked with delivering services to citizens.

It also plays into a narrative that holds that the National Treasury has been ‘captured’ by the Minister of Finance, Malusi Gigaba, through allegedly running a parallel administration in his office via officials appointed by himself outside normal structures and procedures.

Even more concerning, against the background of mounting evidence of state capture, is the is the fact that Treasury’s core function of controlling the budget process is being moved to the president’s office, where state capture is believed to be the most concentrated and radiating from there throughout state administration, and SOEs’ management.

Considering the state of for instance power utility Eskom, and the state capture linked scandals surrounding some huge contracts in recent times, South Africans have reason to fear this development.

Some indications of how the wind is blowing might come in Minister Gigaba’s medium term budget policy statement (if one can still call it “his’” and not the presidency’s) later this month.

Also expect the international credit ratings agencies to put this statement under a magnifying glass.

Also Read: Medium Term Budget statement due for scrutiny



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