SAA’s future should partly be about reducing its risk to the sovereign
The question over the future of SAA has so often been pitched as a battle between those in favour of 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 an economy facing its biggest challenge in 100 years.
The government has committed to raising 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 can rightfully 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 2019, we thought the state had drawn a line in the sand on an airline that had cost it more than R30bn in longer than 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 await some finality, SAA is likely to remain a key feature on our political and economic calendar as we head towards finance minister Tito Mboweni’s medium-term budget policy speech in October. If the funding impasse isn’t broken before that in a deficit-neutral manner, pressure will be put on the state to be the source of the funds backing the rescue plan. The Treasury has already publicly declined to commit to any further funding at all but will assist to “mobilise” it.
Should the state manage to “mobilise” funds for the rescue plan, we as business would want it 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 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 anticompetitive practices. There is 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 then lost their jobs.
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 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 does not pose any sovereign risk to the state. Central to this would be that the government accepts a minority position and focuses on overall transport policy.
This piece was first published in Business Day.