Gigaba switches on policy for SAA
The finance mininster’s about-turn comes as the state seeks private sector shareholder for airline
South African Airways (SAA) is to seek a private-sector strategic equity partner, Finance Minister Malusi Gigaba has announced in his capacity as the shareholder representative of the state-owned carrier.
The announcement is the second acute policy change in as many days, following Water and Sanitation Minister Nomvula Mokonyane’s announcement that the government would be seeking infrastructure partners in water services.
The government’s long-held policy was that the state would remain the sole shareholder in SAA. The idea of a partial privatisation was put on the table by former finance minister Pravin Gordhan in 2016.
SAA has had a strategic 20% equity partner until the state-owned corporation Transnet took up its rights and bought back the share in 2002 for R382,5m from the cash-strapped SAirGroup (Swissair). Swissair had bought the share, including an option for a further 10%, in 1999 for R1,38bn.
In his mid-term budget statement in October, Gigaba said the state would bail out the debt-burdened SAA with a R10bn injection under Section 16 of the Public Finance Management Act. Gigaba said R5.2bn had already been paid out and the balance would be paid in R1bn monthly tranches.
SAA did not only need the capital injection a strategic partner would bring, said Gigaba, but also its expertise. He said the government did not envisage a "wholesale" privatisation of the carrier because the government valued SAA as a state asset.
In August, Gigaba told Parliament’s standing committee on finance that the carrier expected losses of R2.8bn for the 2017-2018 financial year, and that it would return to profitability only in 2019.
SAA’s newly inducted CEO Vuyani Jarana said SAA would focus on strengthening management skills at SAA and that vacancies on the executive committee would be filled. ‘There would be no purge," he said. "However, there are no holy cows. It is a war on waste."
Jarana, Vodacom group executive until his appointment at SAA, in an overview of a "turnaround plan", said SAA would optimise its routes and assets, particularly in Africa.
Other turnaround initiatives would include a restructuring of SAA’s balance sheet, revenue optimisation and loss containment. "We will stress-test our assumptions." He said SAA could pay its debt and its staff.
Economist Laura Campbell of Econometrix said SAA’s announcement of partial privatisation came as quite a surprise because the government had been opposed to this "for some reason", but that it quite obviously now needed a shareholder outside of the state. The plan could succeed, she said, as it had in the case of Telkom.
"The virtue is that, as a state-owned enterprise, management would have to report to shareholders other than the state."
Gigaba also announced that SAA would consolidate its assets, referring to low-cost carrier Mango and regional airline SA Express. This strategy would support SAA’s plan to expand in Africa, he said, and help to optimise routes.
Chris Zweigenthal, the CE of Airline Association of Southern Africa, said it was a sound economic strategy to expand into Africa, which was set to grow at 7% a year, or double the growth rate of global airline traffic.
In response to reports earlier in the day of former SAA chairwoman Dudu Myeni saying SAA had been "captured" by JSE-listed services group Bidvest and ANN7 reporting Gordhan as owning shares in Bidvest, SAA’s new chairman JB Magwaza said: "We’re not looking back. The board has work to do."