SAA’s Vuyani Jarana the second SOE chief to quit in two weeks
Jarana said he was not able to navigate through the state's bureaucracy in order to drive a turnaround strategy, and without funding
SAA’s Vuyani Jarana has become the second CEO of a major state-owned enterprise (SOE) to jump ship in as many weeks as the government struggles to keep the companies operational.
Last week Jarana resigned from SAA, following in the footsteps of Eskom CEO Phakamani Hadebe, who announced his resignation on May 24.
Both companies, with a combined outstanding debt pile close to R500bn, are suffocating from a financial and operational meltdown, and have been kept going courtesy of government guarantees and cash bailouts.
Jarana cited slow decision-making and red tape at the airline, as well as blurred lines of accountability, for his departure. Hadebe cited his poor health as a reason for his July departure from Eskom, where he was appointed in February 2018.
According to Jarana’s resignation letter dated May 29 to the SAA board, chaired by Johannes Bhekumuzi Magwaza, the demand to constantly have decisions run past the department of public enterprises and the Treasury "systematically undermined" his efforts to pursue a turnaround strategy and to "nimbly respond to the challenges facing the airline".
As part of his employment contract in November 2017, Jarana said he had sought assurances that the airline would remain under the Treasury as its shareholder, regardless of who the minister was, until it reached break-even point. In August 2018, however, SAA was transferred back to the department of public enterprises.
"I have since gone through four ministers since joining SAA," Jarana said in the letter.
The reporting lines straddle both as the department is the shareholder representative, while the Treasury is the custodian of the Public Finance Management Act, under which SAA operates.
"One of the areas of concern is speed of decision-making: it is impossible to succeed in the turnaround with the current level of bureaucracy we have to go through to implement the strategy," Jarana said.
In addition, trust levels are very low within the airline, and despite assurances from the state that funding would be made available, the airline has recently struggled to pay salaries, Jarana said. This meant he was no longer convinced the airline’s turnaround strategy would succeed.
The turnaround strategy at the airline, which has not made a profit since 2011, requires R21.7bn in funding. This would enable it to break even by 2021. However, this full amount has not been made available, with Jarana warning in his letter that the airline’s current credit facility of R3.5bn would be depleted by the end of June.
"I spend most of my time dealing with liquidity and solvency issues. Lack of commitment to fund SAA is systematically undermining the implementation of the strategy, making it increasingly difficult to succeed," Jarana said, adding that 60% of SAA’s problems are internal, while the rest are market related.
DA finance spokesperson Alf Lees said Jarana had been warned that it would be difficult to resolve SAA’s issues as if it were a private-sector company, adding that he had "simply failed to understand what he was letting himself in for".
It was also apparent that the state would be unable to fund the R21.7bn turnaround plan, given that it has a bigger problem in the form of Eskom’s larger debt, an entity that was far more important to SA’s economy. The only option to help save some of the airline’s 10,000 jobs was to put the company into business rescue.
Finance minister Tito Mboweni has said if it were up to him he would close SAA.
Independent transport economist Joachim Vermooten said SAA had received about R65.24bn in taxpayer funding since 1999, about R50bn of this since the government took control of it in 2007.
Earlier in 2019, Jarana announced that SAA, which was given a R5bn bailout in 2018 to shore up its balance sheet, would be broken up into three separate entities focusing on domestic, regional and international business units, each with its own management.
On Sunday, SAA said its board had accepted Jarana’s resignation. He will leave at the end of August.