Wishful thinking: After six years of bail-outs, trusting the government to effect a successful turnaround strategy at SAA is like wishing pigs will fly. Picture: TYLER OLSON
Wishful thinking: After six years of bail-outs, trusting the government to effect a successful turnaround strategy at SAA is like wishing pigs will fly. Picture: TYLER OLSON

Taxpayers’ money spent on South African Airways’ (SAA’s) accumulated losses is enough to build another 117 Nkandlas.

SAA has been the poster child for maladministration of state-owned entities (SOEs) for almost a decade, desperately unprofitable for six years and completely overburdened with debt. There is serious concern about its future.

In March, the auditor-general reported that there were issues of material concern about SAA’s capability to meet its financial obligations in the coming year.

He also described governance and controls at SAA as completely inadequate.

Despite this, the SAA board appeared before Parliament’s standing committee on public accounts on April 24, saying that the airline required R5bn immediately to survive.

It is obvious to most South Africans that the situation at SAA cannot be allowed to continue. Optimistic estimates are that it will cost the taxpayer an additional R21bn over the next three years to stabilise the airline if it implements a turnaround strategy, despite its CEO admitting that SAA has a massive skills shortage.

The question is therefore not whether SA can afford to lose SAA; it is whether the country can afford to keep it.

According to SAA’s latest financial statements, liabilities exceed assets by R17,8bn. This makes the airline technically insolvent. Since the Companies Act explicitly includes state-owned companies under clause 9 of part b, it can be inferred that the insolvency of an SOE needs to be handled in the same way as that of a public company.

This implies that SAA needs to be liquidated or put under business rescue. Trade union Solidarity believes that, even though a case can be made for the liquidation of SAA, business rescue is the better option.

Qantas in Australia, Air New Zealand and LATAM in Chile have proved that "end-of-hemisphere" airlines can be successful. They overcame their geographic disadvantage through strategic partnerships with mid-hemisphere partners.

With careful management and sound strategic decision-making, SAA can also be profitable. Air New Zealand’s turnaround should be studied extensively. It was executed flawlessly and led to Air New Zealand going from the brink of bankruptcy in 2001 to being voted best airline in the world in 2010 and in 2012.

If there is a good business case to be made for SAA’s profitable turnaround, the question remains: why not allow government to continue with its turnaround plans?

Allowing the status quo to continue in the naive belief that the government will succeed this time is something taxpayers cannot afford. Arguing that changing the CEO and the board is a radical enough intervention is fallacious. It presupposes that every previous board and CEO of SAA must have been incompetent. This is not true.

The real structural problems at SAA lie with the constant political interference by the shareholder, as well as the perverse incentives that constant bail-outs provide.

A long-term turnaround strategy was developed in 2013 and is yet to be implemented. This implies that trusting the government as shareholder to ensure the turnaround is to wish that pigs will fly.

The only option open to taxpayers is to use the courts to force the accountability the government has not provided, by applying for business rescue. It will enable a business rescue practitioner to take control of the airline and to finally enforce the turnaround strategy SAA so critically needs without political interference and with definitive targets and goals.

SAA’s bail-outs — with no repercussions for bad management — are a far more frightening prospect for investors than the public enforcing of accountability through a business rescue.

All three ratings agencies identified SOEs as risks to SA’s fiscal picture. Placing an SOE under business rescue and turning it around will send a message to foreign investors that SA is serious about ensuring best practice at its SOEs, despite the government.

Given the extensive debt-levels of SOEs, any message of accountability being enforced is positive for the economy. It will be a direct warning to the other mismanaged SOEs that taxpayers have had enough.

SAA needs radical external intervention to have a chance at a turnaround. Doing more of the same will result in getting more of the same. We cannot have another standing committee on public accounts session in which SAA’s management arrive, face some uncomfortable questions and leave with another bail-out in their back pockets.

SAA’s dismal failure as a commercial venture has hurt SA’s image enough; instituting business rescue proceedings and enforcing accountability on the government will hopefully restore some dignity to the carrier that should be our national pride.

Mulder is head of Solidarity’s Research Institute.