It is a brave man or woman these days who accepts an appointment as the head of a state-owned enterprise where one’s tenure has come to turn, not on success, but on political machinations.
Vuyani Jarana, who was appointed as the first permanent CEO for South African Airways (SAA) in more than two years on Thursday, will need good fortune and a strong character.
As a relative unknown in the market and in the aviation industry — he was a division head at Vodacom before — he will also have to establish his credibility fast.
He will not have the luxury of time either to work on a turnaround plan of his choice or a funding plan, given the urgency of SAA’s situation.
He joins an organisation that has been gutted of skilled leadership and executives and hollowed out by corruption, with many positions filled by acting appointments.
Jarana’s appointment comes just as more bad news emerged this week about SAA’s deteriorating financial position. Cash flow statements provided to Parliament show it is bleeding cash at an ever increasing rate.
The trouble with the default scenario is that it may not affect SAA alone. Some of the bonds and loans of state-owned enterprises, and those of the government, have cross–default clauses that would trigger a default
It is forecast to be almost R1bn short of cash in each of the next two months, with a cash injection realistically only expected in October, when the medium-term budget policy statement is delivered.
The much more urgent, and frightening, problem is that at least R5bn of SAA’s short-term debt will need to be rolled over in September, failing which the airline will have to pay back the money.
Already, one of those lenders, UK’s Standard Chartered, has declined to roll over a R2.3bn loan facility, forcing the government to cough up the cash. Others were persuaded to hold fire — but it’s surely unlikely they can be persuaded to do so again. That would trigger a default, unless the government came up with more money or persuaded the lenders to allow it to take the debt on to the state’s balance sheet and pay the interest.
The trouble with the default scenario is that it may not affect SAA alone. Some of the bonds and loans of state-owned enterprises, and those of the government, have cross–default clauses that would trigger a default if any one of them defaults on a loan.
Chances are that a default at SAA, even involving a small sum, could trigger a string of defaults, with the dominoes falling across the public sector, forcing the government to deliver on the hundreds of billions of rand of guarantees it has extended to state-owned enterprises and ratcheting up public debt to dangerous levels.
A ratings downgrade would be inevitable and that could be the least of it.
Eskom has already come close to causing those dominoes to fall on a much larger scale after the qualified audit opinion on its financial results triggered a technical default on two loans — the Development Bank of Southern Africa and the French Development Agency.
Fortunately, the lenders were persuaded not to call the default, but SA may not be so lucky again.
For SAA, the appointment of the CEO is an essential first step on the road to recovery. However, it must be swiftly followed by the appointment of a competent top management team and a credible and strong chairperson.
Finance Minister Malusi Gigaba, who it must be noted has met his own deadline to appoint the CE, must now make good on his promise that Dudu Myeni will depart.
Jarana’s predecessor, Monwabisi Kalawe, lasted only two years before he was pushed out in internecine fighting.
We sincerely hope his tenure will be longer and more successful than that.