SAA. Picture: BUSINESS DAY
SAA. Picture: BUSINESS DAY

The SAA strike, and associated instability and financial stress that comes along with it, seems to be over. But only for now and only the brave would bet their house on the deal enduring.

For one thing, the airline, which survives on state bailouts, has signed an above-inflation agreement that it admits is unaffordable, at least without fresh injections from the taxpayer.

We've been here before with Eskom, even a bigger burden on the fiscus and the one state-owned enterprise that can sink the whole economy. It was the event that undermined former CEO Phakamani Hadebe’s reign before it had even started.

A former banker and official at the National Treasury, he immediately recognised that the finances of the overstaffed company weren’t sustainable and proposed a wage freeze. Predictably, the unions opposed this, strike action and reports of sabotage followed. The government intervened to get the parties back to the negotiating table, and a settlement was eventually reached, with workers winning pay increases of about 7% over three years.

Like SAA now, Eskom couldn’t afford those increases and said as much when it said the settlement would cost it almost R4bn. Towards the end of 2018, when the company released half-year results, it became clear why that settlement was unsustainable.

While it managed a 3% increase in revenue, the wage bill surged 12%. This is one of the legacy issues that the new CEO will have to deal with, the question being whether the shareholder — the government — will let Andre de Ruyter do what is needed.

Eskom chair Jabu Mabuza has in the past suggested that the company is overstaffed by about 30%. So far, the government has chosen not to trim staff numbers, instead going the path of more state assistance while Eskom's debt ballooned to more than R450bn.

What should concern observers about SAA’s pay deal, which will see workers getting a 5.9% increase that will be paid in February 2020 and backdated to April 1 2019, is that it is seemingly premised on the government giving the airline a  R2bn bailout for working capital to fund its daily operations. This at a time when ratings agencies, joined by the IMF on Monday, are calling for the government to show more progress in fixing its finances.

To say we are going to the burdened state to borrow more money to fund pay increases while restructuring that may require a cut to the workforce is out of the question seems to be the opposite of what is required and will not do much for the government’s credibility with ratings companies and bondholders.

Finance minister Tito Mboweni, who has suggested that closing down SAA would be the best option, has made it clear that the government, which in its latest medium-term budget policy statement agreed to settle a R9bn debt for the airline, has little appetite to keep throwing money at it.

Even for trade unions, one would hope, it will be hard to argue that a strategy that sees the government accumulating more debt simply to fund salaries is a way to a more sustainable future.

The only thing it will guarantee is that the airline will be coming back again with a begging bowl in the not-too-distant future. And as a country we cannot afford to do that.  

As if the government needed a reminder, the IMF on Monday said in a report after its 2019 Article IV consultation with the country that SA needed to “articulate measures to address fiscal and SOE challenges and stabilise government debt”.  Funding unaffordable wage settlements cannot be part of a solution.

The likely consequence of this is that the agreement reached by SAA and the unions will prove to be a temporary respite.

That’s bad news for the airline. It needs every seat taken to generate the revenue its needs to give it breathing space. But the cloud of uncertainty will unfortunately discourage many potential customers from flying, more or less guaranteeing its demise.