EDITORIAL: At last, SAA can depart — for good
The airline was always going to run out of runway, even without the shock inflicted by the Covid-19 virus
It has been a protracted, painful and expensive death but at last it is here. SAA has run out of funds and the government has said it is unable to fund it any further. While it took the Covid-19 crisis to deliver the last blow, the truth is that SAA was never going to make it even without the shock inflicted by the virus.
The story is almost too painful to repeat. Over the past decade SAA has received R16.5bn from the fiscus and still holds R9.2bn in debt backed by government guarantees. During roughly the same period it amassed losses of R28bn. Its liabilities outweigh its assets significantly. For years it has been technically insolvent.
The business rescue process came years too late. Had it begun much earlier or if an equity stake had been sold years before, as had been intended but was derailed by the infamous Dudu Myeni, close friend of former president Jacob Zuma, there was a chance that aircraft with the SA flag on the tail would continue to fly.
But by December 2019 when the government took the decision, all funding avenues — even if backed by government guarantees — were closed. SAA was unable to finalise its annual financial statements because the only way of doing this would have been on a liquidation basis, which the government would not allow. Its board of directors, which had been trading recklessly for several years, was growing fearful of the associated personal risk. And, most pressing of all, it had entirely run out of cash to pay salaries and suppliers.
The business rescue process threw good money after bad. With a good deal of difficulty, the government raised R2bn from a consortium of local banks, and with even greater difficulty extracted R3.5bn in the form of a loan from the Development Bank of Southern Africa. Both of these the Treasury undertook to repay by mid-2020. The Treasury also assured the banks that all historical debt would be repaid.
But with a cash burn rate of between R500m and R1bn a month, the pre-commencement financing for the rescue did not last long. By early March, SAA was again out of cash and needed more funding. Routes were cut and a retrenchment process initiated, but both came far too late.
The business rescue process was also hampered by the lack of real authority held by the rescue practitioners. Usually, the point of a rescue process is to remove authority from the owners of the company, and the practitioners assume the powers of both management and the board. But because SAA was a state-owned enterprise, governed by the Public Finance Management Act, the minister of public enterprises retained overall authority. Instead of rescue plans being approved by creditors, it was Pravin Gordhan, the government and the ANC that selected the rescue option.
The option they chose was an expensive one. It would require, said the business rescue practitioners, an additional R7.7bn from the fiscus. Covid-19 hit shortly afterwards, sealing the fate of the airline.
It is a saga replete with lessons. First is the most obvious: governments are not good at running companies, especially in an intensely competitive area like the airline business. A business driven by political rather than commercial concerns does not make for efficiency.
Second is that state-owned enterprises are not well suited to business rescue. If the government retains authority over the process, it renders it as good as useless.
Third is that the judicious use of public resources involves careful trade-offs. The billions spent on SAA over the past decade was money diverted from critical government services. In SA today communities still struggle without water and many schools are without decent sanitation. Public hospitals run short of food and linen, and millions live in makeshift housing. Public transport is unsafe and unreliable.
As the Covid-19 crisis bites, the urgency to meet all of these social needs is clearer than ever. SAA has been a costly and misplaced priority that we are greatly relieved to leave behind.
Would you like to comment on this article or view other readers' comments?
Register (it’s quick and free) or sign in now.
Please read our Comment Policy before commenting.