OUTA: SA’s aviation industry doesn’t depend on SAA’s survival
Private airlines’ agility and efficiency have made air travel affordable and accessible to far more South Africans than ever, besides stimulating demand, expanding the industry, creating jobs and nurturing a new generation of skilled citizens
There is clearly some confusion in the debate about the future of SAA, and it’s important to distinguish between trying to revive the existing SAA through a business rescue plan and starting a new venture.
This was evident last week in an article public enterprises department director-general Kgathatso Tlhakudi wrote for the Sunday Times. It was titled “Future SAA will be given a fresh start deserving of its vital economic role”.
Tlhakudi’s opinion piece is based on the premise that “a well-run national carrier is vital to the overall logistics network in the country”. He proceeds, in the article, to explain how the SA aviation sector creates jobs and boosts economic growth.
Nobody doubts the air transport industry’s contribution to any modern, sophisticated economy that aspires to grow, even if that contribution is now a lot smaller than it was before Covid-19 and will remain so for years to come.
What is more concerning about Tlhakudi’s opinion is his view that SAA has a lot to do with the growth of the local aviation industry. While it was certainly true in the past, this contribution has waned significantly over the recent decade.
Today most of the domestic air transport market consists of private sector airlines. This has made the sector both more competitive and good for customer welfare.
As a result of the private airlines’ agility and efficiency, they’ve been able to make air travel affordable and accessible to far more South Africans than ever. They have stimulated demand, expanded the industry, created jobs and nurtured a new generation of skilled South Africans. The private sector, not SAA, has played a crucial developmental role in SA’s aviation industry.
SAA’s share of the local aviation market (including low-cost subsidiary Mango) and its ability to train new pilots have steadily declined since the airline’s controversial former board chair, Dudu Myeni, pulled the plug on the SAA cadet pilot programme.
And, critically, the private sector airlines have succeeded without having the R53.3bn of financial assistance the state has since 2007 granted SAA – R34.2bn in cash and R19.1bn in guarantees.
Tlhakudi’s notion that a locally based state-owned international carrier is essential for the growth of the aviation sector is nonsense. It may indeed create some additional jobs, but the absence of a state-owned international airline will not necessarily negatively affect the aviation industry or the demand for passengers and cargo to be carried to and from the country. On the contrary, the existence of competitive and professionally run private airlines will more likely increase passenger traffic to and from SA.
Tlhakudi argues that “many countries are providing financial support to their airlines, which demonstrates their strategic importance to economic growth”.
In reality, the only financial support for the aviation sector that is at present being considered by any government relates to the needs of SAA – which currently has a zero market share and no impact on employment in the industry whatsoever.
The International Air Transport Association (IATA) is pleading with governments around the world (including SA) to support the entire industry and air transport system, regardless of ownership. It argues that unless governments safeguard air transport, it will be much more difficult to repair and recover their economies.
However, recognising that there are competing demands on public spending, the association suggests that support for the aviation industry needs not be in the form of cash bailouts, but could include reducing airport taxes, deferring other taxes and providing repayable government guarantees and subsidies.
Apart from the R26.9bn now required by the SAA business rescue practitioners – R24.9bn earmarked to settle debt and R2bn for SAA’s relaunch – a further R8.55bn would be required for the public enterprises department’s plan to build a “restructured airline to emerge out of the ashes of the old SAA”.
The payment of R2bn for SAA’s relaunch therefore commits the government to cover SAA’s future losses and funding commitments.
The very notion that the new airline will be “commercially sustainable” and won’t be bailed out by the fiscus for bad decisions and poor governance practices is disingenuous, if the business rescue process requires settling all debts owed by the old SAA and covers the start-up costs to give birth to a new strategic equity partner.
IATA has warned that poorly conceived policies and Covid-19 restrictions are jeopardising about 270,000 of the total 472,000 jobs that the aviation industry supported in SA before the outbreak of the disease.
The fact is, SA’s interests would be best served by the stimulation and emergence of a competitive air transport industry after Covid-19 rather than by having a dominant and subsidised state-owned airline.
I believe the government should focus on providing a pro-rata supportive role to private sector airlines to rebuild a competitive air transport industry. This is how some other countries that recognise the need for a competitive air transport sector in their economies are doing it.
We must also not be lured into the false belief that Ethiopian Airlines, which is being touted as a potential strategic equity partner for SAA, will have SA’s best interests at heart in such a venture.
Ethiopian Airlines operates within a tightly regulated domestic and intra-African environment, with no competition in its home market. It will make sure that Ethiopia, not SA, reaps the rewards from such a partnership.
Hopefully finance minister Tito Mboweni’s medium-term budget presentation later this month will send a clear message to the department and other state-owned companies that we have bigger issues to tackle than having the state invest in a loss-making SAA. This is especially so as the economy would be better served by competing, robust and financially independent private sector airlines.
- Joachim Vermooten is a transport economist, chartered accountant and senior business rescue practitioner, as well as OUTA’s aviation industry adviser
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