SAA, Thou Shall Not Live by Money Alone!

2015-01-26 08:50

Johannesburg– Sunburst Africa–It was announced last week that the National Treasury has backed the National carrier - South African Airways (SAA) with a 6.5 billion guarantee. According to SAA, it needed a new government guarantee urgently so it could convince its auditors it was a going concern, enabling it to finalise its financial statements for the past year. The airline had not been able to table its financial results because its auditors had raised doubts about its status as a going concern. But last week SAA said it had convinced them about its financial health and it would be holding its annual general meeting (AGM) this week. The R6.5bn adds to an existing R7.9bn in guarantees, including the R5bn in 2013, that the government has given the airline. The total now stands at R14.5bn.

One would have imagined that such huge guarantees will take the national carrier out of the woods but that is not likely to happened if history is anything to go by. One can therefore dare to say that the problems at SAA are far bigger than money. The amount of tax payer’s money that has been thrown at the national carrier has not yielded the expected results. Why do I say so?

The national airline continues to make losses. For example:  in the year ended March 2013, SAA reported an after-tax loss of R1.17bn, which was 39% higher than the 2012 loss. The loss for the past financial year is expected to be even bigger when the airline finally tables its results at the AGM this week.

It is hard for ordinary South African to understand why competitors in the airline space in South Africa such as Comair who have never received any government guarantee are still in business while SAA keeps sinking tax payers money and yet struggling to survive. The issues at the carrier in my view are far bigger than money and until the financial backers of the airline start asking critical questions on the fundamental reasons behind the airline’s failure- tax payer’s money will continue to be poured into what seems to be a bottomless pit at SAA. Maybe it is time for soul searching and to determine whether backing SAA is the best way to allocate scarce tax payers money in South Africa?

Why should SAA which is one of the means of transport be prioritized for over 13 billion subsidy over other means of transport? What proportion of South Africa use the Airline anyway when compared to the use other means of transport?

The National Treasury has placed conditions on the guarantee including: strengthening governance and internal controls, cutting costs, timelines for targeted savings and weekly reports to Treasury. As we all know, the previous guarantees were not without conditions. However- the previous guarantees failed to turn around situations at the carrier.

Last month SAA was placed under Treasury stewardship, moving it from the Department of Public Enterprises. The move was because most of its problems were more financial in nature than aviation related, the government said at the time.

According to Treasury, the conditions of the new guarantee are that SAA should provide it with a comprehensive plan for its 90-day action plan interventions launched last month, including timelines for targeted savings. The government would work with the airline’s leadership in reviewing its financial model and its long-term turnaround strategy. South African should by now be familiar with terms such as turnaround strategy in relation to SAA.

While Treasury expects SAA to provide it with proposals within three months for a network structure, fleet strategy and airline structure, one would have expect treasury to look at why the previous turnaround strategy did not work.

There is some light at the end of the tunnel- SAA acting CEO Nico Bezuidenhout said last week that the airline would announce route cancellations within 10 days to cut costs. It loses about R1bn a year on its Asian routes and has lost R800m from direct flights to Beijing since it launched them three years ago. SAA had planned to order 23 new wide-body planes by the end of last year to make its long-haul flights profitable. The airline’s documents containing a presentation made to the minister of public enterprises show it is looking to tweak its structure. It is considering a full sale of Air Chefs, full or partial sale of SAA Technical, full sale or public listing of subsidiary Mango and full sale of its rewards programme, Voyager.

While SAA is looking at how to allocate the current government guarantee to keep the carrier going. Its problems remain far more than money and until such fundamental problems are resolved- one should expect more guarantees for the career in future.

Visit www.sunburstafrica.co.za , follow me on twitter #vivian atud, or email: info@atudandassociates

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