Forget about equity partner for SAA - analyst

Cape Town – Forget about finding an equity partner for cash-strapped national airline South African Airways.

Rather, first put in place a plan for the airline that is fit for its purpose, Thabang Motsohi, a strategy consultant with aviation expertise told Parliament on Friday.

Motsohi, who was involved in unbundling Transnet as a conglomerate in the 1990s, made a submission to Parliament’s standing committee on appropriations about proposals for the national carrier's debt relief and recapitalisation.

He said SAA – along with other state-owned enterprises (SOEs) – suffers from the so-called triple P-syndrome: power, position and privilege.

“People spend money as if it will always be available and not a scarce resource. We also need to ask ourselves how the political dimensions have affected SAA’s operating efficiency and profitability,” he said. 

READ: More money won't fix SAA - Manuel 

Motsohi said SAA will not be fixed unless there’s a clear definition of the markets in which SAA should operate.

“I call it ‘fit for purpose’. We need to ask ourselves if SAA should operate domestically, trying to compete with other successful low-cost airlines, or run long-haul flights, or rather medium long-haul flights into Africa.”

He cited the successes of Comair as an example of cost efficiency.

“Comair is quick to respond when the oil price rises. If the oil price increases by 2% to 3%, it finds that same percentage in their cost structure and eliminates it. Does SAA have the nimbleness to respond like that?”

Motsohi said government first needs to answer crucial questions on SAA’s strategy before the carrier receives a bailout. “It’s not difficult – this can be done within 10 weeks," he said. 

READ: SAA bailout will blow lid off expenditure ceiling if Gigaba's plan fails 

Finance Minister Malusi Gigaba announced in his mini budget delivered in October that SAA will have received a total recapitalisation of R10bn in the 2017/18 financial year.

Some R5.2bn has already been provided to the airline, and the remaining R4.8bn is set to be transferred by the end of March next year.

Asked by committee members what his views were on finding an equity partner for SAA as has earlier been suggested by Gigaba, Motsohi said he doubted that it was currently feasible.

“I’ll tell you what they (prospective equity partners) will say. They’ll say: ‘I’ll buy SAA for one rand and for that I’ll give the state a 25% to 30% share.’

“Can we do that? I don’t think so. Let’s first tell lenders we’ve diagnosed the problem. Then they may decide to roll over our loans. But at the moment there’s nothing they can put their finger on.” 

Uncompetitive practices 

In a separate submission to Parliament, Anthea Paelo, an economist at the Centre for Competition, Regulation and Economic Development at the University of Johannesburg, said the deregulation of the domestic aviation market in the 1990 may have removed restrictions and led to the entry of new airlines. But it also caused an exodus of private airlines and subsequent price increases.

She called on government to rather welcome new entrants into the airline space and apply stricter fines to those in contravention of competition legislation.

SAA has been willing to pay the high fines imposed in the past, she said, because they know they can get more money from government. But the national airline's behaviour doesn’t change.

It has been fined twice in the past for abusing its dominant position in the market, and on three occasions for uncompetitive practices.

READ: R105m fine for abuse serves SAA right - former CEO 

Last year, SAA was ordered to pay Nationwide damages of R104.6m plus interest. Nationwide had to stop operations in April 2008 and is currently in liquidation.

The court at the time agreed with the Competition Tribunal that SAA's behaviour from 2001 to 2005 was the biggest contributing factor to Nationwide’s loss in passenger volumes. The Tribunal found that most of SAA's abuse was due to practices relating to the travel agent sector.