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OPINION: Government should not intervene at SAA

Nov 15 2019 11:35
Busi Mavuso

If there’s one aspect that has been at the centre of the collapse of governance across South Africa’s state-owned companies over the past decade, it is that politics of the day have played out in boardroom decisions at institutions such as SAA. 

If we are to break with this period, boards and executives should be left alone to run state-owned entities like businesses, as Finance Minister Tito Mboweni urged at the end of last month. With SAA employees on strike and most of its flights cancelled for the weekend, it will be a test of whether the sixth administration will break with past traditions. 

This is a battle between the airline and its unions over its future, which in many quarters has long been dismissed as a going concern. To intervene at this moment and seek a political settlement would only serve to undermine SAA's board and executive leadership in their attempts to turn around an airline that, over the past 13 years, has reported losses of R28bn. It would amount to tagging the moniker “too big to fail” on a national airline that needs to face up to the hard realities of an open market. 

SAA's wage dispute with the National Union of Metalworkers and the SA Cabin Crew Association is not a policy dispute. As such, the shareholder representative should not be called in to save the company from having a difficult - and one could say necessary - contestation with its key stakeholder, irrespective of the discomfort it may cause its customers. 

Stepping in now would only serve to kick the can further down the road. It would indicate to ratings agencies such as Moody’s Investors Service that South Africa is not ready to make unpopular policy choices around its state-owned enterprises.

Earlier this week SAA management announced that it may need to shed up to 944 jobs out of workforce of 5 146, an 18% reduction. The decision to embark on a wage strike this weekend should come as no real surprise on the back of that announcement, as labour unions would use SAA’s desperate financial position to force the company to take retrenchments off the table.

National Treasury recently said it would settle the full R9.2bn in state-guaranteed debt in SAA that will become due this fiscal year. This rescues SAA’s balance sheet for now, but under Mboweni Treasury has also made it clear that a line has been drawn under its support. For the sake of credibility, it’s a position that it needs to stand by.

The airline is insolvent in its current configuration and is unlikely to ever generate a sufficient cash flow to sustain its operations. A corporate restructure is quite simply unavoidable and long overdue. In its desperation for survival over the years, SAA has chosen the easier option of selling prize assets to solve its desperate cash situation, including letting go of key routes. These acts are quite simply a race to the bottom.

Avoiding conflicts over rightsizing was ultimately a political decision, one of many that have dogged the airline and other state-owned enterprises, especially over the past decade.

While government has said it’s willing to bring private shareholders into SAA as part of a sustainable solution, there appear to be different views around just how and what percentage are they willing to sell. Virgin Atlantic and Ethiopian Airways have indicated that they could be interested, which points to the fact that there is still some value in the airline.

In a case of a partial privatisation, SAA wouldn’t be attractive if the executive and board aren’t given full licence to lead a turnaround towards profitability. Any investor will be well aware of the downside risks associated with becoming a hostage to a majority shareholder with non-commercial objectives.

Business rescue would be an expensive exercise and, at this point, we feel it would set a precedent that South Africa doesn’t want to set. 

The airline will lose about R50m a day during the strike, but we would ask its shareholder representative to back its board and executive in managing the dispute. To intervene now, only strengthens the belief amongst unions that it is indeed "too big to fail," serving to harden positions and, in effect, hastening SAA’s demise.

*Busi Mavuso is chief executive officer at Business Leadership South Africa

saa  |  companies  |  opinion  |  state owned enterprise
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