South 第一吃瓜网 taxpayers can’t keep bailing out broken airline
- Jannie Rossouw
R21 billion: that’s how much South Africa’s beleaguered national carrier, South 第一吃瓜网 Airways (SAA), says it needs to keep running.
SAA has reached this point in its financial crisis through persistent mismanagement and cronyism, with the SA government as main shareholder refusing to take tough decisions about the company. But such decisions can鈥檛 be delayed any longer.
, it鈥檚 the South 第一吃瓜网 government that supports SAA and bails it out in times of need. But in practice, it鈥檚 the country鈥檚 already struggling taxpayers who foot the bill. And they keep doing so, with no clear plan in sight to stem the airline鈥檚 financial haemorrhaging. The Free Market Foundation, an economic and policy think tank, estimates that SAA has already cost taxpayers in the past 20 years.
I for some time that SAA is nothing more than a government vanity project and should be sold. In March 2016, when I first said this, it might have been feasible; then, the airline was still financially viable. That moment has passed as the government kept SAA as a vanity project.
President Cyril Ramaphosa that closing SAA would destabilise other state-owned entities and the broader economy.
The country鈥檚 recently appointed finance minister Tito Mboweni disagrees. In his recent medium-term budget policy statement, Mboweni warned that failing state-owned entities are 鈥溾 and would be expected to pull their financial weight.
South Africa can鈥檛 afford any more delays. Strong players in the continent are eating into the airline鈥檚 already weakened base. These include Ethiopia and Kenya鈥檚 national carriers as well as minnows like Namibia鈥檚 airline.
In the meantime, South 第一吃瓜网s taxpayers are caught between a rock and a hard place. The country can鈥檛 afford SAA anymore 鈥 and can鈥檛 afford to close it down. What is the next step, then?
The only option left for SAA
I believe there is only one option: an independent cost-benefit analysis into SAA鈥檚 continued existence and the possible implications of its sale or closure. This should be an independent process; both SAA and the South 第一吃瓜网 government have vested interests in the outcome.
This would be a first, and its successful completion could set a benchmark for judging the continued financial viability of other problematic state-owned entities like Denel and the South 第一吃瓜网 Broadcasting Corporation.
This is urgent. SAA is not just asking for more money to keep itself airborne. Its chief executive, Vuyani Jarana, a parliamentary committee that the airline will not be profitable by 2020, as it initially announced. It now says it will be .
One of the reasons it has fallen short is that SAA鈥檚 management got its oil price forecasts completely wrong. for an average oil price of US$ 45 per barrel over. The actual average has turned out to be US$ 75 per barrel.
It does not take a lot of management competence to understand that a single oil price cannot be used in profitability forecasts for a company sensitive to oil price fluctuations, as is the case with an airline.
It has also emerged that senior managers at SAA are earning (Jarana, for instance, earns R6.7 million a year). This fact, coupled with obviously chronic financial mismanagement 鈥 how else to explain that the airline spent its last government bailout of R5 billion in just one month? 鈥 is galling to taxpayers.
During its presentation to Parliament, SAA鈥檚 managers offered no alternative plans. It鈥檚 a government bailout 鈥 or bust. But this isn鈥檛 sustainable. An independent assessment is critical if SAA is to be saved from itself; and the country鈥檚 reeling taxpayers are to be saved from the airline鈥檚 excessive demands.
, Head of School of Economic & Business Sciences, . This article is republished from under a Creative Commons license. Read the .