ANALYSIS

As it enters a no-fly zone, SAA can no longer defy gravity

By Stephen Grootes 10 February 2020

President Cyril Ramaphosa, left, and Minister of Mineral Resources and Energy Gwede Mantashe. (Photos: Gallo Images / Media 24 / Deaan Vivier | Gallo Images / Business Day / Freddy Mavunda)

The ANC is still divided on the future of SAA, with those divisions now being aired openly in public. Despite the wishes of some politicians and some premiers, it seems inevitable that the airline will be radically restructured. 

On the afternoon of Thursday, 6 February 2020, the two business rescue practitioners in charge of SAA, Les Matuson and Siviwe Dongwana, announced that they would drastically cut the number of routes that SAA flies. All the domestic routes except for some between Johannesburg and Cape Town would go. Many international flights would disappear too. However, the operations of its subsidiary Mango Airlines, which provides services on the Johannesburg-Cape Town routes and to Durban would not be affected.

The reaction was surprisingly swift.

On Friday morning, the premier of KwaZulu/Natal (and leader of the ANC in that province), Sihle Zikalala, told SAfm this amounted to “economic sabotage”, and he would discuss it with the SAA board and the government. The premier of the Eastern Cape, Oscar Mabunyane, made a similar point, saying he was worried about the economic fallout for his province. 

The Public Enterprises Ministry, which oversees SAA, said it was “concerned” at the decision. 

Then, just before he boarded a plane to Addis Ababa (from where he was fetched at the airport by Ethiopian Prime Minister Abiy Ahmed), President Cyril Ramaphosa said that he too was worried about the decision.

However, the real surprise came on Saturday, 8 February when the Minister of Mineral Resources and Energy and chair of the ANC, Gwede Mantashe, said that if SAA could not sustain itself it should be sold. He said, “the thing of continually pumping money into SAA – which serves the elite, middle class and higher class – is a problem”. He suggested that if someone else could run the airline, it should be sold to them. 

His point was that it makes no sense for a government that wants to serve the poor to subsidise flights that are only used by middle-class, or rich people. 

This raises questions about what will happen next, and whether the business rescue practitioners will be free to shut down the routes according to their plan. If they are able to do that, SAA would change dramatically. It would become much smaller, which could make it harder to compete against private operators.

It should be noted that it will be extremely difficult to remove the business rescue practitioners from their posts. They were appointed through a process that involves the courts and to remove them may well require the consent of a judge. They were able to make the decision to cancel or “consolidate” flights in January 2020 without any political opposition.

Both the South African Cabin Crew Association and Numsa say they might challenge this in court. Their legal claim is that they were not consulted about the decision. 

But the practitioners will say they have no choice. They will point out there is no more money to pay all of the employees that SAA has. They can argue that the only way SAA can continue is for the government to pay the salaries of employees for a service used only by the relatively wealthy. 

A court case would be the cue for a huge display of evidence about the problems of running SAA. Importantly, it could also demonstrate to the public exactly how poor the return for their repeated bailouts has been. The public will want to know why R16-billion has been poured into an airline that still cannot run itself. Much of this evidence might involve details of what happened when Dudu Myeni was SAA chairperson, and of the decisions she made at the time. (According to testimony in the case brought against her by Outa, this includes confiscating an e-cigarette because she thought it was a recording device, and stopping the signing of a memorandum of understanding with Emirates Airlines on the orders of then-president Jacob Zuma).

Such testimony could well tip the balance of public opinion against any more government money for SAA.

It is also significant that the airline industry has seen increasing numbers of passengers choosing the low-cost route rather than the full-service option. In other words, SAA’s future might well lie with Mango.

It is difficult for anyone to argue against the reduction of the routes. However, some politicians may try to use the issue to inflict more pain on Ramaphosa. They will say that their areas are being cut off from the economic mainstream. 

The fact that Zikalala used the phrase “economic sabotage” is important. He knows that there will still be flights between Durban and Johannesburg as well as Durban and Cape Town by private operators – in 2010, SAA stopped flying between Durban and Cape Town, saying it was leaving that market to Mango. It returned to the market several years later.

Zikalala leads the province of the ANC that has often stated that the ANC’s National General Council must not be used for contestation ahead of the party’s next conference. In other words, it must not be used by those who want to weaken Ramaphosa.

While the politicians argue, the fact is SAA is now at breaking point. This cannot continue. While some politicians may argue and claim that there are solutions, this is a governance decision in which difficult trade-offs have to be made. 

Some of the suggestions, such as that the government pours more money into the airline, simply won’t fly.

Others, such as Mantashe’s idea that the airline could be sold, are also not very feasible. SAA comes with huge debts. Were it to be liquidated, the government would have to pay those debts – which it cannot afford to do.

The only option appears to be a slimmed-down airline based on the profitable routes that will remain open. 

The situation is changing rapidly. It should be remembered that at one point, the government and the board of SAA filed legal papers to oppose an application to put SAA into business rescue. Later, the government itself asked for SAA to be placed in business rescue. 

So, what appears unthinkable now could actually happen tomorrow. It seems impossible, right now, to imagine that the government would shut down an SOE. But, considering the other options, it may happen in the near future. DM

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