This might be a case of mistaken nostalgia, but returning South African Airways (SAA) to the Department of Public Enterprises does not seem to have been the best call for the airline. Admittedly, hindsight is a strange and contested phenomenon.
That happened nearly two years ago and caught some insiders off-guard. It was 1 August 2018, the announcement came around lunchtime and stunned segments of the market.
On that fateful day, rumours started swirling, stating newly minted Public Enterprises Minister Pravin Gordhan was going to assume control of the entire portfolio of the state’s aviation assets. Gordhan had been in the job for six months. Sure enough, the media statement landed that afternoon and marked an end to National Treasury’s four-year caretaker role at SAA.
The government justified the entire exercise by citing a study “commissioned by National Treasury and the Department of Public Enterprises”. This gave the changeover in the control of SAA an air of respectability and some semblance of order. It was effectively a signal to stakeholders that this was a carefully considered decision, which would yield desired outcomes or something to that effect.
A year later, cracks began to emerge which exposed the shaky façade of control. SAA CEO Vuyani Jarana was so unimpressed that he jumped off-board. Jarana’s leaked resignation letter elucidated his reasons for exiting SAA.
The factors which pushed him to depart speak to the dysfunctional nature of the institutional set-up and mandates governing state-owned enterprises (SOEs): fuzzy lines of authority and shareholder meddling. Crucially, the Department of Public Enterprises assuming oversight of SAA broke Jarana, he says as much in his resignation letter.
Now, the flagship carrier is in an even worse position than it was two years ago: financially, operationally and reputationally.
It is no exaggeration to say SAA is in a full-blown crisis. Suppliers are panicking. Its operations are expensive contrasted with comparable peers. Booking agents are shying away from the national airline. In fact, booking agents are actively snubbing SAA. Its forward bookings are in shambles. This is the perfect storm if ever there was such a thing.
The situation at the airline is fluid and evenly poised for parties on all sides. There are no winners, only losers. It would not be simplistic to speculate on SAA’s imminent demise. Those in the know say as much. The business is past the point of turbulence. Anything short of a miracle to save it will not do. Rescuing SAA is no longer a salvage operation. Its current state of affairs demands radical action from the shareholder.
The business rescue process seems to have been a fundamental miscalculation. It was also a compromise. There was a point at which liquidation was a real prospect for the airline. Political considerations swayed stakeholders to pursue the business rescue route. However, the business rescue is delaying the inevitable.
The bottom line is the business requires proper recapitalisation to plug its massive funding hole. See, all the bailouts, the loans and the bridging finance facilities are inadequate for a carrier that is in a permanent liquidity fix. No amount of posturing will change that.
What complicates this already intricate equation is that there is no clear line delineating the responsibilities of the business rescue practitioners and those of the board. Furthermore, recent public statements from the Department of Public Enterprises, the alliance partners and the president hint at the government getting cold feet on the business rescue process.
SAA is a litmus test of the new administration’s undertaking and promise to fix SOEs. So far, it is falling short. Its contradictory messaging and actions are not helping its cause. BM