Business Day column: High cost of flying the flag and keeping a fossil in the skies

10 August 2017
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A terrifying flock of pterodactyls — gigantic dinosaur-era flying reptiles long presumed extinct — was spotted in our skies last week. Finance Minister Malusi Gigaba reassured us that there was nothing to fear.

His incoherent explanation intimated that because junk status places us so near the bottom, we have no downside risk and his bankrupt Treasury can feed the flock indefinitely.

"The flock," he said, "was well known to the apartheid regime that even named it. They called it South African Airways [SAA]."

Having inherited apartheid’s pterodactyl flock, the new government embraced it as a presumed benefit of colonialism, along with Eskom, the SABC, "black" land nationalisation, exchange control, corruption and countless survivors of the Jurassic extinction.

Like its predecessor, this regime thinks SAA is a "flag carrier" because the pterodactyls’ tails bear flags in the hope that someone will recognise them when they land. The best and cheapest way to fly the flag is, of course, on a flag pole. At a fraction of the cost, we could fly our flag in every city, including those not visited by flag-bearing pterodactyls.

Twenty years ago, SAA could have been profitable. Fifteen years ago, it could be privatised. Ten years ago, it could be rescued. Five years ago, it was restructured. Now all it has is debt and a leveraged technical division. Its debt and accumulated losses cannot be recovered from future operations.

Virtually all SAA aircraft are leased. The few it owns should be donated to aviation museums or sold. Beyond that, the airline has a few old computers and furniture worn out by the bums of rapidly rotating executives – a new CEO or board every 18 months or so. Few, if any, directors and executives have aviation experience or expertise, let alone a proven track record.

SAA’s cumulative losses exceed R30bn, enough for 300,000 low-income homes. Losses in just the past five years averaged R3bn a year and total nearly R16bn. SAA is welfare for the well-to-do: the diversion of wealth to the rich who fly above from the poor who protest against the lack of housing and services below.

There have been so many failed turnaround strategies accompanying bail-outs, guarantees amounting to bail-outs, CEOs, boards, chairs and restructurings that everyone was too dizzy to produce a new one when Gigaba announced that another R2.3bn would be regurgitated down the pterodactyl throat — unconditionally, to enable it to continue making losses.

All those bail-outs enabled SAA to drive 10 airlines out of the market. Instead of profitable airlines paying tax, we have a fossil sucking the teat of the Treasury. Recently, Gigaba announced another variation of his long-term turnaround strategy. It is as farcical as saying that if you wait long enough and divert enough from the poor to the rich, terrifying pterodactyls become beautiful swans.

SAA’s directors, CEOs, managers, chairmen and chairwomen play a game of musical chairs that deprives the airline of experience, expertise, continuity, team-building and institutional memory. Pravin Gordhan’s most radical fantasy, when he was finance minister, was that at least one person should have airline experience. Wow. Only one?

The greater national damage is the effect on consumers of restricting market entry and competition. Tourism has benefited from foreign airlines increasing the number of tourists, and creates many jobs and attracts foreign investment and foreign exchange.

Instead of trying to rescue SAA, Gigaba should unleash private investment and commit SAA to the fossil record where it belongs.

 Louw is executive director of the Free Market Foundation.

This article was first published in Business Day on 5 July 2017

 

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