Media release: SAA bailouts unlawful?

18 September 2017
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At a media briefing today, FMF Executive Director Leon Louw said that government support for failing state owned airline SAA meant that official government policy was not being implemented and that this was unlawful under the constitution. He said that bailing out state owned enterprises (SOEs) was “welfare for the well to do” and that such subsidies diverted scarce resources from the poorest and neediest in society. He explained: “The poor don’t fly, rich people do. By subsidising SAA, government is taking money away from essential services like education, hospitals and policing. It is a myth that the tax-payers foot the bill, they don’t. The government doesn’t raise extra funds to pay for SAA instead it spends less on other things.”

Louw said that government policy towards SAA was set out in the Domestic Airline Transport Policy 1990, amended in 1991, reaffirmed in the 1996 White Paper then confirmed again in the 2006 Airlift Strategy. Official government policy is very clear and unambiguous: “SAA must operate autonomously and on a commercial basis ... will not enjoy any privileges ... as a result of it being a government enterprise ... and government will in future not guarantee new loans to SAA or any other airline with government interests while private airlines have to borrow at their own risk.” Official government policy can only be changed by following the process set out in S195 of the Constitution. Since the government has not done this, they are acting unlawfully in providing SAA with continued financial assistance.

“Government bailouts for SAA are duplicitous,” Louw continued. “In effect they invited private companies to invest, risk capital, create jobs and help to develop the economy, then destroyed them deliberately by providing the means for SAA to use predatory pricing and excess capacity to drive out competitive private companies. Enabling SAA to remain in the air is an extension of apartheid policy and in bad faith.” Louw called this “investor carnage” and said that the true number of casualties is probably greatly underestimated, citing the “unseen” costs of potential entrants who have been discouraged. The cost to the consumer in terms of increased fares, less choice and being left stranded when airlines fold, is incalculable.

Louw told the audience that he did not believe that SAA or any SOE was capable of running on a sound and genuine commercial basis. He said that the motivation and incentive of SOE management was completely different from that of a profit driven private company. Instead of competitive market forces at play, SOE managers had to deal with political influences and agendas which were irreconcilable with private enterprise. Louw said he is not advocating privatising SAA specifically, but suggesting that government adopt the stance of other governments around the world with financial stakes in airlines, back off and leave the operational function to professional managers rather than political appointees.

In addition, Louw questioned the validity of “strategic routes” saying this was government-speak for “the  three Ps: power, patronage and privilege. If they want strategic routes then they should stick to those, and not fly highly commercial routes like Johannesburg to Cape Town,” he said.


 
 

 

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