A new airline could fly past SAA’s many dead ends

The SAA and SA Express boards have failed consistently, but there is a solution, one that will end taxpayer bailouts, satisfy politicians’ desire to keep the flag flying and even retain our national pride. But it will take courage and political will.

The government, finally seeing sense, is talking about selling some of SAA to the private sector. SA Express should be the first to go. Finance minister Tito Mboweni mentioned this in his medium-term budget policy statement, without offering further detail.

Yet political interference, corruption and bad management have ensured that both airlines are stuck in the past, with planes and route strategies applicable to a bygone era. Closing a few international routes and deploying Mango on some domestic routes merely rearranged the deck chairs.

When combined with mounting losses, negative equity, no working capital to buy new fuel-efficient planes, lack of skills at all levels, a bloated and overpaid workforce, chaotic internal systems, no control over inventories, an endless need for taxpayer bailouts, a merry-go-round of new CEOs and turnaround strategies, constant political interference, a failure to grasp the realities of rapid developments in the aviation market and now problems with SAA Technical and Maintenance, it means SAA will never rise again.

The airline is bankrupt and cannot be saved in its current guise. It is losing more than R5bn every year and needs government funding of R21.7bn just to break even by 2021. Over 20 years it has cost taxpayers R42.6bn (excluding guarantees of R19.1bn). Both airlines are demanding more bailouts just to keep going. Neither airline can produce audited financial statements amid doubts about their being “going concerns”.

As SAA’s sidekick, SA Express is already a lame duck, flying half-empty planes. According to recent reports it has just six operational planes out of a fleet of 21. Yet between August 2018 and July 2019 SA Express received at least R1.54bn in bailouts and government guarantees while carrying just 400,000 passengers. This amounts to a subsidy of R3,850 per passenger one-way and R7,700 return. Assuming 50 passengers per flight on average, this is the equivalent of two RDP houses for every one-way SA Express flight and four houses for a return flight. It is immoral to keep SA Express flying when there are private airlines such as Airlink that can profitably carry all of SA Express’s passengers.

The government’s recent idea to merge SAA and SA Express with Mango and create one bigger loss-making airline is absurd. Merging three failed airlines will not miraculously create success.

There is a better solution. If a flag carrier is required it need not be the existing SAA. Another airline with a commercial incentive to bring tourism, business travellers and foreign direct investment to SA could fly in SAA’s colours, ensuring growth and jobs — and paying off SAA and SA Express debts and liabilities without torturing the taxpayer any longer.

Let’s call the new airline “SA International Airways Company (SAIAC)”. The international business of SAA would be split from the domestic operation, SAA would become solely a domestic airline and SA Express would be closed down.

International airlines would be invited to tender to run SAIAC and the funds used to settle SAA and SA Express loans and other liabilities. The incentive would be to take over SAA’s existing bilateral agreements and valuable landing slots. SAA has failed to use many existing bilaterals, while foreign airlines have apparently taken all they are allowed in SA and are pushing for more.

The successful bidder would take over any staff and assets from SAA/SA Express it desires and the “international” Voyager miles programme. Other assets would be sold off separately. Employees who are not taken over by SAIAC would be retrenched. A leading labour lawyer believes the majority of staff would snap up an offer of a year’s package and retraining. The government would be responsible for all liabilities and guarantees, but this would be offset by the tender funds.

Legislation that requires a new airline to have an SA majority shareholder should be repealed. The government would play no part in the new company, removing political interference, and the drain on the fiscus would end, saving up to R7bn a year in bailouts: SAA’s annual R5bn and SA Express’s R2bn.

The flag will fly; jobs will be saved; the air miles programme will continue; more tourists and business travellers will visit SA; jobs will be created; significant foreign investment will follow, and SAA and SA Express debts and liabilities will be cleared. A bonus would be the opportunity to terminate the pilot union’s onerous recognition agreement, which is a big problem faced by SAA.

There would be many details to work out, but the principle remains: a new company to replace SAA and SA Express, flying SA’s colours, able to compete against other international airlines and make a profit. That is something the two existing airlines will never be able to do, no matter how many bailouts they get.

Terry Markman is a transport consultant, was a member of the Airline Deregulation Committee. The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation. The article may be re-published without prior consent but with acknowledgement to the author.

This article was first published on Businesslive.co.za on 30 October 2019
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