Lessons from Air India

At the end of March, it was revealed that Air India’s employees would be given stock options after the airline is privatised. The government will retain a residual stake in the airline and, from this stake, employees can choose to buy stocks once the airline is turned around and made profitable. This is real empowerment and transformation. Employees have also been given an assurance of job continuity for the next year. South African Airways (SAA) is at the point where it must be either privatised or liquidated. The latest bailout only prolongs the pain inflicted on the South African tax payer. The Indian government, after trying to resuscitate Air India time after time, has recognized that it was time to do the moral thing and privatise the airline.

With the sale of Air India and the resulting injection of cash, the Indian government can now spend more on healthcare and improving infrastructure. As of 31 March 2018, the airline’s total debt was bigger than India’s entire health budget. And now the government is considering writing off the airline’s debt as well - another way in which the South African government could entice potential buyers of SAA. Our government should recognise that there is an opportunity to save at least a modicum of respect with the whole SAA saga – acknowledging the problem and privatising SAA would mean taking real responsibility for the mess, not just looking the other way and hoping another management team, and more money, will cure the headache.

SAA is an inefficient state-owned enterprise. Grabbing yet more taxpayer money just delays the inevitable. The latest financials show that huge debt and operating costs have caused a serious financial crisis. As long as government continues to reward bad behaviour in the form of bailouts, SAA will never be truly accountable.

Private companies are more efficient than any government-owned entity. They have to be in order to survive. When a company does not have to compete for customers’ rands because it is government funded, eg SAA or Eskom, it has zero incentive to be accountable or efficient. A government-owned entity’s bottom-line is not tied to its performance. The repeated failures and bailouts of SAA prove this.

Last week the CEO of SAA confirmed that it will be granted another bailout by government, this time to the amount of R5 billion. Once R5 billion has been paid to SAA, that will amount to a total of R15 billion in bailouts. The latest turn-around plan only envisages a break-even in 2021; and South African taxpayers are subsidising this continued pointless experiment. SAA, along with other SOEs, is a massive risk for the South African government – its continued failures and drain on the fiscus adds more pressure in the face of ratings agencies constantly hovering over the country’s credit rating, with possibly dire results always a possibility. For the supposed benefits SAA brings, such as ‘national pride’, the real effects of keeping it afloat are staring government in the face and yet we simply witness bailout after pointless bailout.

SAA needs to be privatised or closed down. The Indian government, after trying to keep Air India going for as long as possible, has acknowledged that there is no longer any justification for wasting money that can be used on more vital services such as healthcare. SAA Chief executive Vuyani Jarana said the airline was at the early stage of a turnaround plan designed to return the carrier to break even by 2020. South Africans should not accept any more excuses. It is their money that is being used. It is time for them to put pressure on government to let go of SAA.

Chris Hattingh is a Researcher at the Free Market Foundation
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