Media release: Open letter from Free Market Foundation to Minister Gigaba re action for SAA – and a wager

 Media release

 23 October 2017

Open letter from Free Market Foundation to Minister Gigaba re action for SAA – and a wager

Dear Minister Gigaba

We trust this letter is in time to influence your Medium-Term Budget Policy Statement (MTBPS) on 25 October with regard to SAA. Cometh the hour, cometh the man and this is the time for tough decisions and bold action to show rating agencies and investors that South Africa still has courageous leaders.

You have a simple but difficult choice:

  1. to continue throwing more taxpayer money at SAA and hope for a different outcome from previous experience - Einstein’s definition of insanity; or 
  2. have the courage to do the only realistic thing and announce that SAA will be wound down over a period of time to give the public adequate notice of implications for flights.

Option Two is the only sensible and credible course of action. SAA cannot be rescued and no amount of bailouts or recapitalisation is going to make a difference now except to waste more taxpayer funds that should be going to more worthwhile “development” projects – housing, education, welfare and infrastructure – instead of subsidising the rich to fly at the expense of the poor. 

Do not worry about disrupting the airline industry. There is adequate private capacity both domestically and internationally to carry SAA’s passengers.

SAA has no place in modern aviation. South Africa is at the bottom of Africa. It used to play a pivitol role in transporting the world into the continent especially under apartheid when SAA dominated. But competition from Middle Eastern airlines has smashed any hope of Johannesburg remaining as the entry point. Advances in airline technology means aircraft can fly longer and are more fuel efficient.

No prudent buyer would touch an insolvent SAA with its bloated wage bill, massive debt, ageing fleet, inefficient management and operations, few remaining assets and negative cash flows. SAA loses R370-m every month – R12.3-m every day. 

The facts – pre 25 October 2017 MTBPS

  • Cumulative losses 2012 – 2017   R15.8 bn
  • State financial assistance provided to SAA by Government since 2012     R18.7 bn
  • Daily losses     R12.3 m
  • Bailout required at 30 September        R10 bn
  • Government guarantees at 30 September   R19.1 bn
  • SAA utilised guarantees at 30 September R17.9 bn
  • Rolled over loans due on 30 September   R5.0 bn
  • Insolvency at 31 March 2017     R17.1 bn
  • Total financial assistance since government ownership   R23.8 bn
  • Total financial assistance under Transnet and government         R38.5 bn

The excitement around the newly appointed SAA board is as irrelevant as the Titanic deckchairs. Too little, too late and of minimal consequence at this advanced stage of decline in SAA’s fortunes.

Those calling for business rescue followed by privatization are misinformed. Business Rescue is only possible – if – there is a reasonable prospect of rescue working and the company becoming a going concern. Once in, there is no way back: either the rescue succeeds or the company must be liquidated. SAA has no chance of becoming a financially viable profit making entity without constant government bailouts.

If you do not have the courage to immediately announce that SAA is to be wound down, then announce that you will instruct your board to investigate this alternative. This would go a long way to head off another credit downgrade.

Please heed the advice of finance portfolio committee chair Yunus Carrim: ‘We simply cannot – especially with such low growth rates, poor revenue and huge stresses on the budget – constantly give SAA bailouts’.

The right solution is to wind down SAA, let other airlines carry SAA’s passengers at no cost to the taxpayer, and, ultimately, stop wasting billions of taxpayers’ money.

A Wager from Transport Consultant Terry Markman

“Minister Gigaba: if you still think you can save SAA, let us take a bet on this. I hereby bet you R100,000 that SAA will not be profitable in 3 years. When you pay me, it must be your own money and not taxpayers’ ‘bail out’ money. Will you accept?”


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