There is rapidly mounting evidence that we are being conned by the government about the real chances of success for the new SAA version 2.
IT HAS NOW BECOME CLEAR that the government has been making promises about its last surviving state-owned airline that it has no intention of keeping. By stubbornly pretending that SAA Version 2 will be viable, the government is perpetuating a massive confidence trick.
There are two key performance requirements for the future of SAA Version 2.
The first is that it must be financially sustainable and thus meet Minister Pravin Gordhan’s promises of not requiring any further taxpayer funding.
The second is that a majority shareholding will be sold to a capable and experienced private sector operator who can impose the necessary disciplines for the airline to operate profitably. (And thus pay tax, instead of using it.)
There is now evidence that we have been lied to about the finances and are being led down the garden path about the prospects of the Takatso takeover ever happening. Pravin Gordhan has made numerous assurances that the airline will no longer be using taxpayers’ money. However, thanks to a parliamentary report of 25 February, we have had sight of the long hidden mess of SAA finances for the past few years and even more tellingly, the projections for the next few years. In the SAA fairy-tale, these numbers are a bitter pill we have been expected to swallow.
Hein Keyser (formerly of Mango)writes in the Citizen: “In January, Public Enterprises Minister Pravin Gordhan said that SAA was trading profitably. Less than a month later, National Treasury said the airline lost R50 million during the first three quarters of the 2022-23 financial year. But the budget tabled on 22 February projected SAA’s losses at R786.7 million, against revenue of R3.8 billion and expenses of R4.6 billion.”
‘a bitter pill in the SAA fairy tale’
Tellingly, for 2023/24 and the 24/25 financial years, the budget projections make no mention of the R3 billion operating capital Takatso is supposed to be injecting into the airline as its dowry. This raises the questions as to whether government already thinks that the Takatso deal is never going to happen.
It confirms sceptics views that the notion of privatising prestigious state assets such as SAA is anathema to many in the ANC government with its dogged belief in centralisation and control. In which case the whole Takatso deal has been an incredibly elaborate and long-playing charade.
The first big test of Gordhan’s promises to complete the long delayed Takatso takeover comes at the end of March 2023. This is a deadline Gordhan gave for the fulfilment of all the regulatory and compliance hurdles for the deal to be completed. However, the only regulatory hurdle the
Department of Public Enterprises says it is addressing is that of Competition Commission approval and it expects this approval by the end of March. But this is the easiest of the hurdles.
Apart from the finances being worse than we have been told, the really hard part to swallow is that Minister Gordhan is seemingly ignoring all the other regulatory requirements that will take substantially longer to accomplish than Competition Commission approval.
SAA’s finances – losses we were told were not there, and impossible revenue growth?
Reality Check 1:
The real red tape challenges to the Takatso takeover are that the South African Airways Act, (5 of 2000) has to be changed. Learned legal counsel avers that the; “SAA Act in its present form does not contemplate any shareholders other than the State.” In the normal course of parliamentary work, the amendment of an Act may take longer than a year.
Reality Check 2:
SAA requires licences to operate: The two all-important licences are an Aircraft Operators Certificate (AOC) and Air Services Licencing Council approval. The SACAA issues AOCs, and a simple amendment to an AOC can take6-18 months. Legal counsel says that this will be necessary if key figures such as the CEO or safety Post-holders change with the Takatso takeover. Yet the SACAA confirms that “No application regarding the [SAA] AOC amendment has been made.”
Reality Check 3:
A Takatso takeover will naturally involve a change of directors and the Air Services Licencing Council (ASLC) will have to approve a change of directors. There is also a question mark as to whether SAA’s air route rights would need to be revalidated by the Takatso deal. My enquiries reveal that no application has been made to the Air Services Licencing Council. The DPE’s ignoring of these legal requirements brings into question the whole Takatso deal. And tellingly, the R3 billion operating capital injection from Takatso does not make an appearance in the financials provided for the next three years.
What of the future?
The revenue growth projections presented to parliament are just wishful thinking. Keiser quotes Wayne Duvenage of OUTA, “I don’t believe SAA will achieve the growth and revenues budgeted for over the next three years. R13 billion income by 2024-25 from R3.5 billion this year? … It appears the plan for a doubling of revenue and expenses for the next two years in a row is a recipe for problems if the strategy isn’t well informed and clearly implemented.”
Profit and loss statements are one thing – but cash is king and here SAA falls down badly too. SAA’s projected R3.3 billion negative cash flow further confirms that the airline is not sustainable without ongoing taxpayer support. So the R3 billion Takatso dowry would be really helpful. Despite the red ink all over the financials, as South Africa’s ‘flag carrier’ SAA is committed to resuming long-haul flights. This is another gigantic dream doomed to failure.
SAA currently has only two airliners capable of performing long-haul routes. These are an obsolete Airbus A340-300 and a slightly newer Airbus A330-300. These aircraft have terrible fuel consumption and ancient in-flight entertainment systems which are not able to compete with the more modern A350s and Boeing 787s offered by the other airlines.
Since government presumably doesn’t have the money to spend R5 billion each new widebody would cost, they will presumably have to be leased. After SAA’s insolvency and business rescue it’s almost certain that these leases will be at high interest rates and will need to be underwritten by government. Thus does SAA continue to grow its burden on government.
‘a recipe for continual bailouts’
Website airlineratings.com provides the following update from an interview with SAA Chair John Lamola; “Currently, SAA operates just one A340-300 and one A330-300, with another A330 joining shortly. We will restart long-haul operations with ourA330s. We then want to retake some of our former A350scurrently stored in France, they have been offered to us,” said Lamola. “The plan is to retake two A350s and maybe move to the third.”
On the other hand, he admits to also having interesting proposals from Boeing with the 787 being a candidate as well, in order to create synergies with strategic partner Kenya Airways. The airline has kept its route rights to the US dormant and still owns valuable assets in London.
“In Heathrow, we have four daily slots that we have leased out, making money for us.”
In serving Europe again, the “new” SAA is contemplating flying non-stop from Cape Town, a popular winter break destination, especially for tourists and long-term travellers from the UK and Germany.
The old SAA had withdrawn direct services from the Cape to London over a decade ago in favour of concentrating on its Johannesburg hub. That was seen as a massive strategic mistake, contributing to the unprofitability of SAA’s long-haul network, while European and Gulf carriers were left to dominate all lucrative long-haul routes from Cape Town until today.”
What little market share SAA had, has been lost over the past three years to the other operators who have stepped into the gap left by SAA and are able to operate these routes far more efficiently. The key to long-haul successful airline operations is feeding and de-feeding your routes. This requires codeshare operations, and without a well-developed regional and domestic network, SAA is no longer in a position to feed these long-haul routes.
Finally there are the vexed yet still unanswered questions about the airline’s safety culture. The list of problems keeps growing, most recently: the disasters of the Brussels‘ alpha-floor’ incident and the Accra water contamination in fuel. But there is also the promotion of pilots who fail breathalyser tests to Captain, and the Head of Training not having qualified as an instructor.
There is enormous resentment amongst the South African taxpayers against the vast waste that SAA has cost the state. Add in a perceived safety risk and SAA will no longer be the first choice for travellers. This means it will have to compete on price – which against far larger and more cost-efficient carriers is a recipe for continual bailouts.
ALEKSANDR SOLZHENITSYN wrote:
“We know they are lying. They know they are lying. They know we know they are lying. We know they know we know they are lying. And still they continue to lie.”
Pravin Gordhan with Jacob Zuma – is Gordhan being honest about his real intentions with SAA?