South Africa’s new Finance Minister Tito Mboweni said on Thursday that struggling state-run South African Airways (SAA) should be closed down, adding that decisions over the future of the state carrier were not under his remit.
SAA has for years now been a drain on government resources as it’s consistently lost money and had to go back to the government, cap in hand, to keep the lights on.
While it’s clearly alarming that the number one man when it comes to South African finances thinks SAA is doomed to continue to haemorrhage money for the foreseeable future, he does have a point.
Why should it close down?
SAA last showed a profit back in 2011 with the airline costing taxpayers R30 billion since 2012 to keep their planes in the air. Stories of mismanagement and wasteful spending seem to be a regular feature of our news cycle, and despite all of the losses, the management seemed happy to be earning bigger and bigger salaries.
As it stands though, Mr Mboweni won’t have the final say on the future of SAA as its governance was recently transferred to the already overworked Public Enterprise ministry headed by Pravin Gordhan, who has begun the unenviable task of turning the airline around.
Mboweni made his statements while addressing an investor conference aired by SABC, yet another ailing state-run business.
No funds to keep it operational
It’s clear from his comments that he feels the government doesn’t have the funds to keep SAA on life support while the long task of turning the business around plays out. He said:
“Why I say close it down is because it’s unlikely that you are going to find any private sector equity partner who will come join this asset.”
SAA has begun the process of reducing its cost with job losses a certainty and a difficult period looming. The reputational damage of closing the doors of our national airline would no doubt hurt us but in the long term can we afford to continue to throw good money after bad while there seems to be no progress toward profitability.
Doubt
Late last month, Mboweni said that he doubted that the government would find an investor to take an equity stake in struggling state-run airline, due to its current financial state.
“I doubt you are going to find an equity partner who will come into SAA in this current state. As an equity partner you’d have to immediately assume the debt of some R21 billion,” Mboweni told lawmakers, a day after giving a bleak medium-term budget speech (MTBPS).
At the MTBPS, SAA received another R5 billion cash injection to prevent the recall of its R16.4bn debt by March next year.
The National Treasury said the government also agreed to allocate SA Express R1.2bn.
“SAA has an R19.1bn government guarantee, R14.5bn of which has been used. Debt of R14.2bn is maturing in or before March 2019. In 2018/19 government is allocating R5bn to help the airline repay this debt,” Treasury said.
“In general SAA is not generating sufficient cash to repay its total debt and will have to negotiate with lenders or extend maturity dates.”
Finance Minister Tito Mboweni yesterday said that the government was planning to restructure the country’s state-owned enterprises (SOEs) to address their liquidity problems.
