Why shutting down SAA could destroy South Africa: Ramaphosa

[BusinessTech]

Why shutting down SAA could destroy South Africa: Ramaphosa

President Cyril Ramaphosa has explained why it is important to keep SAA open.

 

[ToxicBunny]

Well blow me down, I was expecting something about how its good to have a flag carrier or whatever...

But the logical response from Cyril is unexpected.... and unfortunately he is right, it would cost us too much to shut it down, at least in terms of a massive instant hit on the fiscus.

 

[RedViking]

Is that the same reason why they can't shut down the ones responsible for the mess?
They can pay the debt out of their own pockets.

 

[Jet-Fighter7700]

but isnt keeping SAA going more expensive than shutting it down?

I mean if you shut it down, you don't have to fork out more money, but if you keep it going you have to keep handing over money.

besides bad management, what else is sinking SAA? expensive planes? passenger numbers?
or is there a legitimate reason SAA is in the toilet, besides bad management.

 

[Ancalagon]

Amazing that you can let things get so bad that you cannot afford to even shut SAA down.

 

[MrGray]

He seems to be saying that since they can't afford to pay the debt which would become due immediately if it closed down, they'd rather carry on incurring debt. This makes their debt guarantees worthless as he's effectively saying that government couldn't honor them. WTF?

 

[ekske1]

Why shutting down SAA could destroy my gravy: Ramaphosa

 

[eXisor]

So no chance of coming to some agreement with creditors to pay back at the same rate as SAA currently does? Why not? With government as guarantor, why not?
If we've R5 billion to prop up SAA then that's R5 billion to pay off debt.
What am I not seeing? Why would you, as a creditor, not go for this?
.

 

[Insint]

We can't pay the debt so let's just keep making more debt.
First rule to fix dept issues don't make more of it.

Can't they just retrench everybody and make it a company with one person and still repay the debt? It doesn't have to actually fly people around and waste money.

 

[3WA]

So no chance of coming to some agreement with creditors to pay back at the same rate as SAA currently does? Why not? With government as guarantor, why not?
If we've R5 billion to prop up SAA then that's R5 billion to pay off debt.
What am I not seeing? Why would you, as a creditor, not go for this?
.

Or just fire everyone, cut expenses down to a few rand a year, but keep the entity in existence on paper and pay off the debt.

 

[Visser]

Been saying this all along.

According to the agreement, all debt of all SOE's may become payable with immediate effect - not only that of the SAA. The agreements work vice-versa on all SOE's - some protection for those borrowing the money. They cannot sell, even sell off partially, privatize or liquidate any SOE, else this section can be invoked.

We will be carrying this burden with our tax money forever.

 

[R13...]

That's all good and well but then they need to admit and let the SOEs make the job cuts necessary for them to return to viability. Otherwise they'll just remain millstones around our collective neck.

 

[eXisor]

Been saying this all along.

According to the agreement, all debt of all SOE's may become payable with immediate effect - not only that of the SAA.

We will be carrying this burden with our tax money forever.

I hear this. But agreements are renegotiated all the time. Surely some of the creditors will go for it. Maybe the list of those that won't will be manageable. Surely they must try, not just commit to digging the hole deeper.

Let me be blunt.

THERE IS NO WAY UNDER HEAVEN OR HELL THAT ANYONE CAN TURN THE SHITSTORM THAT IS SAA AROUND.

You know that Cyril. So wtf?
.

 

[Visser]

I hear this. But agreements are renegotiated all the time. Surely some of the creditors will go for it. Maybe the list of those that won't will be manageable. Surely they must try, not just commit to digging the hole deeper.

Let me be blunt.

THERE IS NO WAY UNDER HEAVEN OR HELL THAT ANYONE CAN TURN THE SHITSTORM THAT IS SAA AROUND.

You know that Cyril. So wtf?
.

They tried to negotiate some secret deal about 8 years ago. I do not know what the specifics about the SAA was back then. A s**tstorm broke lose and a number of institutions indicated their intent to make all debt payable from all SOEs back then. All negotiations were stopped immediately. This specific cross-clause in the agreement is not negotiable. It is there to protect the lenders. Any negotiations around this will open them to unnecessary risks, so this is something no one ever touches or even mention.

The big problem with focusing on only those who have issues is the fact that they also borrowed to other SOEs. Settling their debt and not the rest may leave that fear that they may risk losing out on repayments. I highly doubt that this will work. If one calls up the debt, others will jump in immediately to try and get what they want.

 

[konfab]

South Africa would be better to take the economic hit of accepting reality and defaulting on the debt. That is what would happen if this were a business or an individual.

We would need austerity measures for a few years, but then we would be free of the monster. Instead they are simply tossing good money after bad.

 

[Visser]

The long and the short is that the SAA cannot be turned around anymore. No matter how many equity partners they bring in. The ship has sank and that is the end of it.

What government should do now, is to wind down the airline to minimize further losses and rather focus on repaying debt and in the process closing down the airline. Yes, thousands will have to be retrenched, but that would be the best route to go.

 

[Visser]

South Africa would be better to take the economic hit of accepting reality and defaulting on the debt. That is what would happen if this were a business or an individual.

We would need austerity measures for a few years, but then we would be free of the monster. Instead they are simply tossing good money after bad.

The consequences would be too dire. Defaulting, getting downgraded by all agencies, losing the last few investors and an outflow of capital may send us the route of Zimbabwe with immediate effect. They will not be able to pay grants and civil war will start. There is no way around this and experts warned about this about 10 years ago when they said the SAA cannot be sold, liquidated or closed down.

The immediate short-medium term (20-100 years) is to force tax payers to keep the airline afloat while clearing the debt. It will be difficult if they do not retrench people, start losing assets and scaling down on operations.

The ANC got themselves into this mess by making use of third-world tactics and now facing first world consequences.

 

[rietrot]

but isnt keeping SAA going more expensive than shutting it down?

Yes in the long term, in the short term no.

 

[konfab]

The consequences would be too dire. Defaulting, getting downgraded by all agencies, losing the last few investors and an outflow of capital may send us the route of Zimbabwe with immediate effect. They will not be able to pay grants and civil war will start. There is no way around this and experts warned about this about 10 years ago when they said the SAA cannot be sold, liquidated or closed down.

Getting downgraded to what?Junk?
Causing what? A recession?
We are already junk and we are already in a self-inflicted recession with record high unemployment.

We would have a deep recession, but that isn't a bad thing so long as the government plans for it. Zimbabwefication happens when the government interferes with the private sector. They keep off the urge to print money, cut back government spending on everything but education, health, police and social grants and South Africa would be free of the problem in 5 years.

 

[Visser]

Getting downgraded to what?Junk?
Causing what? A recession?
We are already junk and we are already in a self-inflicted recession with record high unemployment.

We would have a deep recession, but that isn't a bad thing so long as the government plans for it. Zimbabwefication happens when the government interferes with the private sector. They keep off the urge to print money, cut back government spending on everything but education, health, police and social grants and South Africa would be free of the problem in 5 years.

This is not something 'new' that struck the ANC. They have already considered everything you just mentioned and weighed their risks - hence the reason the most sensible solution is chosen to keep it alive and carry it on tax payers money. Everything you mentioned is ambitious and chances of things working out that way is minimal.