Magnus Heystek, Investment Strategist and a Director of Brenthurst Wealth, said the best way to deal with the SAA issue is to shut it down as soon as possible.
“Experience all over the world has shown that the best way to close a non-profitmaking airline is do it quickly and suddenly. This is possibly the best option available to government should it find the political will to do so,” said Heystek.
He explained that while this will cost money in the form of guarantees and short-term liabilities, it will still be much cheaper over the long run seeing that SAA has not made a profit since 2011, and is seemingly losing R5 billion per year.
“The short-term impact on employment is also expected to be minimal as the other airlines flying in and to South Africa will almost certainly absorb the additional flyers and staffers into their operations,” said Heystek.
“I am certain that most, if not all, of the other airlines flying domestically and internationally, have made contingency plans in this regard, ready to step into the breach with more scheduled flights. In order to do this, they will need additional pilots, crew and ground staff.”
According to Heystek, continuing to support SAA means that government would run the risk of seeing Moody’s downgrade South Africa to junk status.
“Government runs the risk of sending a signal to Moody’s and the other ratings agencies that it will continue to pour money into financially strapped SOE’s which would lead a further downgrade to junk status, and over time deeper into junk status, which will cost the country significantly more in the form of higher interest rates on the country’s sovereign debt.”
SAA in business rescue
President Cyril Ramaphosa has ordered SAA to enter into voluntary business rescue.
In a leaked letter sent out on Wednesday 4 December, the Office of the Presidency said that the situation at SAA has become so poor that previous restructuring plans were no longer sufficient.
“Cabinet adopted an approach that entailed the restructuring of SAA. However, after discussion with various key stakeholders, including potential leaders, developments have now necessitated a change of approach to the SAA conundrum,” said the letter.
“In this regard, SAA will have to urgently go into voluntary business rescue.”
Cassius Lubisi, secretary of cabinet, said that the Presidency remains cognizant of the SAA issue and will keep members of the executive informed at all times
Losing R15 million a day
The decision to order SAA to enter voluntary business rescue follows Solidarity recently serving court papers on SAA and the Ministers of Finance and Public Enterprises to the same end.
“SAA is heading for liquidation which will have huge consequences for employees, the South African economy and for taxpayers,” said Solidarity COO Dirk Hermann.
Connie Mulder of the Solidarity Research Institute said that SAA’s 2017 financial statements showed a loss of R5.569 billion for the year, which translates to R15 million per day.
He added that since 2017 no new SAA statements have been published and it can be assumed that the situation is only getting worse.
Solidarity welcomed the decision by the government to place SAA in business rescue, even though the government had recently forwarded legal papers suggesting that it would be opposing Solidarity’s application.