STUART THEOBALD: Why keep up the SAA charade?

Posted in: i-Blog, SOEs on August 11, 2020


This column was first published in Business Day. 

There is one question I cannot get a satisfactory answer to on SAA: Why?

Why is this airline so important that we have not only splurged billions of rand to keep it on life support, but also consumed countless hours of senior public servants and politicians in an effort to try save it? The government has committed to “mobilising” R10.3bn to finance the rescue of the airline, but this is becoming a farce as there is no money or viable plan to raise it. The business rescue is now effectively in limbo while it plays out with involuntary liquidation looming.

I have long argued for evidence-based policymaking. Start with objectives, such as eliminating poverty and reducing inequality, and then work your way through the evidence about different candidate policy interventions. Develop proposed policies. Test them through trials and experiments where possible. As you implement, monitor and evaluate the effects. Be ready to change course as the evidence accumulates.

So, I would have hoped that the evidence on SAA and its essential role in policy delivery was ready and available to demonstrate why the taxpayer and everyone else with an interest in the airline industry in SA has had to put up with this charade. It should be a simple matter of pointing to the transport policy that spells out the crucial role that the airline has to play in an integrated transport plan. Or to the tourism development plan that clearly shows why a state-owned airline is essential. So why hasn’t the very capable minister of public enterprises, Pravin Gordhan, pointed to these in justifying his efforts to save the airline? Because they don’t, as I will show.

Instead, we’ve been given various reasons on the fly that seem ad hoc and made up. One is that we need a state-owned airline because SA is remote, and tourism can’t be developed without it. Yet, SAA has been cutting routes that would facilitate tourism, such as the London-Cape Town flight. There are much better ways of supporting tourism. The Cape Town Air Access scheme, for example, has over a decade helped establish 19 new routes into Cape Town, and increased capacity on 23 others. That’s 1.5-million extra seats and R6bn of increased tourism spend. All with no subsidies. That’s what an effective policy looks like.

We also were told that the Covid-19 crisis showed the importance of a state-owned airline to support repatriation efforts. Yet British Airways, Lufthansa, KLM and the like were used by European countries to repatriate their nationals from SA, and none is state-owned. If SA had run an emergency procurement auction, with airlines offering flights at lowest cost, it would have been swamped with offers. It’s not like there was a shortage of planes available to fly, and some were having to come empty to SA to pick up nationals for repatriation flights.

Another story was that a state-owned airline is crucial to secure cargo trading routes. While Covid-19 initially affected cargo trade because the grounding of passenger flights had knock-on effects as cargo carried on passenger planes was grounded, airlines have adapted, and some are now running passenger planes filled with boxes. In the longer term, global logistics companies such as DHL have invested billions in Johannesburg-based facilities to support African regional and global networks. If we’re serious about trading routes, it is a logistics industry support strategy we need.

We’ve also been told that SAA is needed to support transformation, in training and appointing black pilots. It is certainly true that transformation has a long way to go, with 87% of South African registered pilots being white according to the Civil Aviation Authority. The figures are slightly better at student level with 27% of pilot licences held by black South Africans. But how is a state-owned airline going to change this? Compared with, say, better training strategies and scholarships to fund black trainees?

Another ruse has been to point at Comair, which is also in business rescue, to argue that without a state-owned airline the domestic industry is unable to operate. This one is laughable. Comair’s predicament is in no small way directly caused by SAA. The state airline collapsed still owing its competitor R790m for a competition judgment from 2005. Comair also suffered much financial distress when it was forced to switch from SAA Technical to LuftansaTechnik when safety fears emerged about the quality of maintenance work done by SAA Technical. This is not to mention the R60bn of subsidies pumped into SAA over the years, inevitably shifting the playing field against private operators.

Another excuse is that a state-owned airline is needed to serve remote rural areas. Yet it was the privately owned SA Airlink that did an admirable job of connecting small towns. It now has its own problems as SAA collapsed owing it R700m in ticket revenue SAA had not paid over before business rescue.

In 2017, the National Civil Aviation Policy white paper was gazetted. It set down policy principles, including that economic decisions should be resolved by the market and all participants in the air transport market should be treated equally before the law. It is fair to say that the SAA farce is in direct conflict with these. The white paper makes provision for state intervention when the national interest is not being served by the industry.

But where routes are not economically viable, it calls for a “transparent public tender process” to access any subsidies government may deem to offer. The policy clearly establishes a principle of equal treatment: “To achieve effective and fair competition, it is important to treat all air carriers equally. This principle applies specifically to a situation where a government enterprise competes with a private enterprise in the same market.”

So, when we look at the government’s policy documents, do we find support for the SAA farce? Absolutely not. Indeed, both SAA’s history and its envisaged resuscitation fly against these policy principles. And there are many other principles involved, such as not sucking up financing that is much needed elsewhere in the economy.

So, again, why? Why, why, why? The only possible reason I can fathom is a desperate act of political face-saving. Having committed to saving SAA, Gordhan simply cannot realise his mistake and give up. He is nothing if not tenacious, a trait that was highly valuable in previous roles as SA Revenue Service commissioner and (though not always for good) finance minister. But the time has come for him to let go. It would not be a sign of failure, but one of being sensitive to the evidence and focused on policy outcomes, not particular state boondoggles. And there are much better things for him to be spending his time on. Like Eskom.

• Theobald is chair of Intellidex.

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