The recent announcement by minister Pravin Gordhan that, at the request of state owned enterprises (SOEs), the banks will “help” SOEs with more funding and additional unspecified assistance, raises serious questions.
Banking chiefs must publicly justify why they are prepared to prop up failing apartheid dinosaurs at the expense of the poorest in society.
Banks are required to undertake due diligence and lend only to commercially viable going concerns. Everyone from the Auditor General to SAA’s own CEO and turnaround “guru” have publicly stated that SAA is not a going concern and that it will take a further R21.7bn by 2021 just to break even. How then, can banks justify further funding?
SAA flies only because the government continuously props up an irrelevant political vanity project with public funds which should rather go into real infrastructure and growth projects,
For the banks, it is easy money on advantageous terms – and eases the way for more government business. Until July 2017, banks took a very lax view of the state of SOE debt, including SAA. Only the media exposure of corruption and illegalities on a massive scale has shaken them out of their stupor and, led by Citibank, to demand repayment. There are two key questions.
Firstly, do the banks have a mandate? They are private financial institutions. Have their shareholders and clients been consulted? Public attitudes towards SOEs have hardened with the exposure of massive corruption, over-bloated staff numbers, inflated salaries, unearned bonuses and unbelievable mismanagement. For SAA, the FMF’s message that the airline flies the rich at the expense of the poor has gained public attention and traction. Letters and comments on articles and social media clearly demonstrate that the public has had enough. Customers and shareholders should demand answers and vote with their banking feet.
Secondly, is the banking community leadership naive or acting negligently? According to the SA banking association’s Cas Coovadia, SOEs have two main problems: liquidity and weak balance sheets making borrowing difficult without government guarantees.
These two issues, while critical, are by no means the full story. FMF executive director Leon Louw said, “On which planet are these bankers living? SAA’s woes go much further than cashflow and negative equity, and, even if they were resolved, the structural and operational long-term problems at SAA mean it will never make a profit.
SAA is on its deathbed for the following key reasons:
- It is not a going concern and has negative equity of approximately R13bn. Without a government bailout, it is bankrupt, as of today.
- In FY 2018, SAA made a loss of R5.4bn. SAA cannot fund daily operations from ticket sales and needs R15.5bn over three years in operational bailouts – just to break even.
- SAA’s cost base is uncompetitive. One of the major factors is gross overmanning at all levels which results in an uncompetitive wage bill and Union opposition to retrenchments. Tthe market will not wait to give SAA time to sort itself out.
- Debt levels and servicing costs are high. SAA owes R9.2 bn in FY2018.
- SAA has an ageing and uncompetitive fleet with no possibiity of acquiring new aircraft until it returns to profit – a catch 22 in Jarana’s own words.
- Johannesburg will never be a strategic hub again. South Africa is irrelevant in accessing the African continent as other airlines invest in new planes and new technology that results in lower costs and allows them to fly long haul into Africa.
- Newer airlines also offer a better customer experience. Anyone who has flown SAA long haul recently can attest to this.
- Gross inefficiency and mismanagement at SA Technical Services leading to delays in maintenance and planes on the ground for longer than should be.
- A highly qualified audit report.
- Lack of skills at all levels including at critical senior management operational positions and difficulty in attracting new talent except by paying over the odds for expensive consultants.
- A lack of a service orientated, profit focussed culture.
It is time to close down SAA and save billions of rands. The private sector can handle SAA’s passengers at competitive prices. The banks have no business in preventing the inevitable at the expense of the poor.