SAA not going like a Boeing but Gordhan the Excoriator is coming

Screen Shot 2018-05-03 at 08.28.19
Aviation weather update – blustery at SAA inc.

SAA needs R20 billion to make it to 2021.  That’s the amount of cash it requires for operations which is only R1bn less than Mpumalanga’s entire annual education budget.  So let’s sink back into our bottom-scarring sardine-sized economy class seats and ruminate on possible SAA scenarios. If you’re South African place story over mouth and nose because your tax money is involved.

1. Business Continues

Note: This option is highly unlikely. 

SAA is in the throes of proving constantly that it is a “going concern” and this doesn’t mean its going like a Boeing.  No, going concern is simply having enough cash flow and dosh to continue paying workers, suppliers, international ATC and apron costs, landing fees, fuel and the large number of over paid executives who burgeoned like flies on a dying Pterodactyl courtesy of previous political deployment  (PPD).

The problem is, the Auditor General has publicly warned that SAA is “not a going concern”.

Truth A: Shamble Air

SAA is technically bankrupt and had it not been a “national” airline bailed out repeatedly by politicians, it would have been shut down two years ago.  Called on by parliament to explain the shocking state of affairs, former Board Chair Dudu “wake me up before you go-go” Myeni immediately disappeared into the humid air of Richards Bay like exploding methane from a hot sphincter.

I digress.  Here then is the latest SAA spreadsheet:

  • R3.7-billion loss for the period 2016/17 which is 71% higher than the budgeted R2.2-billion loss.
  • Year-to-date costs were R561-million above budget
  • SAA is forecasting a loss of R4.8-billion for 2017-18 as well as in the 2018-19 financial year
  • International sales declined 9% (R816-million)‚ regional sales 2% (R91-million) and domestic sales 16% (R617-million)
  • Maintenance costs 19% (R580-million) above budget‚ energy 3% (R173-million) above budget & labour 2% (R79-million) above budget.

If SAA was a proper company, the thundering noise you’d be hearing would be heads rolling down OR Tambo International arrival hall as overpaid deployee’s were dispatched by Excel spreadsheet waving Financial Viking Pravin Gordhan.

On the Wednesday 2nd May Gordhan told a joint parliamentary sitting of the portfolio committee on finance and public enterprises that he plans to locate the moolah funnelled out of these State owned Entities including names, dates and receipts.

Importantly, Gordhan also will change the way boards are appointed because they’ve become willing partners in state capture he said. Myeni enveloped in her invisibility cloak and others will be watching with some disquiet.

We await the moment of rolling heads with baskets.

Truth B: Tax the poor to pay the deployed

No-one but government is willing to give this airline a few billion rands for its perennial begging bowl. So taxpayers – get ready.  Most of you will never fly SAA but you’re going to be coughing up just so that some cadre deployed underdeveloped space cadet can wallow about the world pointing his/her latest hot thing at the SAA colours emblazoned upon a tail making grandiose statements like “I have an airline in Africa” and “Look Bushbuckridge unemployed are paying for my First class seat through the increase in VAT, they must be proud”.

2. Private Sale

Note: This scenario is unlikely 

Who wants this debt-ridden Pterodactyl of the modern aviation marketplace?

All you get is an over staffed fat, waddling and decrepit carcass, full of angry newly entitled folks who will strike if you try deal with the debt after purchase.  There are a few possible purchasers knocking about, but the government of South Africa is facing a classic ideological conundrum.

To state-own or not to state-own, that is the question.

State owned enterprises may be undergoing an operational reboot thanks to President Cyril Ramaphosa and his gifted special force financial Viking Enforcer, Pravin Gordhan the Excoriator, but its hard to remove rotten staff when they’re embedded like maggots inside the eviscerated bodies of SoEs.

Truth A: Protect staff = no sale

How much is SAA really worth? 

Given its financial report:  R1. 

That’s because the BIG problem at SAA is its debt. So any new buyer gets a name, a few leased aircraft, and the fun of facing political overlords called NUMSA et al with their union-leader purchased BMW Z3s and 5% per worker protection racket.

No chance of reality there. So any buyer is really not getting more than some great pilots and cabin and ground crew and a few ageing airliners.  And a very nice logo.

Truth B: Groans about loans

SAA says after making huge losses for the next 2 years,  its long-term strategy will lead to a profit in 2021.

But what happens to all these tax payer loans?  These politically inspired bits of billions poured into our symbolic national airline?  Written off? Sorry taxpayer.  Nix back.

The challenge of strangely structured employment contracts and onerous agreements are SAA’s millstone, but any new buyer would be forced to honour these. No go zone for proper investors.

3. Liquidate and Relaunch

Note: This is the most likely scenario 

And thus, we have come to the only solution for SAA.  When a company like SAA  reaches the financial point of no return, an obvious option is to liquidate and relaunch.  This has happened many times in recent years across the world of aviation.

Truth A: Bankrupt airlines can recover

The following airlines have been relaunched with most operations intact:

Swiss Air – liquidated then bought by Cross Air who relaunched Swiss Air Swiss International, now resold (with a profit!) to Lufthansa.  Jobs saved.  Well mostly.

Sabena Air – the Belgian government bailed out the national airline, then tired of this folly and let it be liquidated. Brussels Airline took over (owned by the Brussels Provincial government) made a profit and .. yes .. you guessed it .. sold to Lufthansa.  Some jobs saved.

Austrian Airlines – Bankrupted in 2008 and sold by its owner, the Austrian Government. A year later, yes the big boys of Europe, the Lufthansa Group purchased the airline after the deal was scrutinised by the EU. A few jobs saved.

Truth B : Sometimes they can’t 

Alitalia – Italy’s national airline.  The Italian government allowed Alitalia to file for bankruptcy in May 2017.   Its up for sale by auction and remains so.  This is the most likely option for SAA, with a long-drawn out negotiation as the pilots leave for Emirates et al, skilled maintenance engineers phone Beijing and cabin crew and ground crew are snapped up by Emirates, Qatar, etc etc. They don’t know what to do with the jobs.

Pan American World Airways (Pan Am) – Once the symbol of commercial passenger aviation Pan Am actually helped launch the International Air Transport Association (IATA) but in the 1970s the rot set in.  This was linked to deregulation and like SAA, it was a behemoth unable to cope with the lithe competitors. However it took one moment to permanently ground the airline – the  1988 Lockerbie disaster of Pan Am Flight 103, when Libyan terrorists planted a bomb that led to the deaths of all 243 passengers on board. Pan Am died in 1991. No jobs saved.

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SAA’s operating certificate which expires in June 2018. 

If SAA was a person, the family would be sorting out final matters and thinking about flowers and the cost of a casket. Sorry, much as I emotionally support my national airline, the reality is this beautiful story of Africa’s best Airline for well over 50 years will most likely end up being bankrupted, reconditioned and relaunched.

The other terrible truth which must be whispered is that times have changed. Kenya and Ethiopia are geographically located to steal SAA’s thunder.  These two countries are placed on the lucrative East West routes meaning they can tap into trans-continental passenger and cargo routes.  They can actually compete with Dubai for example, particularly Ethiopia.

Will SAA continue to dwell in the past as deployed cadres take turns through the boardroom turnstile, hustling to make a quick buck while the creditors pick apart the airline carcass, or will there be real hope and change?

Breath everyone.

 

 

 

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