Analyst on state-owned airline: Stop wasting money on vanity projects

Analyst on state-owned airline: Stop wasting money on vanity projects

- Government plans to establish a new airline following the controverisal collapse of state-owned airline, South African Airways

- However, an analyst said a state-owned airline is wasteful expenditure of taxpayers' money, adding that airlines are notoriously difficult to run successfully

- An economist also painted a bleak picture for the future of SA's airlines due to the Covid-19 pandemic

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By Brandon Nel - Freelance Journalist

Like a phoenix rising from the ashes: The South African government’s intent for a new national airline following the collapse of South African Airways (SAA).

The plan is to establish one that will fare better than the current technically insolvent SAA that is about to be liquidated by the appointed administrators.

According to a statement last week, the Department of Public Enterprises announced that an ideal replacement for the now almost defunct SAA would be an airline that would have both public and private owners while maintaining the country’s trade connections and make a profit.

“This plan is eagerly backed by SAA’s almost 5 000-strong workforce,” the ministry said.

There was no mention of the business-rescue team that has been running the airline since December.

Analyst says it is time that we stop wasting money on such vanity projects

However, Nicholas Babaya, analyst and researcher at the Institute of Race Relations, told Briefly.co.za:

“Any state-owned airline is a wasteful use of taxpayers' money as the private sector already provides this service efficiently and profitably."

According to Babaya, this simply amounts to spending billions of taxpayers’ money to subsidise a form of transport that is only used by the rich:

"Airlines are notoriously difficult to run successfully as profit margins are small and so there is no reason to think that another state-owned airline will be profitable. There is no need for a state-owned airline, it is time that we stop wasting money on such vanity projects. There are people that still do not have running water!”

South Africa’s whole aviation industry has been plunged into crisis by the coronavirus pandemic.

Economist warns uncertain times lay ahead for airlines

Linden Birns, director and economist from Plane Talking, warned that until a Covid-19 vaccine is widely available, an airline's profits will also be affected by what health safety regulations for social distancing are imposed on airlines and airports.

"This could become a major factor in determining airfares, especially if airlines are required to keep a number of seats vacant as that would push up unit costs significantly and the fares that would need to be charged may be beyond what the market can afford.
"At the same time, we don’t know when airlines in SA will be permitted to resume flying, or when destinations beyond SA will re-open to flights, or what the market demand will be for air travel when flights are allowed to resume and for the first year or two afterwards.
"Another factor will be the ZAR/USD exchange rate. Airlines in SA incur a lot of costs in USD but generate most of their revenue in ZAR. So every time the Rand weakens, the gap between costs and turnover widens and they have to sell more seats, reduce costs and increase staff and asset productivity and utilisation.”

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Numsa and SACCA cry wolf: SAA retrenchment plan unlawful

Meanwhile, Numsa and SACCA, SAA’s two largest unions, filed court papers in April in which they state the retrenchment plan by business rescuers, Les Matuson and Siviwe Dongwana, is unlawful because a business rescue plan has not yet been submitted under the relevant legislation.

Rescue specialists Matuson and Dongwana proposed severance packages for all of SAA’s roughly 5 000-strong employees after SAA applied for a form of bankruptcy protection in December. This after the government said last month that it would not provide any more funds.

“The old SAA is dead; there is no doubt about that,” Public Enterprises Minister Pravin Gordhan stated by phone from Pretoria to Bloomberg.
“But what will take its place may be some or all of the old SAA, and maybe some other airlines too.”

Gordhan didn’t provide details on how a new SAA could be created, calling it a ‘complex issue.’ He praised the current version’s efforts transporting medical supplies and repatriating citizens stranded by the coronavirus, saying South Africa needs ‘a national flag carrier that is a source of pride.’

Matuson and Dongwana, were working on a recovery plan for the perennially loss-making carrier even before the Covid-19 crisis forced the grounding of all aircraft. However, they began the process of liquidating the airline last month after the government refused to provide another bailout package and have asked all employees to agree to severance packages.

That offer remains on the table, a spokeswoman for the administrators said when asked to comment on the DPE’s statement. Labour groups have yet to sign any deal.

SA Express, part of the wider SAA group, has also been placed in provisional liquidation, while Comair Ltd. a week ago said it is “selling assets and is currently in negotiation with lenders to shore up a precarious financial position.”

The air giant, Comair, also sent shivers down the spine of South Africans by announcing their plans to file for voluntary business rescue.

In a turn of events, SAA employees got another lifeline due to a pending court ruling. The various unions at SAA, of which Numsa and Sacca form a combined majority, rejected a voluntary retrenchment process and had until 5pm on Friday, 8 May to accept the practitioners' retrenchment deal.

Thereafter it will be open to employees until 11 May if they wanted to sign a deal in their individual capacities.

Numsa argues there must be balance of interest between stakeholders and employees

By law, the business rescue practitioners are obliged to act in the interest of all parties - employees, shareholders and creditors - and cannot be seen to benefit some over others.

Numsa, however, argued that one must balance the interests of other stakeholders with that of employees and that any matters relating to labour should be seen in the wider context of existing labour laws.

Numsa further argued that the relevant law applicable to the business rescue process, in effect, places a moratorium on retrenchments until a business rescue plan is provided. So far, no such plan has been tabled by the practitioners.

Adv. Andrew Redding SC, on behalf of SAA and the practitioners, referred to a request by the practitioners for further funding from government, which was rejected on 10 April.

Their only option in this light was either a structured winding down, which they believe would offer a better return for all affected parties - or if no such agreement can be reached, liquidation as last resort.

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Source: Briefly.co.za

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