• Gareth Stokes

Cause I’m leaving, on a jet plane…

Updated: Jun 1

Vanity Project II, Will the proposed replacement for SAA fly?


The South African government believes that a new national airline will rise, phoenix-like, from the ashes of the virtually kaput South African Airlines (SAA). But their management track record of the original, going back to 1994, suggests that taxpayers will be subsidising another national flag carrier, Vanity Project II, for the foreseeable future.

From one vanity project to the next

Vanity Project I, the existing SAA, reads like a horror story custom-written for South Africa’s long-suffering taxpayers. The airline, which has not made a profit since 2011, has additionally chewed through around R57 billion in taxpayer-sponsored bailouts, going back to 1994. A 15 May 2020 article titled ‘SAA counts R16 billion in losses over three years’ and published on businesstech.co.za, reveals the extent of the rot. According to DA MP, Alf Lees, the draft financial results for the 2018 and 2019 financial years reveal after tax losses of R5,5 billion and R5,1 billion respectively, plus another R5,4 billion loss for 2017.


Perhaps an auditor could satisfy my curiosity as to how suspiciously similar these annual losses are; or perhaps not. Our largest auditing firms have a history of ‘light touch’ oversight when it comes to ‘controversial’ or ‘connected’ customers, as evidenced by myriad recent accounting scandals in both the private and public sectors.


Suffice to say SAA has been kept on life support for decades by a controlling guardian, the state, who have turned down every opportunity to flip the switch. “What [the latest draft financials] show is that, the multi-billion rand bailouts by government over the years have failed to cure the ills of the badly run airline,” said Lees said. Nobody needed a peak under SAA’s financial ‘bonnet’ to know the airline was in deep trouble. Government, who we can only surmise was last to know what troubles lay beneath, announced that the airline would enter a business rescue process on 5 December 2019.


This parrot is dead, deceased, it no longer exists…

Long suffering taxpayers breathed a collective sigh of relief. Finally, under minister Pravin Gordhan, the department of public enterprises had grown a pair. A business rescue practitioner was quickly appointed. And following some puffery to address concerns about the first practitioner’s Black Economic Empowerment credentials, another was added to the mix. These excellent fellows have since spent roughly R5,5 billion in bank guarantees and additional government funding to keep the airline going, and added a few million more in fees, to tell government what they should have known already i.e. “This parrot (sic) is dead!”. Our apologies to the crew at Monty Python’s Flying Circus; but a dead bird is a dead bird.


Early in May the business practitioners told government that the airline could not be saved. It would have to enter full liquidation or a structured wind-down; there was no resuscitating it. Imagine the collective scream as taxpayers realised Gordhan’s latest intentions. He reportedly lambasted the business practitioners for their slow progress; muttered about how expensive they were; and announced that the liquidation of SAA would never be an option. A national flag carrier was in the “national interest”. He dismissed out of hand the possibility of a wind-down too, as this would require a fire sale of assets to those among the imaginary horde of airlines looking to expand post-pandemic.


Now is not the time to be in the airline business. A recent list of coronavirus layoffs, published on Forbes.com, confirms that any business that is ‘up in the air’ is, well, ‘up in the air’. They report that Air Canada is set to axe 5 100 members of its cabin crew as planned flights for April were cut by 80%. Other national carriers have followed suit, with Air New Zealand (3 500 job losses); Boeing (6 770 out of work); British Airways (13 000 redundancies); Norwegian Air (a temporary lay-off of 7 300 workers); and Virgin Atlantic (3 300 job cuts).


An industry on the brink

Things are dire locally too. SA Express is teetering on the brink; Comair, which operates British Airways in Southern Africa under a long-standing licence, has gone into voluntary business rescue; and the Airports Company of South Africa has indicated it needs another R10 billion cash infusion from its shareholder, aka you and me. The International Air Transport Association estimates that South African airlines will see a 56% decline in revenue for this year versus 2019. By the time we emerge from this pandemic we are likely to see a quarter of million job losses in the airlines and related sectors, with a R93 billion consequent ‘hit’ to GDP. Trying to launch an airline at a time when the demand for flights has fallen through the floor, and given the bleak economic outlook, is irrational and irresponsible.


Armed with the knowledge that they will get paid, regardless, the business rescue practitioners have happily acceded to government’s latest demand to deliver a workable business plan for a ‘rescued’ SAA. By their estimate, the rebirth of SAA in some or other ‘mini me’ version of itself, would set taxpayers back a mere R7,7 billion. We reckon this lowball number should be jacked up to about R15 billion to allow for the usual government procurement issues.


Swimming with ‘cement shoes’

Pity us taxpayers. To keep SAA afloat was like swimming to Robben Island with cannonballs tied to each ankle. And keeping Vanity Project II in the air promises to be more difficult. Government has acknowledged our struggle and responded by adding a fancy weighted wristband set with different weights on either side, making the shortest possible swim improbable. They will persist with their grand and pointless airline rescue regardless of the long term cost to the country and its taxpaying citizenry.


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