Why an Additional 10 Billion Rand Subsidy to SAA is a Bad Idea?

 

The South African Airways has asked the South African government for additional 10 billion rand subsidy, saying that the state-owned company needs to recapitalise and to be on a profit-making path according to a presentation to Parliament by the finance minister Malusi Gigaba.

 

This request forms part of a one-year corporate plan submitted by SAA to the national Treasury in March this year. Only this month the state injected 2.2 billion-rand into SAA to repay its loan owed to Standard Chartered bank. In the recent past, it has been one bailout after the other for SAA with the hope that the Airline will get back to profitability. We have heard this recapitilsation and moving SAA to profitability story over and over under the leadership of the current SAA board.

 

The National Treasury has ordered SAA to submit a turnaround plan that lays out steps toward a recovery before it commits to a further rescue deal. While one does not want to speculate whether or not the National Treasury will accept the request from SAA, it is safe to say that it will be a bad idea to agree to such a request for the following reasons.

 

First, South Africa is in a recession and has competing needs for the national purse that one can classify air travel as transport for the rich especially when examined along side competing needs like quality subsidised education for the poor a majority of whom are blacks. When looks at the need for quality basic services including water, electricity, housing, sanitation for the poor among others. It can only be concluded in my view that subsidizing SAA further is throwing money into a bottomless pit

Secondly, looking at the main competitors of SAA in the country, who run profitable Airlines like Kulula among others, maybe it is time to say SAA’s problem is far bigger than finance. It is time for South Africa to take a look and ask whether the bosses running SAA including the board are the right people for the job. SAA hasn’t made a profit since 2011 and has previously survived on 19.1 billion rand of state-backed guarantees. The airline has been without a permanent chief executive officer since 2015.

To continue to put tax payer’s money into an airline when the leadership has consistently failed to deliver is like doing the same thing over and over and expecting a different result.

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