South African Airways (SAA) is at a point where it must either be liquidated or privatised and government should look to the privatisation of Air India as a successful case study to emulate.
This is according to Free Market Foundation researcher, Chris Hattingh, who said that the state airline had become inefficient and that its latest R5-billion bailout was just delaying the inevitable.
“The Indian government, after trying to resuscitate Air India time after time, recognised that it was time to do the moral thing and privatise the airline,” he said. “With the sale of Air India and the resulting injection of cash, the Indian government can now spend more on healthcare and improving infrastructure.”
He noted that with the privatisation of Air India, the Indian government would retain a residual stake in the airline from which employees could choose to buy stocks once the airline became profitable.
Employees were also given assurance of job continuity for at least one year following the sale, while the Indian government was currently considering writing off the airline’s debt – another way that the South African government could entice potential buyers of SAA, Hattingh pointed out.
“Our government should recognise that there is an opportunity to save at least a modicum of respect with the whole SAA saga – acknowledging the problem and privatising SAA would mean taking real responsibility for the mess, not just looking the other way and hoping another management team, and more money, will cure the headache,” said Hattingh.
However, economist Mike Schussler told FTW Online that he believed this model would not be viable for SAA as by the end of 2017 alone, the state airline owed around R18 billion more than what its assets were worth.
“Selling SAA as it is currently would basically equate to selling someone into debt; the best hope we have is to give SAA away and I don’t even think we would be able to do that,” he said.
He noted that while there were still some parts of the airline that remained valuable, such as SAA Technical, SAA did not even own its own aircraft and its brand value had already been destroyed – something that would continue the longer it remained in the “limbo state” it was currently in.
According to Schussler, SAA was already being subsidised in two or three ways, with subsidies every time a member of Parliament flew on the airline. Along with the monopolies it held on several routes in the country, the airline was already given all the advantages and was still not profitable.
He said that with regard to freight, SAA’s aircraft were already way too old and problematic, another factor that a buyer would have to consider before taking on the airline.
“I agree with the Free Market Foundation that the state should not have ownership of SAA, but government is not going to find a buyer who wants to take on the responsibility of debt that would come along with its sale,” said Schussler. “That debt would need to be removed to entice someone to buy the airline, and this would have to be footed by the tax payer.”
He suggested that airlines such as Emirates or Qatar Airways could possibly use SAA to fly into smaller destinations in Africa by making Cape Town and Johannesburg hubs.
Schussler added that government needed to bring in experts to see what could be done at SAA and noted that this needed to be done as quickly as possible as the airline’s own forecasts showed that it would not be profitable until at least 2021.
“State-owned airlines are so yesterday and are mainly only pushed as hard by governments in Africa,” he said. “Most of Europe have freed up their airlines from government involvement – except in cases like Air Italia and look at the trouble they’ve been through.
“In Latin America there are already more private airlines than state-run ones, so there is really no need for South African government to have its own airline.”