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South Africa’s SAA has another headache: A growing salary bill

By Xolisa Phillip, in Johannesburg
Posted on Friday, 27 November 2020 14:03

south africa SAA
Passengers board a South African Airways plane at the Port Elizabeth International Airport in the Eastern Cape province, South Africa, September 30, 2018. REUTERS/Siphiwe Sibeko

South African Airways (SAA) staff are on course to become one of the national carrier’s biggest creditors as its bills pile on while sources of funding have dried up.  

The flagship airline, which is in business rescue, is awaiting R10.5bn ($686m) in government funding to trigger the start of a new, leaner operation.

However, the funds, which have been provisioned in the official budgeting process, are only scheduled to flow to SAA’s business rescue practitioners (BRPs) in January 2021.

READ MORE South Africa: Fight to death for SAA  

Interim funding to tide the airline over until January is yet to materialise. In its absence, SAA’s debt is rising, including an outstanding salary bill.

“We haven’t received any money yet,” Louise Brugman, spokesperson for the BRPs, tells The Africa Report.

That effectively means the airline’s salary bill for employees who remain on its books keeps rising every month. This cohort has now become one of the carrier’s bigger creditors.  Added to that are trade creditors, whose fees are ballooning with each passing month.

SAA is currently not operating any flights, despite South Africa reopening its borders for international travel.

READ MORE SAA: Will Mboweni loosen purse strings to rescue South African Airways?

The national carrier’s fate has been the subject of intense debate within and without government, its most vociferous opponent being finance minister Tito Mboweni. Its most prominent proponent is his counterpart, Pravin Gordhan, the minister of public enterprises.

Mboweni raised eyebrows this week when he unceremoniously opened a debate on social media about the future of SAA. Although the finance minister has made no secret about the fact that he is not in favour of a national carrier, the consensus in cabinet runs contrary.

The latter view has prevailed.

When the funds eventually land, the BRPs will exit the business and give way to a new board and a new executive to run a significantly streamlined operation. Essentially, the business rescue plan is intended to address “the sins of the past,” according to Siviwe Dongwana, one of the BRPs.

SAA has been the recipient of successive state bailouts without much to show.

Many bailouts, zero outcomes

Dongwana said: “We are aware of the narrative that plagues SAA, which gave rise to what many refer to as ‘throwing money into a deep dark hole’.”

In the same breath, Dongwana concedes: “The government bailouts were given with no substantial changes to the massive overhead cost structure of the business, which included [an] above-average number of employees relative to industry norms and benchmarks.”

Between 2011 and 2019, the bailouts increased from R2bn to R12bn. During this period, the flagship carrier’s financing costs rose to R1.3bn a year. The R1.3bn went towards financing interest, instead of funding SAA’s operations.

“The bailouts were in the form of debt from commercial banks provided to the company on the back of government guarantees, effectively shareholder support,” said Dongwana.

Over the years, SAA has become synonymous with executive management instability and board interference in its operations.

Since 2010, the airline has had eight CEOs – both permanent and interim.

Although the department of public enterprises is on record saying it welcomes a suitable strategic equity partner (SEP) for the carrier, “it is common cause no SEP wants to deal with legacy issues, nor any potential investee for that matter,” Dongwana said.

Down, but not out of contention

Despite its myriad challenges, Dongwana believes there is a future for SAA.

For starters, the aviation industry remains vibrant even amid the COVID-19 pandemic. “There is a new entrant in the South African market, proof there is a business case for an airline,” says Dongwana.

In SAA’s case, the airline not only has a good route network, but it is also dominant in the African market. In addition, the national carrier has profitable landing slots at prime destinations. This enables it “to compete with other international commercial airlines.”

“Finally, there remains healthy demand for a full-service airline in the South African market. As a group, SAA and its subsidiary companies have the potential to be competitive in this market,” said Dongwana.

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