Why Debt-Ridden South African Airways’ CEO Resign

South African Airways’ sometimes-controversial CEO, Vuyani Jarana, has resigned. When the news broke on Sunday, many were caught by surprise, perhaps because it follows only a week after the resignation of another state-owned enterprise (SOE) CEO, Eskom’s Phakamani Hadebe. The continued failures and bailouts of both SAA and Eskom are well documented. Jarana’s resignation points to systemic problems at the state-owned airline—and there is no logical or moral reason to keep this particular SOE afloat. There is little point in bringing in a new CEO at this point. The only legitimate reason would be to appoint a new person so that he or she can close SAA down. SAA’s time has run out.

SAA and Eskom, combined, have an outstanding debt close to R500bn. The financial risk Eskom and SAA present to the economy is massive and hangs like the sword of Damocles over our heads. The longer the government keeps them afloat with taxpayer-funded bailouts, the more the financial pressure increases. When added to other misguided policies that discourage economic growth, and higher taxes that are driving more people to leave the country, there is absolutely no reason for the government to continue to spend its dwindling funds on a national airline. It is a moral imperative that Minister of Public Enterprises, Pravin Gordhan, shuts off the flow of money from taxpayers to SAA. But does he have the political and ideological will?

According to BusinessLive, Jarana cited slow decision-making and red tape at the airline, among other problems, as well as blurred lines of accountability as reasons for his resignation. Perhaps he wasn’t warned before he assumed the role, that such conditions come as part and parcel with working at an SOE. Could anyone in business be so unfamiliar with the number of hoops you must jump through to get anything done when the government is involved? It appears that government over-regulates not only the private sector, but its own ‘companies’ as well.

Fin24 provided a complete list of the 10 reasons for Jarana’s resignation, all symptoms of the underlying state control. These were: uncertainty about funding, no government buy-in, delayed decision making, blurred lines of accountability, lack of trust, depleting funding, no budget allocations for SAA, rising debt levels, long term turnaround strategy at risk, and internally created problems. We can also add to this list: massive overstaffing, a dwindling skills base, and corruption. If you didn’t have a grim picture of SAA in your mind already, Jarana’s concerns should provide you with clarity.

The profit motive provides a very strong uniting and guiding force in private business and enterprise – no such incentive exists at an SOE. Despite repeated turn-around strategies (the ninth strategy in little over a decade began in 2017), and billions in bailouts over the years, SAA hasn’t been profitable since 2011.

If SAA had been a private company, it would have been forced to shut its doors long ago due to its operational and financial mistakes. But because those in charge at SAA know they can make mistake after mistake and remain in operation, thanks to government bailouts, there is no real incentive to reform structures or to base decisions on market conditions. Government and SOE managers, including SAA, do not feel any need to concern themselves with such harsh economic realities as supply and demand, market trends, or the changing behavior of customers. Because of this, it is not in the nature of any SOE to be efficient and profitable since the state will always be in control of the decision-making of these ‘companies.’

Private airlines such as Comair, SA Airlink, and various international airlines, are ready to step in and provide customers with the service and options they desire. US carrier, United Airlines, recently announced a new direct service between New York and Cape Town. Tourists want to come to SA and spend their money, and by doing away with the government-backed dinosaur that is SAA, huge parts of the SA aviation market could be opened to competition. It is archaic thinking to believe that the state should run an airline, or, almost as bad, have a majority stake in an airline.

According to Financial Mail deputy editor Sikonathi Mantshantsha, the government has given SAA R50bn of taxpayers’ money since 2007. Pride in SAA is government’s reason to justify its continued bailouts, but a good look at its books should change that view. SAA’s reliance on taxpayer bailouts does not justify any pride or respect. Gordhan must not just appoint a new CEO at SAA with the mandate to turn things around. Because of its very nature, the changing market and consumer trends and behaviors, SAA can never be turned around.

Chris Hattingh is a Researcher at the Free Market Foundation

Photo Credit: Gallo Images/Rapport