The desperately urgent need to restructure and return to viability South Africa’s State-owned Enterprises (SOEs) has taken on great prominence in the post-State Capture era. Perhaps none is more prominent of course than Eskom our debt ridden, incompetently managed and seemingly chronically corrupt electrical utility that continues to threaten to cripple our national economy.
While South African Airways (SAA) may be a whole lot less encumbered by debt, it struggles to stay afloat (or should that be airborne!) as a going business concern. Many commentators have called for the State to dispose of this non-core SOE to the private sector, after all what business does a government have running its own airline? But is it that clear cut?
Ethiopian Airlines, also a SOE, has recently been in the news following the now much reported crash just after take-off from Bole Airport in Addis Ababa of an almost brand new Boeing 737 Max 8 aircraft. The tragic loss of all 157 souls on board prompted some early reports to focus in on the fact that it was an ETHIOPIAN airliner calling into almost immediate question the airline’s safety record, the competence of its pilots and so on, questions by the way that might not have been asked had it been an American Airlines, or British Airways, aircraft!
What the sadly unwanted media coverage of the crash brought into sharp relief is the fact that Ethiopian Airlines is a highly successful, well-managed and profitable airline that is also Africa’s biggest with one of the world’s youngest fleet of aircraft, and, yes, it is also state-owned. Food for thought! SAA used to be able to lay claim to being the continent’s biggest and best airline but sadly those days are gone.
In the past five years Ethiopian Airlines has experienced rapid and sustained growth, doubling its passenger number and increasing profits five-fold (around R3 billion last year). In the same period, SAA has lost around 300 000 passengers and posted losses every year in that period amounting to around R12 billion. Ethiopian’s fleet size has nearly doubled in the same period to almost 90 aircraft while SAAs has remained little changed at just over 60 – resulting in an average age per aircraft in the fleet of 5 years for Ethiopian Airlines and over 10 years for SAA. Ethiopian Airlines flies to almost three times as many destinations as SAA and it flies almost three times the cargo tonnage that SAA does. Tellingly though, both airlines employ around 11 000 people.
That SAA is run by people who are out of touch is perhaps reflected in the way the airline positions itself as a contributor to our national development agenda rather than being explicitly and overtly concerned about its financial sustainability and operational efficiency as an airline. Ethiopian does, and by focusing on a vision for the development of the business itself, that airline is blossoming while ours is, figuratively at least, in a nose dive that none of its flight crew, not even its recently exposed “fake pilot” will be able to prevent it from crashing and burning. Not without either more massive subsidy from the State, or, a genuine business turnaround.
What prospects of a turnaround? SAA has had seven, yes seven, CEOs in the past ten years. The airline is bedevilled by a toxic mix of flat revenues, rising operational costs and therefore ongoing and unsustainable losses. Add to that a lack of competent and strong leadership, that endemic plague of corruption and effectively no vision and the signs are worrying.
But on the positive side, SAA remains in the top seventy airlines in the world in terms of the size of the business. It retains relatively good infrastructure, a reasonable market position and a decent local, regional and international route network. But it needs to consolidate. It needs to be run as a business and not as an arm of government where politicians use it as their free carrier. It must be run in future by airline industry professionals working towards a clear vision to rescue and develop the business and not to achieve some lofty political goals that management thinks the shareholder wants to hear. Surely to goodness by now, the powers that be have realised that SAA is not a strategic asset, it is a potentially crushing liability.
SAA must be weaned off its dependence on government bailouts and if private equity is needed to develop the business then so be it. If necessary, let’s look at Ethiopian Airlines as a model and emulate them. Being Africa’s number one airline might be nice but being a solvent one that doesn’t burden a State already burdened with such pressing developmental priorities is much more important. Our country cannot afford SAA to fail but a failed SAA could be one of the steps along the way to a failed fiscus.