Mboweni has lost the battle with SAA – and now we face the consequences: analyst

President Cyril Ramaphosa has selected the Department of Public Enterprises’ (DPE) line on South African Airways (SAA) above National Treasury, says Intellidex analyst Peter Attard Montalto – and now the country has to face the consequences of this decision.

The DPE on Friday (18 September), announced that the government will reprioritise funds to finalise the restructuring of SAA and the implementation of the airline’s business rescue plan. This will be done through an Adjustments Appropriation Bill, which will be introduced in Parliament “soon”, it said.

“The national carrier will not be liquidated,” it said. “Because the restructuring process should be brought closer to finalisation in the next few weeks, lending institutions will be requested to finance the restructuring process and honour commitments for voluntary severance packages and retrenchment.”

Government will sort out where to find the more than R10 billion needed for the restructuring of SAA and start of the ‘new’ SAA, public enterprises minister Pravin Gordhan told Bloomberg. He said that government’s commitment is clear, and that meetings in the coming week will resolve “the money issue”.

To avoid liquidation, SAA and the DPE need a lot of things to go right: they need cabinet approval this week for around R10.4 billion in funding; bank bridge financing to SAA (guaranteed by sovereign) until the end of the year; a strategic equity partner deal to be secured in October; and the mid-term budget to reprioritise funding to bail out the airline.

According to Attard Montalto, not only does this leave a lot of room for failure on any one of those points, the long-term consequences of this situation appear to have been skipped over by officials.

These include:

  • Growing state credibility issues;
  • SAA being a long-term drain on the fiscus;
  • Finance minister Tito Mboweni possibly calling it quits;
  • Future IMF/World Bank loans at risk;
  • Government shooting itself in the foot over the wage bill.

First and foremost, the situation draws attention to government’s ongoing credibility issues, he said.

“Despite continual reassurances from National Treasury that it would not be giving any more to SAA, it has lost the battle and must hand over the cash,” the analyst said. “The reassurances from Treasury to the market were highly specific and so are quite clearly broken.”

This also makes Treasury look bad in the eyes of ratings agencies, which were given assurances that the South African government would not continuously bail out failing state companies, he said.

Continued drain

The bailout also now flies in the face of South Africa’s Covid-19 recovery strategy, which is being talked up as the priority in the country at the moment.

While president Ramaphosa assured South Africans that the government has long-term strategies to counter the damage done by lockdown and the Covid pandemic, he has now simultaneously approved a bailout of a state airline which is set to be a long-term drain on the economy.

“We should remember that there is already R16.4 billion for this year and the coming two on the fiscus for SAA to repay guaranteed creditors,” Attard Montalto noted.

“Add in then that SAA will need additional money for the recapitalisation of subsidiaries (around R2.3 billion), around R14 billion to cover losses in the first three fiscal years in the business plan, and then is never seen making a profit – so will need a few billion every five years or so – and we can see this remains a never-ending drain.”

This has added consequences for government’s position on the public wage bill, he said.

Government has held that it simply cannot spare any more money to pay increases wages for public sector workers, or to honour previous agreements on this. However, it is now showing that, given enough political will, it is possible to move budgets around to find money to pay for something like an SAA bailout.

If this is argued successfully in court, unions could see a victory on the wage bill issue which would see around R32 billion in back-pay owed, and put government on the hook for another R82 billion in future increases.

Mboweni-exit?

All of these pressures, and apparent lack of support from the top, could see Mboweni call it quits, Attard Montalto warned. Mboweni has in the past expressed his view that SAA should be closed.

“The minister has pledged to not fund SAA so clearly since the time he came to office, that there are clearly problems matching up now. The question really comes of what one fights for in the role after losing this battle?”

The minister previously dismissed rumours that he was resigning from his position, saying he was “firmly here”, with much work to do.

The Democratic Alliance has emerged as one of the biggest critics of Mboweni and the SAA affair, saying that it has now become clear that minister does not have the support of the president to do what needs to be done to protect the economy.

“With less than a month left before the Medium Term Budget Policy Statement, it will be impossible for Mboweni to speak about public expenditure reduction when it is clear that he no longer has the full support of President Cyril Ramaphosa and the Cabinet to achieve this objective,” the party said.

Responding to the DA’s criticism that he was a ‘lame duck’, the minister said that certain decisions have to be made in the national interest, even if he does not agree with them.

“In politics you have to be a team member. You won’t like every decision, but work through issues based on what is in the National Interest,” he said. “Dogma is unhelpful in politics. You will lose many battles along the way, but don’t lose any wars.”


Read: Not shutting down SAA will cost taxpayers: Outa

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Mboweni has lost the battle with SAA – and now we face the consequences: analyst