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September 2018

August 15, 2018

The arguments for and against privatisation of airlines are often ideologically driven, but let’s put ideology and national pride aside for a minute and look at the practicalities.

Those who argue that airlines should be state-owned have several good arguments – most notably, that if airlines are operated purely for the annual statement’s bottom line, then they will chase short term profits, often at the expense of long term benefits, such as providing trade links to key trading countries. These create value for the country as a whole – not just the airline.  Or on a smaller scale, providing essential air transport connectivity to small towns that may not be big enough to be a profitable airline route, but which would wither and die if they don’t have a reliable air transport connection. Thus it is argued that air transport is a basic service such as road and rail transport, and so should be provided by the state.

However, the counter arguments to state ownership are equally strong – that airlines are capital intensive businesses with very small margins and there is simply no room for a developmental agenda or any other inefficiencies.

The debate on whether or not a state airline should be privatised lurks like an elephant in the room every time a struggling state-owned airline asks taxpayers for a bailout. But it has once again come to centre stage in the debate over the future of South African Airways.

The latest management team has demanded an enormous R21.7 billion additional money before it can be turned around. They are asking the tax payer to believe that this time around it will be different, and that despite 10 previous failed attempts to make the airline profitable, they can still pull it off. And this despite a far more difficult trading environment than in the past.

Fearing for its members’ jobs if the airline does not succeed, trade union Solidarity threatened to force the airline into business rescue. To his credit, SAA CEO Vuyani Jarana sat down with Solidarity and agreed a compromise – that he would expedite the search for a buyer for the airline – and thus essentially privatise it.

However, the reality is that this is not going to happen. The Air Services Licensing Council limits non-resident ownership of South African airlines to 25% and no foreign airline is conceivably going to invest billions of Rands into an airline of which it has at best, a minority non-controlling share.

Jarana has said that if necessary, the Air Services Licencing Act must be changed to allow for a 51% or greater shareholding of local airlines. But there is no sign of any movement to actually change the legislation. So South Africans are stuck with 100% of their disastrously loss-making airline and will have to hope and pray that this time around it will miraculously be different. Even with R21.7 Billion to burn through to do it, it’s a frightening and tough task.






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