Finance minister Tito Mboweni has urged the government to close loss-making South African Airways as he looks to cut state spending amid a deteriorating economic climate.
“It’s loss-making, we are unlikely to sort out the situation, so my view would be close it down,” Mboweni told an investor conference in New York. “Why I say close it down is because it’s unlikely that you are going to find any private sector equity partner who will come join this asset,” Mboweni added.
The closure or privatisation of the loss-making national carrier are two of the options facing the ANC as it looks to restructure inefficient state-owned enterprises which have fallen into disrepair and become a drain on state spending. South Africa’s public deficit is expected to widen to over 4% this year, sparking fears of a credit downgrade.
Mboweni is one of most senior ANC figures yet to call for the closure of the airline, which lies outside his remit under Pravin Gordhan’s Department of Public Enterprises. The finance minister is known as a maverick unafraid to share controversial opinions even when they conflict with official ANC policy, which has previously supported the continued operation of the once-prestigious flag carrier.
SAA is currently undergoing a turnaround strategy under the leadership of CEO Vuyani Jarana as it aims to reverse years of losses and falling passenger numbers. The airline is targeting a return to break-even status by 2022, having failed to make a profit since 2011. The firm intends to rearrange its route network and cut thousands of staff in a bid to return to profitability, but admits that it will require R21bn in extra government financing to realise its turnaround strategy.
While the government has discussed further financial support and endorsed the strategy, there is significant debate over the airline’s ability to adopt a commercial mindset and thrive in a competitive sector dominated by private sector operators. The airline has already received $2bn in government support since 2012 with little positive and lasting impact.
The precipitous decline of the airline began under the administration of former South African President Jacob Zuma. In common with several of the country’s state-owned enterprises, SAA gained a reputation for wasteful spending and cronyism. The board was accused of pursuing inappropriate deals for aircraft, while senior leadership roles were allegedly offered to politically-connected allies of the President. The President denies wrongdoing.
Since the election of Cyril Ramaphosa earlier this year, several executives have been replaced. Yet some experts believe that the airline is too much of a burden on the state and is unlikely to improve enough to warrant further financial support. “With the financial commitments it has as at the moment one might as well look at other options like shutting it down and starting up a smaller thing that can be owner controlled from the word go,” transport economist Joachim Vermooten told African Business in October.