SAA, Eskom – a cleansing wind blasts through parastatals

Some very fresh air appeared in South Africa on Wednesday 18 October. Former Eskom CEO Brian Dames gave revealing testimony to the parliamentary hearings on Eskom and finally disastrous SAA chairman Dudu Myeni has been given the order of the boot.

Brian Dames was the last credible leader at Eskom. A highly qualified engineer, Dames gave his all to the utility and was primarily responsible for bringing it back from the brink of disaster under previous regimes headed up by Thulani Gcabashe and Jacob Maroga. Gcabashe systematically sweated the Eskom assets (including coal) to the point where the system was in a desperate situation when he handed over to Maroga in mid-2007. Maroga quickly grasped the severity of the situation but was unable or unwilling to do much to rectify it. At the height of the power crisis in January 2008, Kendal power station (then one of the world’s largest coal-fired power plants) had approximately half a day’s coal supply left.

One of the first things that Dames achieved was the restoration of decent coal supplies at the Eskom power stations. If he can accused of anything, it was that he was TOO successful. It is clear with the benefit of hindsight that Eskom CEO appointees were not expected to run a tight ship; au contraire, they were supposed to be compliant stooges for the benefit of the agents of state capture.

During Dames’ testimony yesterday, it was clear that he was (and remains) his own man. He was not going to capitulate to demands to do what was expected of him in terms of state capture. And that is why he left. Dames is a man of great integrity and his testimony can be believed. He stated that nuclear has no place in the Eskom mix and is a big supporter of renewable energy.

Fast forward to today, and observe the mess that is Eskom now. The utility is desperately attempting to put out fires on many fronts, but the cruel irony is that it no longer has to worry about the impact of load-shedding (Eskom-speak for rolling power cuts). And this situation is largely the result of greatly diminished demand, coupled with significant new supply coming onstream.

Nobody really knows how Eskom will fare in the next five to ten years. To be sure, it is a strategic asset and will still be in existence in future, even if it is broken up into component parts such as production, transmission and distribution.
The same cannot be said of SAA, which is definitely NOT a strategic asset. Back in the bad old apartheid era, SAA served a useful propaganda role, flying the flag of the apartheid state in far flung corners of the world. It was never meant to make a profit and that was never the reason for its existence.

Today, SAA is a dinosaur and not even a healthy one. It has no strategic reason to exist; many countries around the world have long ago privatised their formerly state-owned airlines and they are now mostly successfully run by professional boards. Dudu Myeni was the most recent in a long line of hopeless SAA board members that presided over the airline’s demise. And while we should rejoice that she has at long last been booted, it is at best a pyrrhic victory, as the chances for any sustainable recovery in SAA’s fortunes appear exceptionally dim.

SAA, like Australia’s Qantas, is what is referred to in airline parlance as “an end of the line airline”. In other words, foreign visitors use SAA to arrive here as an end in itself and do not tend to see SA as a springboard into other countries in Africa or elsewhere. This is in direct contrast to both Kenya Airways and Ethiopian Airlines – both profitable Africa airlines – and which operate as “hub” airlines, offering their passengers the opportunity to travel extensively within and outwith the African continent.

SAA’s ventures into the rest of the African continent have not been undertaken with passenger interests at heart. They have instead concentrated on squeezing the consumer as far as possible, using monopoly status on certain routes to the airline’s  advantage.

But their ability to carry on with this type of anti-competitive behaviour is rapidly coming to an end. Entrepreneurial operations like Fastjet are now offering cheap flights to many parts of the African continent and are growing by the day.
Can SAA be salvaged, even by ditching Myeni and reconstituting the SAA board? In its current form, probably not. Given the huge financial baggage that SAA carries (approximately R24bn in accumulated bailouts and loans) it could only be given away. By streamlining the airline, for example by cutting back international routes to the bare minimum, by ceasing to operate in the domestic sector and by closing down or selling off Mango, SAA might conceivably get back to some sort of operational profitability. But in that form, its attraction for a private operator would be highly questionable. Throwing any more good money after bad in terms of potential future bailouts makes no sense and we wait with baited breath to see what Minister of Finance Malusi Gigaba has to say about SAA in his medium-term budget policy statement next Wednesday.

Be the first to comment on "SAA, Eskom – a cleansing wind blasts through parastatals"

Leave a comment