In the quagmire of failed state-owned airlines, SA Express, now in provisional liquidation, is to be saved from final liquidation.
The liquidators have approved a bid by Fly-SAX to save the airline after 26 years of operation. The company serves the smaller cities.
Fly-SAX was founded and is managed by some SA Express employees. The company was founded in August 2020.
Fly-SAX will have to raise at least R250 million to buy the airline and then provide further capital to restart it.
Without wanting to cast doubt on the proposed bid, it is interesting to note that no money has been provided by Fly-SAX in the bidding process. The process, however, attracted at least 17 private-sector investors who wanted to purchase either SA Express’s entire operations or its aviation assets.
Fly-SAX’s bid was successful because it apparently ‘seeks to empower SA Express’s 691 workers who are said to be at the centre of the airline’s future ownership model – and not the state,’ according to Daily Maverick.
Fly-SAX teamed up with Uprise.Africa, which calls itself a ‘crowdfunding, private-equity platform’. The funds will be used to pay SA Express creditors and restart the airline’s now-grounded operations.
The bid is still subject to crucial conditions: demonstrating that it can inject capital into the airline and getting approval from the sole shareholder, the Department of Public Enterprises.
Businessman Theunis Crous, who was also in the running to buy SA Express, has now been ‘ejected’ from the bidding process. Crous’s Fly Modern Ark tabled a buyout offer of R100-million.
The reasons for the rejection are not clear. Crous said he was weighing his options, which might include legally challenging the liquidators’ decision to reject his offer.
Obsession
Unfortunate as it might be, ‘empowering 691 workers’ does not provide sufficient reason to accept a bid for an airline that has no money but hopes to achieve it through ‘crowdfunding’. This obsession with retaining the employment of people over everything else is indicative of the reasons why the public sector fails repeatedly. In any restructuring process retrenchments have to be put on the table and, where possible, limited.
But in spite of everything the government and Public Enterprises Minister, Pravin Gordhan, aim to do with the airline industry, these are vanity projects catering to the needs of the rich, not the poor. In fact, they come at the expense of the poor.
Carol Paton reports in Business Day that, now that the Treasury has agreed to give the R10.5 billion needed to restart SAA, trade unions amongst others are concerned that the funding will come from cuts to pro-poor spending on public employment programmes and the passenger rail system.
The Treasury was working on the adjustment budget for October when it received the instruction last week to prioritise the funding for SAA. The cabinet has agreed that the R10.5bn must be raised in ‘a fiscally neutral way’ and cannot add to the overall debt burden.
In February, the Treasury cut R260bn from the baseline budgets of departments, of which R156bn was cut altogether and another R111bn was reprioritised. In June, another R100bn was cut from departmental budgets and moved to areas to support the Covid-19 relief effort.
Adjustment budget
More cuts would be required in October’s adjustment budget to cater for the R10.5bn for SAA.
‘There is speculation that the Treasury has its eye on the R19.6bn line item in the supplementary budget, which was allocated for employment support as part of the R500bn Covid-19 support package.’
The allocation is to fund a programme of mass public employment, which is being developed by the Presidency, to cushion the impact of the pandemic and lockdown on job losses.
The plan proposes the creation of one million job opportunities in three years. The fact that this programme is unlikely to be a great success doesn’t mean that SAA should benefit.
With the money not firmly attached to departmental budgets yet and the programme not yet in operation, the R19.6bn is in the firing line for reprioritisation.
A second area with a budget allocation that is vulnerable to re-appropriation is the Passenger Rail Agency of SA (Prasa). In February the agency had an accumulated capital budget of R12bn. Also in February, it lost R8.5bn of this to other departments.
Train services are suspended on several major lines due to theft and vandalism and the neglect of infrastructure. And, one would argue, a lack of management capacity and corruption.
Cosatu supports funding for SAA, but said it would reject any attempt to take money from Prasa to fund SAA. ‘We do want SAA to be funded but we don’t want the money to be taken out from a mode of transport that services the poor,’ said spokesperson Sizwe Pamla.
Fiscal planning
This in a nutshell supports the view that the trade union movement’s role in fiscal planning for the economy should not be equivalent to that of government and business.
Trade unions neither create businesses nor concomitant jobs: it is not their function. Their primary function is to protect their members who are in employment. They have little role to play in the creation of employment and therefore shouldn’t be regarded as an equal partner in policy development.
The public sector unions don’t accept that restructuring of any entity may require retrenchments. They also demonstrate a classical have-my-cake-and-eat-it philosophy. Cosatu supports funding the elite, vanity project that is SAA but rejects the idea that a source of funding could be passenger train services which serve the poor.
SAA should be the last of Cosatu’s concerns; Prasa however should be of great concern.
It will be interesting to see if there’s any reaction from the International Monetary Fund, which is providing Covid-19 funding on the expectation that the government will become fiscally prudent. The desperation to exclude the private sector from the rescue of these entities will require some explaining by government.
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