South African Airways (SAA) was at the centre of the state capture scandal, sucking up billions of rands of taxpayers’ funds under former President Jacob Zuma’s friend Dudu Myeni. Corruption and mismanagement have played a key role in pushing SAA towards collapse. The finger of blame has been pointed at the government, and in particular fêted former finance minister Pravin Gordhan, now minister of public enterprises, for allowing the airline to crumble through failure to take action against corrupt ANC-aligned individuals. Although many believe SAA should die, there is a case for resuscitating it. In this podcast with BizNews editor-in-chief Alec Hogg, Forensics for Justice founder Paul O’Sullivan, market watcher David Shapiro and GG Alcock – an expert on informal economies – share many reasons why SAA should be kept going in the interests of the country. – Jackie Cameron
Paul O’Sullivan has been very outspoken about the closing down of South African Airways. The piece that you wrote last week that we published on BizNews, Paul, you have been pretty vociferous about what has happened at SAA, saying that the country should not kill it because of the corruption that Zuptoid has put forward and in particular the former chairman Dudu Myeni. Have you had much response to that?
Yes, I’ve had a lot of response, and I anticipated some of it. A lot of people are in favour of keeping the airline, a lot of people think it’s a drain on resources and should go. I think some of it’s quite shortsighted, they don’t realise the cost of liquidating that airline.
We believe there was a Cabinet meeting last week at which the Minister of Public Enterprises Pravin Gordhan who comes in for quite a lot of stick in your piece, actually did propose the closing down of the airline.
I’m not privy to what’s going on in Cabinet, I don’t think anybody is other than the Cabinet members themselves. Clearly it’s not as clear cut as people think. You can’t just shut a national airline. They reckon for somewhere between 40% and 50% of the income of ACSA, they bring tourists into the country from long haul destinations and those destinations are very important to South Africa. The tourism industry itself, the hospitality industry accounts for millions of jobs and there’s virtually no competition in the long haul market if South African Airways are closed down. People will be able to fly from America, the UK and those destinations but there’ll be no competition so the prices will go up. The after effects will be a reduced number of tourists.
You did tackle Pravin Gordhan in July 2016 on the whole issue of the way South African Airways was being managed at that point. Just take us through that interaction.
Dudu Myeni was still the chairman of South African Airways at that stage and I asked Pravin Gordhan straight out, when is he going to deal with the corruption that’s taking place at South African Airways. I was particularly concerned about Dudu Myeni, he made a statement that South African Airways would be dealt with by the introduction of board members. The problem is he kept Dudu Myeni in place for further 16 months to finish off what she started, and clear off, out the back door without as much as any sanctions whatsoever being applied there. In 16 months you can wreak a lot of damage in that time and she did.
Was it politically possible though for him to do anything about it?
Okay, if one looked at what happened at the Zondo Commission, Pravin Gordhan was very outspoken about how his hands were tied and this was going on and that was going on. What he singularly failed to do was to go and open a criminal docket. Act 12 of 2004, which is the anti-corruption legislation makes it clear that if you’re in a position where you know this corruption going on you are obliged to report it to the authorities that didn’t happen.
David Shapiro come in here for a minute, Pravin Gordhan is almost like a saint in many ways in South Africa. Here we’ve got somebody saying, he needs to be called to account?
To an extent I agree with Paul. I made a comment last week on TV about where we used to be with SAA. It had an enormously good brand in Africa, not only in Africa but in the world. It was a top airline, we had the best pilots, we were known for our technical excellence. The big concern as Paul correctly said, there’s an ecosystem around every little business, even a mineshaft has businesses around the mineshaft that rely on it from schools to doctors and so on. If you consider what this means for SAA, for all the other businesses that are associated with bringing in tourists or seeing traffic. That has to be replaced. Who’s going to come in and fill the gap that exists. There has to be a way around this but to a large extent this has been our own making. We’ve scored a lot of goals and one has to also now work out what’s the cost. What can we do to resurrect it. The London, New York and other routes there can’t just be given away and also the domestic routes. I’m a bit surprised that they’re just going to close it down and just sack 9,000 odd individuals and with that comes another 2,000 that are going to lose their jobs from catering and so on. There has to be a plan B other than just simply closing it down.
Paul, is there any plan B that looks possible?
There’s no doubt that the airline as it currently stands needs to be fully restructured. That process needs to take account of the fact that routes for example like Johannesburg to London one of the most lucrative airline routes in the world, it’s not my job to dictate what happens but the logical thing to do is to cancel the loss making routes and repair it back to an airline that’s only focused on delivering good service on the lucrative routes, the money making routes. If that means they have to lay off some equipment, then lay off their equipment. If it means they have to lay off some staff, unfortunately those staff will have to be laid off. That surely has to be far better than liquidating a company that will have a devastating effect on the economy of the country.
GG (Alcock), I’d love to get your take on this given that you are so close to the informal sector and that the argument has been that it only benefits rich people so let’s get rid of it?
To a certain level it does benefit the rich in terms of flying on the airline, but I think we have to look at the ecosystem. I’m a really big believer in the fact that we have to look at the total economic ecosystem. From the informal sector perspective the person who earns the income from SAA goes home and buys a quarter or goes to get their hair done at the hair salon and so on and so forth. I think that the ripple effects are far beyond just the formerly employed people to make it retrench. It’s really about how that travels through the entire system. From an informal sector perspective, to a large extent you’re talking communities so you know people who are employed in the community serve a very powerful function within those township communities. My feeling would be that we need to measure the impact much more than the jobs that would be lost. It’s the trickle through to the rest of the economy and rather reduce salaries rather than remove them completely.
David, it does appear as though things are very complex in this world of ours today and sometimes we lose sight of that. Retrench 9,000 people, shutter SAA and the problem will go away, but you might have a multiplier effect which is very negative.
It’s exactly that. Immediately what comes to mind is Bidvest, who services all the aircraft, buses the people to the various aircraft – someone to fill that gap. It’ll be BA, it’ll be Virgin, it’ll be Etihad, all of those companies will come in and double their lines and the profits will not flow to the country, it will flow outside. Of course they will create jobs there. People will travel and we’re going to go back, maybe a month or two, but they will travel. I think that there’s got to be some kind of plan devised that’s going to either privatise SAA in a different kind of way but something has to be done. These are the supply chains that we don’t understand, that actually drive the global economy. In the informal sector, just think of the number of taxi drivers, people who wield your baggage. Someone will fill the gap, we’ve got to consider that, we’ve got to take that into account. We can’t just close it down.
Paul, getting back to that very hard hitting article. I know there were 50,000 people who read it on the first day. Have you had much reaction to what were some pretty outspoken opinions?
At the end of the day no matter where you are in the hierarchy in the government, if you’re aware of wrongdoing it has to be dealt with. Unfortunately for a number of years even those that are now seen as being on the right side of the fence in government, were on the wrong side of the fence and they didn’t do anything about it. The legal obligations imposed are quite clear and it’s not as if there were no warnings given. We first opened a docket against Dudu Myeni in March 2015 and we made it clear in our opinion she was running the airline into the ground. We opened another docket in January 2016. In July 2016, when Pravin Gordhan gave the presentation at an Ernest&Young Business Breakfast the question was put solidly to him, What are you doing about stopping the rot at South African Airways? The answer was nothing more than a fob-off answer, and as I said this woman carried on for a further 16 months in office and brought the airline to its knees. The economics of running an airline are not the sort of thing that should be entrusted to somebody that is best qualified to teach primary school children and I think that was a problem from the get go. People were appointed to run the airline and it dissipated or got rid of some of the key talent that South African Airways built over a number of years. You’re left with this airline being hollowed out with a lack of good quality skills because the people weren’t prepared to sing and dance to the tune of Dudu Myeni. Now the chickens have come home to roost and the airline is on its knees. The solution has to restructure the airline. Get it up and running in a profitable manner, then grow it organically when time is right in the marketplace. Bring it back to basics, get the number of staff and equipment levels down and start with a reduced market.
Paul O’Sullivan talking to us from far away. Lovely as always to have that conversation with him and useful insights there on an alternative proposal to South African Airways. I must admit David we’re getting quite a lot of feedback from the BizNews community including some captains of South African Airways, one of whom actually went on the record to say okay we know that it’s not working in its current form but don’t throw the baby out with the bathwater.
That’s what the whole business rescue exercise was supposed to be. Rescue the business. They bleed it down, they are so short of money at the moment and so desperate that they can’t afford to take the next step. We’ve been hit now by this Covid-19 where there’s no travel at all. It’s just exacerbated the situation. I agree, don’t let this die. I understand bad business, but this has got such a strong brand name, it’s like closing Coca-Cola. The brand is strong enough to stand on its own you just need to refinance it. We did have that technical excellence, we did have the good people who are still around somewhere working for all the other airlines. Bring them home.