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01 September 2020 | Story Dr Cecile Duvenhage

Opinion article by Dr Cecile Duvenhage, Lecturer in the Department of Economics and Finance, University of the Free State

Awards and bailouts

The World Travel Awards recognised the state-owned enterprise (SOE), South African Airways (SAA), as Africa’s leading airline – every year from 1994 to 2015. However, behind the scenes, the flag carrier has repeatedly been given lifelines thanks to government guarantees. The last year that the SAA made a profit was in 2011.

Over the past decade, more than R16,5 billion in taxpayers' money was spent on bailouts for the airline. In the February 2020 budget, the government set aside R16,4 billion, of which R11,2 billion was for SAA’s debt-servicing costs. 

The SAA has been fighting for its survival since it entered into voluntary business rescue in December 2019 and is facing liquidation after specialists were appointed at the end of April 2020 to try to save the airline.  

How did SAA end up in this mess?

After the government deregulated the domestic airline industry in 1991, SAA lost its national market share (of 95%), especially to Comair and FlySafair. The airline was also hit on its African routes, where Ethiopian Airlines started to erode its competitive position. Theoretically speaking, deregulation breaks the market power of a monopoly, and inefficiency will put you out of business in a competitive environment. 

Add the component of poor management and suspect tenders (pertaining to the former SAA chairperson Dudu Myeni’s plan to buy several Airbus planes, sell them to a local company, and then lease the planes back), and debt starts to snowball. Additional poor management decisions include the desperate saving measures on essential expenditure, which led to the buying of ‘fake parts’. Unnecessary sponsorships (ATP tennis), given a tight budget, reflect poor management decisions by SAA. 

Surely, the weak rand played a role in the profitability of SAA, but also for the competitors who managed to survive due to efficient management. 

So, what are the cards on the table? 

The cards include liquidation, foreign direct investment (FDI), and a rescue package under Section 16 of the Public Finance Management Act (PFMA).

The liquidation of the airline will reduce future ongoing operational losses but will require the payment of creditors who rely on the so-called ‘implicit guarantee’ of ongoing funding by the state. Thus, debt claims cannot be avoided, as would be the case with conventional companies. Besides, there is no consensus regarding the liquidation cost – ranging from R2 billion to R60 billion.

Another card is the ‘restart’ of a new SAA, with a smaller international network. This airline needs to be financed by new investors, which might include large international airlines. In this case, the SA government will hold a minority stake, which requires a change of legislation to allow larger GDI into SA airlines. In attracting FDI, the SAA could be revived as a smaller international franchisee airline in cooperation with a larger international airline.

A further card is the option of using citizens’ pension as a business rescue package for the SAA under Section 16 of the Public Finance Management Act (PFMA). 

Section 16 of the Public Finance Management Act

The purpose of the PFMA is “(t)o regulate financial management in the national government and provincial governments; to ensure that all revenue, expenditure, assets and liabilities of those governments are managed efficiently and effectively; to provide for the responsibilities of persons entrusted with financial management in those governments; and to provide for matters connected therewith.”

In terms of Section 16 of the PFMA, the Minister can authorise the use of funds, including the National Revenue Fund (NRF), to finance expenditure of an ‘exceptional nature’ which is currently not provided for and which cannot, without serious prejudice to the ‘public interest’, be postponed to a future Parliamentary appropriation of funds.  

Thus, Section 16 allows the Minister of Finance to sidestep normal budgetary appropriation processes in an emergency to make money available for items of an ‘exceptional nature’ or unforeseen circumstances.

Exceptional and short-term orientated

Exceptional is synonymous with abnormal, atypical, and extraordinary. However, the improvement of the financial position of SAA through recapitalisation has been constantly on the government’s agenda since the February 2017 budget. Four months later (1 July 2017), the National Treasury published a media statement titled Government transfers funds from National Revenue Fund to South African Airways. The argument was that the SAA needed to be recapitalised to allow the airline to pay back its commitment to Standard Chartered Bank, thereby sidestepping a default.  

How exceptional is inefficiency and poor management over a period of ten years, and how biased would such a transfer decision be towards public interest (that favours transparency and accountability), can be asked?

According to the July 2017 media statement, “default by the airline would have prompted a call on the guarantee, leading to an outflow” (take note: not will lead to an outflow) from the NRF and possibly resulting in higher awareness of risk related to the rest of the SAA's guaranteed debt.

The statement also adds that several options have been explored and given the nature of the problems at the SAA, Section 16 of the PFMA “had to be used as the last resort”. According to Minister Mboweni, the government is currently also considering several options, including that the government retains a percentage of the issued share capital in the new airline, finding private equity or strategic partners to take up shareholding in the new SAA, or approaching international or local funding institutions. Of course, local funding institutions include the National Revenue Fund.


Thus, the government may – and possibly already has – partly fund the recapitalisation of the airline using the NRF. Accusations from the Democratic Alliance (DA), an opposition party, state that the former Finance Minister, Malusi Gigaba, used R3 billion of emergency provisions to recapitalise the SAA in 2017.

The DA recently requested confirmation whether the SA Minister of Finance, Tito Mboweni, had again made ‘unlawful’ use of Section 16 in committing to provide and disburse public money for the SAA’s restructuring. The DA also asked the court to interdict SAA and its rescue practitioners (Siviwe Dongwana and Les Matuson) from using the money by any means. The application for the interdict has in the meantime been withdrawn, given the government’s commitment not to use Section 16.

Minister Tito Mboweni’s cards

Although Mboweni indicated that he would protect the efforts of those “who work day and night to make a success of this country”, he is up against a loaded team of government, SAA, and rescue practitioners. The minister expressed a preference for closing the SAA down, but Cabinet has given its backing to a business rescue plan.

The minister recently said that he did not authorise the ‘use’ of funds from the NRF for emergency funding, although he did not exclude the possibility of approaching ‘institutions’ to invest pension funds for this purpose. 

The impact and implication of using NRF

What is in a name, a rose by any other name would smell as sweet? What is in a name, ‘using’, ‘investing’, or ‘mobilising’ pension funds? Do you smell a rose or a rat? Either way, it still boils down to the possibility of ‘getting access’ to the pension funds of hard-working SA citizens to bail out a straggling, poor-managed SOE.

Looking at the poor track record of the SAA and the bleak future of aviation in general (due to the global recession and impact of COVID-19), would an individual, conservative investor opt to invest in SAA? Only political allies making a political decision in their best interest, or aggressive investors being promised high returns on their investment, will take the bait. 

My next concern – will the new, restructured SAA be able to generate profit to remunerate the invested ‘institutions’, given that it currently has only five planes to fly? 
For a start, was the R3 billion emergency allocation (dated back to 2017) retrieved and paid back to the NRF? Hill-Lewis, representing the DA, argued that if the SAA had spent the funds (of 2020), the country and the public purse will be irreparably harmed. Thus, the money may not be retrieved, which will lead to anarchism in the country.

Most parties agree that the SAA remains a strategic asset to South Africa and to its role as the flag carrier, where it assists as an economic enabler with benefits across a wide range of economic activity. However, the parties do not agree on the finance model regarding the bailout of the SAA.

The new SAA needs to generate high profits in a competitive environment to be efficient and cost-effective in its management. Thus, the money need not be forthcoming from a future stream of ‘already recruited’ pension contributions of so-called ‘institutions’. If the latter is indeed the case regarding the generation of income, it reminds me of the activities associated with a pyramid scheme.

SAA, please do not fly us to doom.

News Archive

Centenary medals awarded
2004-10-15

Speech, Rector and Vice-Chancellor: Prof. Frederick Fourie

Op 28 Januarie 2004 het ons die honderdste herdenking van die geboorte van hier­die hoër onderwys instelling gevier met ‘n groot partytjie voor die Hoofgebou. Dit was ‘n wonderlike en vreugdevolle aand.

Die historiese prosessie tydens die amptelike opening van 6 Februarie 2004, in kleurvolle akademiese togas, vanaf ons wortels in Grey-Kollege tot by die Hoof­gebou, het die reistog vanaf die verlede na die hede treffend ge­simbo­liseer.

Talle ander eeufeesgeleenthede het gedurende hierdie jaar plaasgevind. Woensdagaand het ons die premiêre van ‘n dokumentêre film oor koning Moshoeshoe beleef – ‘n belangrike eeufeesprojek van die UV wat onder meer gemik is op die ontwikkeling van ‘ n gedeede geskiedenisbesef – a shared sense of history – and the celebration of a very special leadership, of a spirit of nation-building and reconciliation, in somebody like king Moshoeshoe (also MT Steyn and others…)

Last night we experienced a wonderful and moving honorary doctorary ceremony, with a wonderful group of South Africans like Khotso Mokhele, Antjie Krog, Jakes Gerwel, Van Zyl Slabbert, Jaap Steyn, Saleem Badat, and others - giving so much food for thought.

This evening, where we honour outstanding contributors to the development of this University, is a suitable moment to reflect on the course of the first 100 years of the University of the Free State.

1. ‘n Voëlvlug oor die geskiedenis: die vyf fases

1.1 Eerste fase: 1904 – 1927 (Eerste kwarteeu)

Eerste wankelende treë in die totstandkoming van die
Grey Universiteitskollege

Gedurende 1904 – 1920 word die eerste en mees basiese vakke in geestes- en natuurweten­skappe ingestel, eerste Senaat en eerste Raad saamgestel, en eerste geboue opgerig (hoofgebou en manskoshuis). Teen 1920 was daar egter slegs ongeveer 100 studente, die instelling was finansieel in die knyp, met geen vooruitgang en groei, en ook nie ‘n vaste rektor nie – klaar­blyk­lik was die GUK nog geen lewensvatbare instelling nie. Vrystaatse kinders word steeds eerder na ander universiteite gestuur.

Hierna maak ds JD Kestell, rektor 1920 – 1927, ‘n reuse bydrae om ‘n versukkelde, arm, klein universiteitskollege lewensvatbaat te kry. Hy slaag met fonds­insameling en oortuig Afrikaanse én Engelse ouers om hulle kinders na die GUK te stuur. Teen 1927, met 420 studente, word die eerste nederige mylpale van kritiese massa bereik te midde van ‘n steeds armoedige Vrystaat­se gemeenskap en ‘n studentekorps met gelapte klere. [Maar ook die tyd waarin die Reitz-saal, waarin hierdie plegtigheid plaasvind, gebou is.]

1.2 Second phase: 1927 – 1950 (Tweede kwarteeu)

The Grey University College becomes a fully fledged university

By 1950 the establishment of main basic and career-oriented faculties were completed – Faculty of Commerce in 1937; Faculty of Law as wel as the Faculty of Education in 1945. Student numbers reached 1000 in 1950.

Die UKOVS beleef en oorleef die Groot Depressie, die armblankevraagstuk, die Tweede Wêreldoorlog, taal- en politieke stryd onder Afrikaners, en die stryd van Nat vs Sap, ook op die kampus. Die tydperk word veral gestempel deur die taalstryd met DF Malherbe (rektor 1929 – 1934) as sterk kampvegter vir Afrikaans. Veral na 1948 volg rektor Van der Merwe Scholtz ‘n doelbewuste enkel­talige Afrikaanse rigting (Christelik-nasionaal).

1.3 Derde fase: 1950 – 1976 (Derde kwarteeu)

Ongekompliseerde groei ná onafhanklikheid

Hierdie periode word gestempel deur verkryging van onafhanklikheid as universiteit op 18 Maart 1950. Daarna beleef die UOVS onder rektore Scholtz, Flippie Groene­woud en Benedictus Kok stelselmatige groei sonder beduidende finansiële kommer. Die UV is duidelik ‘n Afrikaanse ‘volksuniversiteit’ op Christelik-nasionale grondslag, onlosmaaklik in­gebed in die dominante politieke bedeling van apartheid en afsonder­like ontwikke­ling. Dit is die hooggety van Afrikaner (en blanke) self­vertroue en heerskappy. Vir personeel sowel as studente is dit ‘n relatief onge­kom­­pliseerde tyd getipeer deur groeiende voor­spoed in die blanke en Afrikaanse gemeenskap, goeie werksvooruitsigte vir studente, kommer­lose studentepret, en min spanning op die kampus.

The academic focus is on teaching, especially to provide staff for the growing public service and education sectors. Research has a low profile. More career-oriented or professional faculties are established: agriculture in 1958 and the medical faculty in 1970. Student numbers reach 2000 in 1960, 4000 in 1970 en 7000 in 1975. Many new residences and academic buildings are erected, especially in the Kok-era.

Teen 1976 was die vernaamste boustene van ‘n medium-grootte universiteit in posisie: onafhanklikheid, genoeg fakulteite, genoeg koshuise en akademiese geboue, goeie sport en kultuur. Op die oog af is die ideaal van volwaardige, onaf­hanklike universiteit verwesenlik.

1.4 Vierde fase: 1976 – 1989

Op koers na die jaar 2000: van die statiese na vernuwing

Politieke onstabiliteit en oorgang in die land begin met die Soweto-onluste, die drie-kamer parlement, PW Botha se Rubicon-toespraak, noodtoestande, die ‘struggle’ en opkoms van UDF, en so meer. Die UOVS is swaar onder die indruk van die ‘totale aanslag’ en die regering se totale teen-strategie. Die Universiteit word polities en akade­mies geïsoleer en intellektueel gemarginaliseer. Ekonomies is dit moeiliker tye na die oliekrisis en die begin van hoë inflasie, en die Staat se finansies wat begin knyp.

Academically this period is distinguished by the strong stimulation and support of the research capacity and orientation by rector Wynand Mouton, which leads to a significant growth in research, especially in the natural sciences. The faculty of Theology is establishyed, the Sasol-UFS library erected. Student numbers continue to grow, but at a much slower rate then before.

Twee ander fasette kenmerk hierdie tydperk: eerstens die toelating van die eerste swart studente (nagraadse 1978, voorgraads 1988) en die begin van die era van multikulturaliteit; tweedens, die begin van subsidie- en finansiële probleme en die eerste rasionalisasie van personeel. Albei hierdie is voortekens van ingewikkelde jare wat sou volg vanaf 1990.

1.5 Fifth phase: 1990 – 2004: The turn of the century brings winds of change

(a) 1990 – 1996:

Die Francois Retief era word gedomineer deur die gevolge van die politieke verande­ringe deur president FW de Klerk en die vrylating van Nelson Mandela. Die UV ontwaak tot die realiteit van die oorgang na ‘n post-apartheid samelewing en komende ANC regering. Die eerste versigtige trans­for­ma­sie­stappe word ingestel, multikulturaliteit word die groot uitdaging, en die eerste fasiliterende strukture (bv. die Multikulturele Komitee) word gevestig. Die eerste senior swart personeel word aangestel.

The dramatic decision about the introduction of parallel-medium teaching in 1993 signals the start of multilingualism as well as a significant growth in the admission of black students. Total student numbers are stable at approximately 9000, but black student numbers grow to 36% in 1995. Initially the change to parallel-medium impact negatively on staff teaching load and hence onresearch outputs.

Die inkrimping in staatsubsidie lei tot ernstige finansiële probleme, besparings­pogings, grootskaalse rasionalisasie van personeel in veral die fakulteit Lettere en Wysbegeerte, spanning tussen Senaat en rektoraat oor finansies – en mismoedig­heid onder personeel.

(b) 1997 – 2004:

The time of rector Stef Coetzee and his successor is the era of the new democracy and transformation. At the beginning of this phase Afrikaans parents start sending their children to other Afrikaans universities; residence become half full. Tensions arise between student groups. This is followed by the large breakthroughs in student transformation in 1997, which normalises the situation. The University becomes a leader in transformation. This leads to the acceptance of the multicultural and multilingual character, on a Christian foundation, of the University. The name changes to the University of the Free State (UFS).

Met ‘n finansiële krisis en verdere rasionalisasie van personeel op hande word die akade­miese en finansiële ‘draaistrategie’ in Januarie 2000 geloods. ‘n Drama­tiese finansiële ommekeer lei tot herinvestering in kampus­fasiliteite en toerusting, ‘n toename in personeel en beduidende verhoging in vergoeding bokant inflasie. Terselfdertyd is daar ‘n opbloei in die akademie: innoverende onderrig­programme, e-leer, ‘n fokus op programgehalte. Konsolidering van fakulteite vind plaas, die Bestuurskool word gestig, daar is sterk internasio­na­lisering en groei in navorsing. Profes­sionele bemarking en strategiese kommunikasie verander die beeld van die UV.

Studentegetalle groei dramaties van 10 000 in 2000 na meer as
23 000 in 2003/4; groei moet nou beperk word. Afrikaanse studente keer terug; koshuise kry lang waglyste. Die verhou­ding tussen wit en swart studente op die hoofkampus is rondom 50:50.

The period ends with the incorporation of the Qwaqwa en Vista Bloemfontein campuses, the approval of a new language policy which also established multilingualism in management and administration, and purposeful efforts to consolidate the foundations of an institutional culture of multiculturalism, multilingualism, non-racialism and non-sexism – a culture of tolerance, embracement and justice in diversity. The Centenary is celebrated with harmony and prosperity on the campus in 2004 (although always with a good sprinkling of unexpected challenges and problems).

2. Vanaand bring ons hulde, en sê ons dankie aan, die bouers van die UV

Oor ‘n honderd jaar het honderde, duisende mense ‘n bydrae gelewer tot die UV se ontwikkeling.

Kom ons eer en dank diegene wat, 100 jaar gelede in a baie arm gemeen­skap wat bykans verwoes is deur die Anglo-Boere oorlog, nooit opgehou droom het oor ‘n eie universiteit om die jongmense te dien, om die mense te dien – die arm Vrystaatse mense van daardie tyd.

Let us honour and thank all those who painstaking built this university from very humble beginnings, from the first fragments and embrio of a university – through a hundred years of various wars, of the struggle, of poverty, of bad times but also good times.

In elke dekade, in elke een van die honderd jaar, is hierdie instelling gebou deur die harde werk, idealisme en verbintenis (“commitment”) van leiers, akademiese personeel, steundiens­personeel, dienswerkers. Laat ons hulle eer en dank.

Let us honour the spirit of commitment and ‘vasbyt’, of ‘never let go’, the determination to overcome obstacles, of timely and pre-emptive adjustment to new challenges and new needs, which made that possible.

Kom ons vier en eer die duisende studente wat in die 100 jaar hier was, wat die spesiale tradisies en spesiale gees geskep het van Kovsiekampus, van Kovsie studentelewe – en wat gedurig nuwe tradisies en gebruike geskep (en gepleeg) het, soos net studente dit kan doen.

Let us celebrate the way this University has, in the last 20 years, once again taken up the challenge of transformation and adjusting to new needs, serving all the people, especially those most in need at this time of our history – thereby closing the circle, going fully “from post Anglo-Boer War to Post-Apartheid”.

Kom ons vier, en wees innig dankbaar vir, die wyse waarop hierdie Universiteit in die laaste 5 jaar gedraai het, finansieel sowel as akademies, en die wonderlike periode van akademiese groei en ontwikkeling en verdieping waarin ons nou staan – tesame met die geleenthede wat QwaQwa en Vista Bfn vir ons bied. Hierdie voorspoed sien ons in die nuwe fisiese aangesig van die kampus, insluitend hierdie wonderlike Eeufeeskompleks.

Let us thank God, the Almighty, who has guided this university through a tumultuous century, for always being there for us, for blessing us in so many ways. In Deo Sapientiae Lux

* * *

So: vanaand is ons hier om erkenning te gee en dankie te sê…

Soveel mense het veel vroeër hul fondament-leggende bydraes gelewer, en alles wat ons vandag hier sien, moontlik gemaak. Selfs mense uit meer onlangse jare is reeds oorlede – enkeles terwyl hulle nog in diens van die UV was, ander na hul aftrede.

‘n Bepaalde groep was bevoorreg en geseend om in die laaste ongeveer 30 jaar by die UV betrokke te kon wees, én om vandag nog in die lewe te wees. Dit is van hulle wat vanaand hier is, en wat vanaand Eeufeesmedaljes ontvang.

Geweldige moeite is gedoen om hierdie proses van seleksie en keuring so billik en deeglik as moontlik te doen. Uiteraard is so ‘n proses nie volmaak nie en sal almal nie saamstem met die uitkomste van die proses nie. Groot moeite is egter gedoen in hierdie fase om mense nie verkeerdelik uit te laat uit of in te sluit in die toekenningslys nie, in volle bewustheid dat daar waarskynlik steeds foute gemaak sal word. Onvermydelik sal daar foute wees, of mense wat uitgelaat is. Ons vra daarvoor nederig om verskoning en begrip.

Billikheid, so ‘n belangrike rigsnoer vir hierdie Universiteit, veral in hierdie tye, lei ons ook dat ons oë oop is vir die bydraes vir mense uit alle afdelings van die Universiteit, wat lei tot ‘n bepaalde balans tussen fakulteite, tussen fakulteite en steundienste, tussen poskategorieë, tussen geslag en ras, en individue soveel as mense in spanverband.

In Deo Sapientiae Lux

God bless this university / Modimo o thlonolofatse yunivesithi ena

Khotso Pula Nala

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