Latest News Archive

Please select Category, Year, and then Month to display items
Previous Archive
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

Qwaqwa Campus opens: Prof. PA Mbati's speech
2005-01-22

Official welcome speech by Prof. PA Mbati for 2005 first year students held on Saturday 22nd January 2005. Program Director, The Chief Director Operations Rev. Kiepi Jaftha, Dean of Students Dr. Natie Luyt, Program Head of the Faculty of Humanities, Dr. Elias Malete, Program Head of Faculty of Natural and Agricultural Sciences, Prof. Riaan Luyt, Acting Program Head of the Faculty of Economics and Management Sciences Prof. Andries Venter, Deputy Director Student Affairs Mr. Teboho Manchu, Coordinator Finance: Mrs. Elizabeth Nchapi, Senior Librarian Mr. Stoffel Kok, Senior Magistrate Mr Saul Mohosho, SRC President Mr. Tello Motloung, members of staff, invited guests, parents, guardians, my dear students, ladies and gentlemen.

It is indeed my pleasure to welcome you to the official welcoming ceremony of the UFS-Qwaqwa Campus 2005 first year students. Our Rector and Vice Chancellor Professor Frederick has requested me to pass to you his warmest wishes and regards on this special occasion. I am confident that the orientation exercise in which you have participated has achieved the desired effect of introducing you to your new way of life here on campus, and that you are now sufficiently prepared to get on with the rigors of being a student at this University.

Following the restructuring of the higher education landscape, the Qwaqwa campus was incorporated into the University of the Free State with effect from January 1 2003 . As a consequence, Management was faced with a whole complex series of challenges including, primarily making the campus financially viable, but also ensuring that it remains relevant in it’s core business as a satellite campus of the University of the Free State in terms of its teaching, learning, research and community service responsibilities.

A whole series of strategic planning workshops were conducted last year with both internal and external stakeholders. Various important strategic objectives were flagged out, and the next level of consultation will take place soon. I know that there is a lot of eagerness, sometimes to the level of impatience to see this process completed as quickly as possible. But again on the other hand, due to the far reaching consequences of any hasty decisions, plus the need for a carefully planned process, we need to be a little more patient before the implementation of the strategic objectives is implemented. You will be kept informed as this important and critical aspect in the evolution of our campus takes place.

As a response to the need for a more effective governance model on the Qwaqwa campus, a review of the governance structure was completed towards the end of 2004 and will soon serve before the Executive of the Executive Management for approval.

Due to the importance that top management attaches to the development of an effective governance on the Qwaqwa campus, the process was facilitated by an internationally acclaimed consultant. Again the contents of the revised governance model will be made known to the campus and the broader community once it is approved.

I am glad to report that in recognition of the need to improve the infrastructure on campus to provide a conducive learning atmosphere to our students, a total of 8.2 million rands was made available towards the end of 2004 for recapitalization of specifically our student residences and lecture venues. The first phase of the residence renovation is completed and residences C, D and E have now been officially handed over to the University by the Contractor. Among the features of the renovated residences is that they will now computer rooms, kitchenettes for cooking, and a redesigned TV room. The rooms have even been fitted with heaters. Our challenge will now be to maintain our newly acquired facilities and to ensure that they do not again deteriorate to an un-acceptable level. The second phase of renovation will start soon.

As indicated in my address during the orientation week, our obligation to you as a campus is to offer you quality training to the best of our ability, and to disseminate this knowledge to you within a conducive atmosphere worthy of good learning. On the other hand, our students have to take advantage of this opportunity to acquire the necessary skills and training in the various academic programs that we offer on campus.

We have a very simple agenda on this campus – our vision is to continuously strive to build and develop the Qwaqwa campus of University of the Free State into a truly quality institution of higher learning in our country. To develop a tradition and culture in which we are proud of who we are, and constantly and tirelessly working towards excellence in our academic programs, and other non-academic but core and important aspects in your growth and development such as sport and community service. To nurture young conscientious citizens who are aware of their duties and responsibilities. Ultimately to produce hard working young people who fully exploit their potentials, and who will serve this country with diligence when unleashed into the real world in effectively managing their roles and responsibilities in society, whether in private or government civil service.

I would like to encourage that the various stake holders of this campus, the students, academic, administrative and support staff, and our broader community, to work together in harmony for the well being of our campus. For this campus to continue to be relevant in the environment that we find ourselves, there is a need for continuous engagement of its various stake holders, and genuinely listening to each other. We must continuously and regularly keep our feelers on alert in order that we can remain relevant.

I am particularly inviting our parents and guardians, the alumni of this campus, and leaders from our community to join hands with us in seeking solutions to the various challenges that we continue to face on campus. I am open for frank and honest discourse on the best way forward for our campus.

The University of the Free State is committed in making tertiary education accessible to as many students as possible. In this regard, students who do not have the required ‘M’ score to gain entry into main stream classes are given an opportunity to study in the highly successful ‘bridging program’ in which learners are integrated with main stream students but with fewer courses to tackle in order to ensure success. This is done on the premise that such students have the potential to pursue a degree course, and that therefore within a well structured program, they can make a success of their lives.

The University is conscious of the fact that in many instances several academically deserving students fail to be admitted into university due to financial reasons. For students who are academically deserving but who because of reasons of poverty cannot pay the requisite fees, the university is able to assist such students through the National Financial Aid Scheme – commonly known as NSFAS, and University Merit Awards. Other incentives such as Sports bursaries are also available.

Please remember that it is important to balance your life on campus and the phrase ‘a healthy mind in a healthy body’ aptly describes this statement. Ensure that you participate in sport and cultural activities of this campus so that you can develop and strengthen the various God-given talents that you have been blessed with.

A second major ingredient for your success on campus is discipline and respect for rules, policies and procedures that govern the University of the Free State , and respect for your fellow students. Good discipline is a major contributory factor to success in life, and more so in your formative academic life at University. This means for example that you must attend all your lectures, complete your assignments on-time and visit the library frequently. Please manage your time wisely and responsibly. Remember that as a university student, you are basically the master and architect of your own destiny.

Think very carefully when you are confronted with difficult situations, be they negative peer pressure, or temptations to indulge in intoxicating drugs, and make the right choice.

The University has well trained personnel including a social worker, a psychologist and counselor, and members of the student affairs division under the leadership of Mr. Teboho Manchu, Deputy Director Student Affairs, who are available to assist whenever you require their help.

Today is also a special day because we have officially inaugurated the SRC President and the rest of the SRC leadership. I am sure that you all join me in congratulating the SRC for being elected to their leadership roles for 2005. Mr. SRC president and your team, please remember that you now have a huge responsibility in carrying out the aspirations of the student body on campus. I want to wish you luck and success as you champion the rights of your constituents, which I believe and trust will be compatible with management’s expectations with regard to quality teaching and learning on campus. As you are aware, Management values the input that the student leadership makes in the operational management of the affairs of this campus, and we look forward to a cordial, non-confrontational working relationship with a view of rendering un-paralleled service on campus.

Mr. Program Director, allow me to wish everyone here a successful and prosperous year. May the good Lord give us the strength and courage to overcome any obstacle that may be placed in our way in the course of our work in 2005.

We use cookies to make interactions with our websites and services easy and meaningful. To better understand how they are used, read more about the UFS cookie policy. By continuing to use this site you are giving us your consent to do this.

Accept