SAA's financial woes
 

I have a flight booked for the end of February. Is it safe? Will the airline hold out or might it fold before that? http://www.timeslive.co.za/local/201...out-of-crisis1

If they run short of cash before that, they'll just get another bailout from the taxpayer. Nothing to worry about.

Yeah I would be very highly surprised if they let SAA go under

Never going to happen, it is a key strategic asset for the state. Those that claim it will or advocate that it should are not compos mentis.

*takes cover*

I am probably not always compos mentis but I still agree it won't happen. :)

But not because it's a strategic asset for the state - but because the government thinks it is a strategic asset for the state. Funny how African countries believe this (and many protect their mickey mouse airlines from competition) and yet developed countries don't feel the need for a national airline.

They sure used to until not all that long ago. I read the other day that between World Wars I and II not a single European airline ever made a profit! They all depended on national governments to help them hold their trousers up through a variety of schemes, amongst which heavily subsidized air mail was a favorite.

Johan

That's simply not true. Japan and Italy are two of the more recent examples of national governments of developed countries getting heavily involved in an airline restructuring. South Africa is not at all out of line in doing everything possible to maintain a flag carrier -- it's the prerogative of a society to generally spend money as it wishes, and a means of connection with the outside world is certainly as legit as anything else worth $$$.

I contend that those airlines were saved because of jobs and political interests not nationalistic considerations of having a "flag carrier". (Witness the continuous rumours circulating of AZ being taken over by another airline.)

Indeed it is. But how it spends money has consequences. And in that regard I hardly think that the fiscal examples of Italy and Japan are encouraging omens.

And as a taxpayer in ZA I resent the never-ending bailouts of SAA when we have so many, more pressing needs. The money could have been spent far more productively.

That may have been a valid argument in apartheid, sanctions-bound ZA. But with literally dozens of airlines now flying to the country it hardly seems necessary to keep dumping billions of taxpayers rands to keep a badly run company going.

Seriously, I fail to see what the ZA taxpayer has got to show for all that money spent and government debt incurred that he or she would not have had otherwise.

Disclosure. Purely selfish post.

Govt receives X per year from taxpayer, said government will spend at least X, more than likely 2X. They will never lower taxes, or spend wisely. That is a given.

Only certain percentage of the population (you and I online) contribute the X, and that percentage of population use no govt infrastructure, they pay for private schools, hospital, security, etolls etc. Essentially we get zero value.

The one thing we the contributing population do enjoy is travel, albeit that we pay for it.

I would thus much rather have govt spending as much of X on airline. Think multiple more routes, new AC, new Business AND First class, flying direct to popular destinations (Chicago, Orlando, Shanghai, Sydney, Auckland, Paris, etc etc) using my money on that which I can enjoy, rather than tenders, BMWs, Resorts in Natal etc etc.


Spend away on SAA. Its the only value we see from our taxes.

SAX and SAA – another bail-out?
 

"Discussions of further state assistance to SAA and SAX are under way with the National Treasury, while Public Enterprises Minister, Lynne Brown, is looking to appoint new board members for the airlines.

Democratic Alliance spokesperson, Natasha Michael, issued a statement saying: “Two weeks ago, in Parliament’s portfolio committee on public enterprises, representatives from Treasury, responding to funding concerns raised by the DA, stated categorically that Treasury can no longer afford to bail out failing state enterprises.

“With nine ‘turnaround’ strategies in 13 years and R16 billion over the past 20 years, investing any more state funds into SAA would be madness; SAA cannot be allowed to use the fiscus as its personal bank account with impunity.” "

Source

Johan

Almost every major American airline has received government bailouts in the last two decades.

None emotive response:

Government in South Africa has run a deficit, like almost every other country in the world. Spending is certainly not twice revenue, more like 10% higher than revenue. Governments can do this indefinitely since unlike us they don't retire or die. Over time government debt to GDP rises, and falls, but they manage to run these perpetual deficits without debt to GDP constantly rising since the denominator (GDP) grows quicker than the numerator (the debt) more often than not.

An absolute fallacy! While the poor do not pay much in the way of income tax they do pay tax in the way of VAT, excise duties, fuel levies, and implicit taxes on trade. These amount to 41% of government revenue, which is more than income tax contributes. While the poor may not pay a large amount of tax in absolute terms, they pay a considerable portion of their income in taxes.

And that percentage of the population uses plenty of government infrastructure. They use the roads, their private education receives state subsidies, they use the state funded (very generously I might add) universities, they use their private healthcare which is state subsidized through a tax rebate. The middle class actually use more state services than the poor, mostly because we actually have access to it.

While I am certainly not a fan of this government and they way they conduct their business I don't need to be part of this us and them mentality with the poor.

It is admirably non-emotive but it isn't entirely true. For starters ZA was running a budget surplus until not that long ago. The reversal in trend has been rapid and large and does not bode well.

Secondly there is such a thing as a debt trap. Governments cannot keep adding to debt with impunity. Debt directly results in increased spending via interest paid. In addition increased indebtedness raises the cost of borrowing further increasing the interest to be paid. With the very weak state of ZA's current GDP growth which is unlikely to show big improvements any time soon, that ratio could spiral out of control rather quickly.

And the ZA government has very few options for improving the ratio let alone balancing the books. The only big wins are higher VAT or driving efficiency in the civil service; neither of those is remortely politically palatable. The medium term budget statement due out soon will give us some idea of what lies ahead. I suspect many of us taxpayers are going to be less happy after that than we are now.

Surely in these circumstances there cannot be any room for continuing to bail out SAA? (For starters, regardless of the merits of the management, there are far more economy-critical parastatals that have greater needs - like Eskom.) But old habits die hard and this one dates back to well before the ANC government. I am hopeful the right thing will be done but certainly not confident.

Indeed, South Africa did run a surplus in 2007 and 2008, but it wasn't budgeted and was due to higher than expected tax receipts. You are correct that the deficit has ballooned, mostly due to weaker tax receipts rather than excessive growth in expenditure.

Countries can get into debt traps but I don't think we are there yet, or anywhere close. South Africa's debt to GDP ratio has fluctuated between 27% and 50% since the 1960s. It is currently 46%. What will reduce the debt to GDP ratio is GDP growth, not lower expenditure or higher taxes. Economic growth is always the biggest fixer for fiscal policy.

Edit: two years of surplus in the last 55 years is pretty close to perpetual deficits.

Comair to Challenge SAA Bailouts
 

"The North Gauteng High Court in Pretoria will on Tuesday hear Comair's challenge against government's bailout of SA Airways (SAA).

The matter is expected to be heard until Thursday.

Comair, which is a franchise partner for British Airways and also operates the low-cost airline brand kulula.com, launched the court challenge in February 2013 following the government's then bailout of R5bn."

Source: News24

(News24 may want to consider hiring staff who can string together proper sentences, by the way).

Johan