Three myths are taking hold in the media and among other commentators as to why SAA cannot be closed down. The Free Market Foundation’s (FMF) investigations show each to be false. FMF’s executive director Leon Louw said, “This is another example of the tyranny of twaddle that needs to be exposed as fiction. If left unchallenged, such falsehoods will allow SAA to continue to enable the rich to fly at the expense of the poor”.
Myth 1: SAA’s lease obligations cannot be settled.
Myth 2: Shutting down SAA would cause a damaging ripple effect on government debt.
Myth 3: SAA creates jobs.
Some are arguing that SAA’s lease obligations, which amount to approximately R3.1 billion (AFS 2016/7), cannot be settled. This is nonsense according to several expert industry insiders. Aircraft are one of the most moveable assets in the world and leasing companies would rather reposition the aircraft with new lessors than face the complications that come with recovering planes from liquidation. There might be a small penalty of a few months lease payments but certainly not the full remaining lease obligation.
This happens every day in the aviation industry and SAA would be no exception. Aircraft leases are not different from any other lease finance asset such as a car or a home appliance. If you cannot pay, then the lessor has to trade off the benefit of early recovery of the asset versus the risk of attempting to recover the asset from an insolvent estate. In almost every circumstance, the lessor would attempt to rescue the asset as quickly as possible.
The argument that shutting down SAA will cause a ripple effect in government state owned enterprise (SOE) debt guarantees, triggering mass defaults and thus endangering the SA economy, is also false. Why should shutting down SAA mean that government will not honour its debts? It does not make sense. SAA has approximately R19 billion in state guarantees. Currently, total government SOE loan guarantees stand at approximately R460 billion, including R350 billion for Eskom. R19 billion repayment of SAA loans is hardly going to cause a mass call in of all SOE loans and government debt.
Ultimately government will have to settle all of SAA’s debt anyway whether it is operating or not. Certainly SAA will never generate the revenue and profit to be able to pay off R9.2 billion from its own operations and cash flow. The only difference is that, if SAA continues to operate, it is digging the hole deeper and quicker than government can fill it.
SAA’s development role as a creator of jobs is pure fiction. SAA both creates and destroys jobs but the number of jobs destroyed in the economy is greater than the number of jobs created. If SAA paid for itself then it would be a net job creator but, because it has siphoned billions out of the economy and diverted mass resources from important infrastructure spending, jobs that would have been created have not materialised.
The French economist Frederic Bastiat debunked this myth over 150 years ago in his concept of the “seen and unseen”. Government “gives jobs to certain workers. That is what is seen.” But at the same time that it creates some jobs “it deprives certain other laborers of employment. That is what is not seen.” Every government bailout of SAA is a tax on new jobs – jobs destroyed or not created in other sectors of the economy.
SAA fairytales do not stand up to common sense scrutiny. The solution is to close down state-owned SAA and let the private sector take over and fly the SA flag. If SAA disappeared tomorrow, if properly managed, hardly anyone would notice.
Ends