Investec CEO warns government indecision threatens SAA survival

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Squabbling between South Africa’s government and the state-owned airline’s bankruptcy administrator is threatening its chances of survival, Investec’s chief executive officer said.
President Cyril Ramaphosa in December placed debt-ridden South African Airways in business rescue, a local form of bankruptcy protection. Over the past few days, there’s been a flurry of conflicting messages from the government and the business-rescue practitioners, leaving investors and customers unclear about whether the carrier has a future.
Last week, Ramaphosa and Public Enterprises Minister Pravin Gordhan said they oppose the business-rescue practitioners’ decision to close unprofitable routes. On Sunday, the Sunday Times newspaper quoted the chairman of the ruling African National Congress, Gwede Mantashe, saying the airline should be sold. Finance Minister Tito Mboweni has repeatedly said it should be closed.
“If the business-rescue practitioners recommend one route, the government wants a different route, which plan would the funders be required to support?” Investec CEO Fani Titi said in an interview on Monday. “Until there is a clear plan, supported by all stakeholders and properly funded, I think SAA is in trouble.”
Investec is one of a number of domestic and foreign banks that have been approached unsuccessfully to lend the airline more money.
“Any restructure of SAA that makes it sustainable will require a substantial reduction in the footprint of SAA, in the number of assets it has and, necessarily, the number of employees it has,” Titi said.

“Unless there is a clear plan supported by the different stakeholders I think it will be difficult to raise any further funding.”

The government’s indecisiveness stretches beyond SAA, said Titi and Mike Brown, the CEO of Nedbank Group. Nedbank and Investec are South Africa’s fifth and sixth-biggest banks by market value respectively.
Little action has been taken by the state to restructure Eskom, the national power utility that has R454 billion of debt. Other policy measures ranging from the sale of telecommunications spectrum to easing the nation’s onerous visa regime have also stalled.
Clarity neededBoth say it’s necessary for Ramaphosa to give clear direction in his state-of-the-nation address scheduled for February 13.
What’s important for people to understand “is government’s plan for either Eskom or SAA and very importantly how is that plan going to be financed” Brown said. “Because a plan without financing is just an idea.”
According to Titi, the best speech the president could give is one focused on implementation rather than new pledges.

“To be quite blunt, the time for promises is over. It’s time for action,” he said. “There’s such inertia and lack of action that it is really difficult to kick-start confidence in the economy.”

Rocket scienceThe president should also steer clear of issues that “are eroding investor confidence, growth and job creation,” Brown said.
Those include the introduction of national health insurance in the absence of a clear financing plans, conversations around prescribed assets and debates on the expropriation of land without compensation without providing finality to these debates.
What is needed “is a decisive voice from the president and the cabinet to implement the plans laid out by treasury,” Titi said. “It’s not rocket science.”
© 2020 Bloomberg L.P.

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