Bailouts will get harder for SAA to avoid – economist

South African Airways’ efforts to steer itself towards stability have been undermined by government interference to the point where, ironically, a government bailout may be the national carrier’s only refuge.

This is according to director and chief economist at Econometrix, Azar Jammine. Jammine spoke to Fin24 on Monday afternoon, following SAA group CEO Vuyani Jarana’s resignation from the state-owned entity.

SAA confirmed Jarana’s resignation on Sunday evening, adding that his four-page resignation letter had been accepted by SAA chair JB Magwaza.

Jarana cited a lack of certainty around the funding for his turnaround strategy as a stumbling block in efforts to turn the carrier around.

Bailout? Get in line

Jammine said while SAA can likely still rely on assistance from the state, it would not be quite as high in the pecking order as Eskom.

“At the end of the day government would have to provide another bailout.

“When we’re talking SAA, the entity is trouble but not quite facing the financial challenges of an entity like Eskom. A billion here and a billion there is quite paltry compared to the tens of billions Eskom needs,” said Jammine.

Jammine said it made sense that inadequate support from government for his turnaround strategy would be one of Jarana’s main reasons for quitting at SAA.

Jarana ‘one of many’

“There are many people involved in SAA. Jarana was just one of many. Government has interfered so much that at some point the company will have to stop relying on the state do something for itself,” Jammine said.

Jammine said continued instability at state-owned entities, compounded by difficulties faced by parastatal accounting officers, could only serve to harm the entities in question and later the economy.

“This is the case of every SOE. Government can bail them out, but if things do not improve soon enough, it would bring about a heightened risk of a credit rating downgrade, a fall in the rand and an increase in inflation,” said Jammine.

Jarana’s resignation sets a precarious tone for Minister of Public Enterprises Pravin Gordhan’s new term, as Jarana’s reasons for quitting included restrictive relations with the shareholder representative.