Gunship
2nd Aug 2005, 12:12
Sorry for the long posting .. and I know SAA is a dragged out "old story" but I found this quite a good "comment" by Nick Dawes of the Mail and Guardian :ok:
Hope you enjoy it as I did :E
Clothing and textile manufacturers must make their own way in the world, and Bully Bothma howls in vain about the plight of the mielie farmer, but South Africa takes a hard, mercantilist line in international air services negotiations.
We can’t get the landing slots we want at Heathrow because British Airlines are stingy with them? Then we’ll freeze British Airways and Virgin out of Cape Town International. Singapore wants “fifth freedom rights” that would allow it to fly through South Africa and pick up passengers en route to Brazil? Forget it, even if it would be a major fillip for local tourism, for the Airports Company, and for the people that package your mile-high meal.
Liberalising the market at the expense of the national carrier would be all cost and no benefit, insists Public Enterprises Minister Alec Erwin.
This approach seems to have two closely related consequences: continued government ownership, and a level of trade protection denied other industries during the economic reforms of the 1990s.
“If we open our skies, SAA [South African Airways] will get killed,” Erwin told the Mail & Guardian in a recent interview.
SAA was a “strategic asset” in the days of Iscor and Sasol and the great conglomerates, of an economy badly bent out of shape by apartheid, by import substitution and by sprawling, deeply corrupt parastatals.
But why do we still have a state-owned national airline now that we are all more sensible about this kind of thing? And do we really need one?
Briefly, Erwin’s argument is this: SAA is opening new routes to destinations such as China that were previously difficult or tedious to reach; it is dramatically improving mobility within Africa as it expands its network across the continent; and as such it is essential to the growth of both tourism and business travel in this country and on the continent generally.
Private airlines and international competitors, he reckons, don’t offer those advantages. Given their way, they would battle for the most profitable routes to Europe, and when the strongest players have prevailed over the competition, gradually push prices up and limit destinations.
In any event, for every tourist from Europe deterred by the shortage of seats in high season, Erwin argues, our national airline will soon be ferrying in several more from its other destinations.
He doesn’t say so, but it is hard to shake the feeling that the government is also loathe to give up the industrial offset deals that accompany big aircraft imports. When SAA springs for a new fleet of jet liners, it guarantees a steady flow of work to the tiny, fragile, local aerospace industry. Some of Armscor’s brightest and best can now find work because foreign purchases on this massive scale trigger requirements that the seller commit to procurement and investment here.
Many in the government still believe that offsets are a catalytic industrial policy tool, despite voluminous evidence to the contrary.
Somehow, for all these assertions about the role of SAA in our modernising economy, the cabin of its newest Airbus has a whiff of the 1970s. Back then, the rationale for a flag-carrying airline was simple: to plant the orange, white and blue on any foreign tarmac that would have it. It was a strangely effective way to reassure the domestic audience, travelling on overvalued, gold-boom rands, and increasingly useless passports, that South Africa was a beacon of modernity on a dark continent, even if its light was increasingly obscured by the smoke of revolution.
Sure, you could fly from London via Budapest to Lusaka on a creaky Tupolev knock-off full of surly tribesmen, but the direct route to Johannesburg was serviced by a 747, and an airhostess with a wide white smile, her eye-shadow as blue as the stratosphere.
After 11 years of reforms, we are just beginning to deal with the really intractable legacy of nationalist industrial policy: the privatised steel monopoly is choking the life from the manufacturing sector; Sasol controls not only fuel supply to the economic heartland but also crucial secondary markets in polymers and chemicals, and Telkom, for all its new efficiencies, remains Telkom.
In each of these cases, the government botched the sequence of privatisation and liberalising reforms, putting market power in more competent hands, but doing little to make it more contestable.
Telkom not only got an extended monopoly period, CEO Andile Ngcaba, who now controls more than a billion rands worth of its shares, so comprehensively cocked-up the introduction of the second network operator that real competition remains years off.
Iscor was, if anything, more egregiously mishandled. Panic at the Industrial Development Corporation over the losses of Saldanha Steel led its leadership to the door of Lakshmi Mittal and the rest is history.
The architect of the unbundling of Iscor was Khaya Ngqula, who now runs SAA.
He crowed at the time about the biggest industrial policy intervention of the post-apartheid government and brushed off worries about import-parity pricing, saying he didn’t think it would affect the downstream industry.
It is only a slight exaggeration to say that the Department of Trade and Industry now has an entire directorate devoted to undoing the damage.
Deep frustration over these failures is one reason -- although not the only one -- for the government’s decision to retain control of those parastatals it believes are central to reducing the cost of doing business and building South Africa’s infrastructural base.
In order to make that possible, however, it is going to have to do an awful lot of privatising, R7,7-billion worth just at Transnet. Even Denel, which has clung to its disastrous “commercial” operations for far too long, will finally shed its Tupperware and soy protein interests.
SAA, however, stays. Transnet CEO Maria Ramos doesn’t want it within her streamlined logistics group, but Erwin believes the flag carrier is strategic, and that even if it is partially privatised through a JSE Securities Exchange listing, it will continue to warrant state protection.
There is no doubt that the airline business is a bare-knuckle game, and those airlines that have a government in their corner ready to provide cash and trade protection can often survive it for longer. There is also little doubt that far fewer people would fly to dull transit points such as Dubai, or interesting ones such as Singapore, if national airlines hadn’t routed passengers through them. But South Africa, mercifully, is not Dubai, and trade is not a zero-sum game.
The recent history of the industry suggests that liberalisation, far from driving up costs and limiting choice, has done the opposite. Consolidation and price increases may yet come, but there is no denying that low-cost carriers have changed the game across the very different aviation markets of Europe, Asia and North America.
And recent history suggests that our flag carrier is perfectly capable of losing money despite -- or even because of -- careful cossetting. There is little in SAA chief Khaya Ngqula’s record to suggest he will do any better than Coleman Andrews or Andre Viljoen at making a sustainable commercial success of it.
Each of his predecessors had honey-moon periods and each left with staggeringly terrible numbers trailing in their wake. Ngqula may have more political backing, but in his brief tenure, he has succeeded both in alienating an impressively wide range of staff and attracting intense media scrutiny over a questionable leasing deal and the helicopter he uses to dodge Gauteng traffic jams.
Whether the profits he announced two weeks ago represent a fundamental turnaround or a short-term lift from asset restructuring and cost-cutting remains to be seen, but it is beside the point.
The recapitalisation of Transnet makes all kinds of sense, but the retention of SAA on a shortening list of strategic assets looks like a mistake.
Finally, it will be hard for the government to lead the liberalisation of African airspace while it owns the continent’s dominant airline and the success of SAA’s pricey routes to African destinations points to massive pent-up demand. A vicious pack of low-cost carriers contesting this market would do more to boost commerce than SAA in its current form could ever manage.
It is heartwarming to see our ensign on the far-flung runways of the world, but the cost is ruinous and we have plenty of genuine achievements to feel good about these days.
Hope you enjoy it as I did :E
Clothing and textile manufacturers must make their own way in the world, and Bully Bothma howls in vain about the plight of the mielie farmer, but South Africa takes a hard, mercantilist line in international air services negotiations.
We can’t get the landing slots we want at Heathrow because British Airlines are stingy with them? Then we’ll freeze British Airways and Virgin out of Cape Town International. Singapore wants “fifth freedom rights” that would allow it to fly through South Africa and pick up passengers en route to Brazil? Forget it, even if it would be a major fillip for local tourism, for the Airports Company, and for the people that package your mile-high meal.
Liberalising the market at the expense of the national carrier would be all cost and no benefit, insists Public Enterprises Minister Alec Erwin.
This approach seems to have two closely related consequences: continued government ownership, and a level of trade protection denied other industries during the economic reforms of the 1990s.
“If we open our skies, SAA [South African Airways] will get killed,” Erwin told the Mail & Guardian in a recent interview.
SAA was a “strategic asset” in the days of Iscor and Sasol and the great conglomerates, of an economy badly bent out of shape by apartheid, by import substitution and by sprawling, deeply corrupt parastatals.
But why do we still have a state-owned national airline now that we are all more sensible about this kind of thing? And do we really need one?
Briefly, Erwin’s argument is this: SAA is opening new routes to destinations such as China that were previously difficult or tedious to reach; it is dramatically improving mobility within Africa as it expands its network across the continent; and as such it is essential to the growth of both tourism and business travel in this country and on the continent generally.
Private airlines and international competitors, he reckons, don’t offer those advantages. Given their way, they would battle for the most profitable routes to Europe, and when the strongest players have prevailed over the competition, gradually push prices up and limit destinations.
In any event, for every tourist from Europe deterred by the shortage of seats in high season, Erwin argues, our national airline will soon be ferrying in several more from its other destinations.
He doesn’t say so, but it is hard to shake the feeling that the government is also loathe to give up the industrial offset deals that accompany big aircraft imports. When SAA springs for a new fleet of jet liners, it guarantees a steady flow of work to the tiny, fragile, local aerospace industry. Some of Armscor’s brightest and best can now find work because foreign purchases on this massive scale trigger requirements that the seller commit to procurement and investment here.
Many in the government still believe that offsets are a catalytic industrial policy tool, despite voluminous evidence to the contrary.
Somehow, for all these assertions about the role of SAA in our modernising economy, the cabin of its newest Airbus has a whiff of the 1970s. Back then, the rationale for a flag-carrying airline was simple: to plant the orange, white and blue on any foreign tarmac that would have it. It was a strangely effective way to reassure the domestic audience, travelling on overvalued, gold-boom rands, and increasingly useless passports, that South Africa was a beacon of modernity on a dark continent, even if its light was increasingly obscured by the smoke of revolution.
Sure, you could fly from London via Budapest to Lusaka on a creaky Tupolev knock-off full of surly tribesmen, but the direct route to Johannesburg was serviced by a 747, and an airhostess with a wide white smile, her eye-shadow as blue as the stratosphere.
After 11 years of reforms, we are just beginning to deal with the really intractable legacy of nationalist industrial policy: the privatised steel monopoly is choking the life from the manufacturing sector; Sasol controls not only fuel supply to the economic heartland but also crucial secondary markets in polymers and chemicals, and Telkom, for all its new efficiencies, remains Telkom.
In each of these cases, the government botched the sequence of privatisation and liberalising reforms, putting market power in more competent hands, but doing little to make it more contestable.
Telkom not only got an extended monopoly period, CEO Andile Ngcaba, who now controls more than a billion rands worth of its shares, so comprehensively cocked-up the introduction of the second network operator that real competition remains years off.
Iscor was, if anything, more egregiously mishandled. Panic at the Industrial Development Corporation over the losses of Saldanha Steel led its leadership to the door of Lakshmi Mittal and the rest is history.
The architect of the unbundling of Iscor was Khaya Ngqula, who now runs SAA.
He crowed at the time about the biggest industrial policy intervention of the post-apartheid government and brushed off worries about import-parity pricing, saying he didn’t think it would affect the downstream industry.
It is only a slight exaggeration to say that the Department of Trade and Industry now has an entire directorate devoted to undoing the damage.
Deep frustration over these failures is one reason -- although not the only one -- for the government’s decision to retain control of those parastatals it believes are central to reducing the cost of doing business and building South Africa’s infrastructural base.
In order to make that possible, however, it is going to have to do an awful lot of privatising, R7,7-billion worth just at Transnet. Even Denel, which has clung to its disastrous “commercial” operations for far too long, will finally shed its Tupperware and soy protein interests.
SAA, however, stays. Transnet CEO Maria Ramos doesn’t want it within her streamlined logistics group, but Erwin believes the flag carrier is strategic, and that even if it is partially privatised through a JSE Securities Exchange listing, it will continue to warrant state protection.
There is no doubt that the airline business is a bare-knuckle game, and those airlines that have a government in their corner ready to provide cash and trade protection can often survive it for longer. There is also little doubt that far fewer people would fly to dull transit points such as Dubai, or interesting ones such as Singapore, if national airlines hadn’t routed passengers through them. But South Africa, mercifully, is not Dubai, and trade is not a zero-sum game.
The recent history of the industry suggests that liberalisation, far from driving up costs and limiting choice, has done the opposite. Consolidation and price increases may yet come, but there is no denying that low-cost carriers have changed the game across the very different aviation markets of Europe, Asia and North America.
And recent history suggests that our flag carrier is perfectly capable of losing money despite -- or even because of -- careful cossetting. There is little in SAA chief Khaya Ngqula’s record to suggest he will do any better than Coleman Andrews or Andre Viljoen at making a sustainable commercial success of it.
Each of his predecessors had honey-moon periods and each left with staggeringly terrible numbers trailing in their wake. Ngqula may have more political backing, but in his brief tenure, he has succeeded both in alienating an impressively wide range of staff and attracting intense media scrutiny over a questionable leasing deal and the helicopter he uses to dodge Gauteng traffic jams.
Whether the profits he announced two weeks ago represent a fundamental turnaround or a short-term lift from asset restructuring and cost-cutting remains to be seen, but it is beside the point.
The recapitalisation of Transnet makes all kinds of sense, but the retention of SAA on a shortening list of strategic assets looks like a mistake.
Finally, it will be hard for the government to lead the liberalisation of African airspace while it owns the continent’s dominant airline and the success of SAA’s pricey routes to African destinations points to massive pent-up demand. A vicious pack of low-cost carriers contesting this market would do more to boost commerce than SAA in its current form could ever manage.
It is heartwarming to see our ensign on the far-flung runways of the world, but the cost is ruinous and we have plenty of genuine achievements to feel good about these days.