President Cyril Ramaphosa’s attempt to rescue struggling state flag carrier South African Airways has been dealt a blow after the company’s chief executive resigned and launched a broadside against lack of political support for its turnround.
In a resignation letter seen by the Financial Times, Vuyani Jarana said a strategy to save lossmaking SAA was being obstructed by government indecision over the airline’s fate.
“Lack of commitment to fund SAA is systematically undermining the implementation of the strategy, making it increasingly difficult to succeed,” he said.
Mr Ramaphosa’s ruling African National Congress has balked at the high cost to taxpayers of rescuing state-owned companies that fell into mismanagement and corruption on the party’s watch.
Mr Jarana’s exit follows last month’s departure of Phakamani Hadebe as chief executive of Eskom, the near-bankrupt state power monopoly hit by years of corruption, creeping blackouts and debt, which Mr Ramaphosa has also pledged to reshape radically. Both men were brought in to turn the companies round after the years of misrule under their previous leadership.
The two resignations will cause alarm as the state-guaranteed debts of both companies threaten to overwhelm strained public finances without decisive leadership to turn their fortunes round.
The departures also leave the companies rudderless as Mr Ramaphosa, who led the ANC to victory in national elections last month, is focused on rebuilding key institutions undermined by misrule under his predecessor Jacob Zuma.
SAA has not made a profit since 2012 as it plunged into disarray amid years of misrule. It has only survived with state help to pay debts.
Mr Jarana was hired in 2017. His turnround strategy involved a plan for the carrier to break even by 2021 with the aid of about R21bn ($1.4bn) in state funds to fix SAA’s chaotic finances.
But bailouts for state firms must clear tough hurdles set by Tito Mboweni, finance minister, who has said he would prefer to close down SAA.
In his resignation letter, Mr Jarana said: “We have not been able to obtain any further commitment from government, making it very difficult to focus on the execution of the strategy.”
Without a clear signal to lenders that the Treasury would stand behind SAA, the airline had struggled to refinance its debt, he said.
“We have always maintained the SAA debt levels are unsustainable. However, instead of reducing debt . . . we have increased it,” Mr Jarana added.
With more than $30bn of debt, much of which is underwritten by government, and blackout-plagued power stations, Eskom is a bigger problem for the public purse. But a collapse of SAA could lead lenders to doubt the credit of government backstops for other state companies.
Moody’s, the last leading rating agency left ranking South Africa above junk, has indicated it is watching to see if bailouts for SAA are linked to a credible turnround.
Mr Jarana also criticised a lack of “required speed and agility” in layers of government approval for operational decisions at SAA.
“It is impossible to succeed with the current level of bureaucracy we have to go through to implement the strategy,” Mr Jarana said.
Because of to its dire financial position, SAA is being overseen by Mr Mboweni’s Treasury and Pravin Gordhan, minister for state-owned companies.
SAA, the Treasury and Mr Gordhan’s department did not immediately respond to requests for comment on Mr Jarana’s exit. Mr Gordhan’s department said SAA’s board was meeting on Sunday.
Mr Ramaphosa returned Mr Gordhan to the state companies portfolio in appointments to cabinet last week after the ANC’s election victory. Mr Gordhan, who is a prominent critic of corruption, has clashed with allies of Mr Zuma over the consequences of widespread looting of state businesses.
