An article entitled “Saving SAA”, Business Day (June 5) praised SAA for “shaving off”  R2,5bn in cost savings, “all of which, as acting CEO Chris Smyth points out, are sustainable and have been incorporated into the day-to-day operation of the airline”. Smyth says, because of these cost-savings measures, on a purely operational level, SAA is profitable.Good news? Well, not really…it pales into insignificance against SAA’s enormous lease interest costs, bad hedging decisions, a R1bn Voyager balance sheet liability, a R700m provision for the purchase of 15 Airbus A320s, (without which it cannot move forward on its Africa expansion plans). SAA’s debt exceeds equity by 10%.This polishing of the parastatal’s marbles can mean only one thing – it’s time to report the annual results, and no one is going to be dazzled by the operating profit. The past six years have produced an embarrassing nett loss close to R16bn (R5,98bn nett loss in 2002/3, R8,61bn nett loss in 2003/4, R648m nett profit in 2004/2005,  R65m nett profit in 2005/6, R883m nett loss in 2006/7 and a R1bn nett loss in 2007/8). For the 2009 financial year, it is estimated the company will post yet another loss of approximately R1bn for a year which encompassed unprecedented oil price spikes, rand instability and a world moving into recession.  And it is certain the airline will once again ask the government to pay over R5bn and R10bn of taxpayers’ money to put the carrier back on its feet.

Jasson Urbach, an economist with the Free Market Foundation (www.freemarketfoundation.com) says: “As long as firms, in order to survive, are not protected by government-granted monopolies or taxpayer-guaranteed finance, they are compelled to provide a profitable and efficient service to customers when in competition with all other existing and potential suppliers. When governments protect public enterprises by keeping out potential competitors or making taxpayers pay for their mistakes, that discipline is removed and the result is poor management and poor service to customers.”

Ms Hogan was right – SAA should be sold, and the quicker the better.Now read the response to the Business Day article from Gidon Novick and Erik Venter, joint mds of Comair.“Your editorial on Friday was very surprising and quite disturbing. In it, you suggest that South African Airways (SAA) once again should be bailed out by the South African taxpayer to the tune of between R5bn and R11bn. This would follow the R15bn that has been ploughed into SAA over the past six years at the expense of more worthy public needs — least of all healthcare, education and policing.Your assumption that SAA is now sustainably profitable is incorrect. SAA competes in three markets: domestic, regional and international. The only one of these where SAA is able to compete and generate profits is the regional African market where SAA benefits from a very regulated environment. In the domestic market, where we compete with our two brands, British Airways and kulula, SAA is less efficient and therefore can’t fairly compete and has resorted to anticompetitive practices in the past. Many small private players including Flitestar, Sun Air and more recently Nationwide have closed down, unable to compete with the unlimited capital of SAA.Two-and-a-half years ago SAA launched Mango in attempt to stifle the growth of private low-cost airlines. In that time it is estimated (they refuse to publish financial results) that Mango has lost more than R200m.In your editorial you mention the tax revenues that would be lost if SAA were not bailed out forgetting that SAA is not generating tax revenues as it doesn’t make a profit.The main argument from SAA to motivate another bail-out is that the interest payments on its loans are resulting in operating losses. Welcome to basic business economics. The private airlines have to face the same challenge of high-interest bills when raising finance (and at higher interest rates than SAA incurs with government-backed credit), so why should SAA not have to deal with this “problem”?Almost 20 years ago the government at the time decided to deregulate the South African airline industry and invited private players to compete against SAA. The continued bail-outs of SAA at the expense of private competition is effectively a re-nationalisation of the airline industry in SA. Amazing then that an enlightened, pro free enterprise publication such as Business Day would endorse this. “  Erik Venter and Gidon Novick