South Africa Ready to Make Tough SAA Decisions, Gordhan Says

(Bloomberg) -- The South African government signaled it’s going to take a hardline approach to its cash-strapped national airline as labor unions prepared to strike over pay and job cuts, forcing the carrier to cancel almost all its flights over the next two days.

“If some tough decisions need to be made, we’ll make them,” Public Enterprises Minister Pravin Gordhan said in a speech at a conference in New York Thursday. South African Airways is “not too big to fail.”

Two unions representing more than 3,000 staff at SAA have said they’ll go on strike Friday to protest the carrier’s failure to meet their pay demands and plans to fire 944 employees. The two sides held last-minute talks Thursday in an effort to make a deal, but the labor groups rejected an offer and the walkout will go ahead.

The government will repay loss-making SAA’s outstanding government-guaranteed debt of 9.2 billion rand ($620 million) over the next three years, the National Treasury said in the medium-term budget policy statement in October. Lenders are demanding a firm repayment plan as a condition for agreeing to extend more funding, SAA has said.

The airline, which has lost more than 28 billion rand over the past 13 years and relies on financial support from the government to remain solvent, says it has no option other than to restructure or place the entire business at risk. The unions counter that their members shouldn’t have to pay the price of years of mismanagement and misappropriation of the airline’s funds, and that alternative solutions need to be sought. South Africa’s jobless rate is more than 29%, the highest in at least 11 years.

The state is talking with potential investors in the airline to ease the continuing burden the company puts on the national budget. “I am pleased to learn that there are conversations involving South African Airways and potential equity partners, which would liberate the fiscus from this SAA sword of Damocles,” Finance Minister Tito Mboweni said last month.

Some of the unions are politically motivated, Gordhan said.

“They’re risking the future of the airline and the jobs of everybody else,” he said “Hopefully they come to their senses before we go too far.”

SAA said it will apply a “no work no pay” principle to those who participate in the strike. While the carrier canceled all domestic, regional and international flights scheduled for Friday and Saturday, partner airlines including Mango, SA Express and Airlink will continue to operate, it said.

“Those who participate in the strike action will not be permitted back to work until the strike is over,” said Martin Kemp, SAA’s acting general manager for human resources. “The rest of the employees who report for duty will be allowed to work.”

To contact the reporter on this story: Andres Guerra Luz in New York at aluz8@bloomberg.net

To contact the editors responsible for this story: Amogelang Mbatha at ambatha@bloomberg.net, Ana Monteiro

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