Escalating South African Airways Strike to Test Ramaphosa

(Bloomberg) --

Labor unions are threatening to bring air travel in South Africa to a standstill as they test the government’s resolve to stabilize the loss-making national carrier.

Two labor unions representing more than 3,000 workers at South African Airways have been on strike since Nov. 15 after the state-owned airline rejected their demand for 8% raises and announced plans to cut 944 posts, forcing the cancellation of most flights. Now the National Union of Metalworkers is engaging its members at other airlines and companies that service the industry on whether they should stage sympathy strikes.

The government’s approach to ending the standoff could indicate how President Cyril Ramaphosa’s administration will tackle the thorny issue of reducing bloated wage bills at other state-owned companies. Public Enterprises Minister Pravin Gordhan indicated last week that it intends taking a hard line, saying SAA isn’t too big to fail.

“What began as a strike for higher pay at SAA has morphed into an ideological clash and a direct challenge to the government,” said Gary van Staden, an analyst at NKC African Economics, which is based in Paarl, near Cape Town. If Ramaphosa buckles to the union’s demands, “he will find it that much harder in future to demonstrate his determination to take the tough decisions that any prospect of economic recovery requires,” he said.

The metalworkers’ union said it has started consulting workers at maintenance companies and carriers including Mango Airlines SOC Ltd., Safair Operations (Pty) Ltd. and SA Express with a view to intensifying the strike. While the union called for an urgent meeting with Gordhan and Finance Minister Tito Mboweni to discuss how to save the airline, they haven’t indicated whether they’ll accept.

SAA, which has lost more than 28 billion rand ($1.9 billion) over the past 13 years and has offered workers 5.9% increases, has warned that the strike is costing it 50 million rand a day and is placing its entire business at risk. The unions argue that their members shouldn’t be held responsible for the corruption and mismanagement that have dogged the airline for years.

The chance of a secondary strike is “quite high if SAA holds the line” and could take a couple of weeks for the unions to organize if they follow the correct legal channels, said Andrew Levy, managing partner at Andrew Levy Employment, which advises companies on labor relations. If that point is reached, “sabotage and violence will escalate,” he said.

Last month the government said it will repay SAA’s outstanding government-guaranteed debt of 9.2 billion rand ($629 million), support that Mboweni said the country could ill afford and had to come to an end.

The burden that SAA and other state companies, especially embattled power utility Eskom Holdings SOC Ltd., are placing on the state’s finances contributed to a decision by Moody’s Investors Service -- the only major rating company that assesses the nation’s debt as investment grade -- to revise its ratings outlook to negative.

‘Wider Implications’

“There are now serious wider implications on the political economy front here for South Africa, in that the unions probably see the SAA saga as a tipping point in their opposition to how government wants to restructure state-owned entities generally to ensure their survival and sustainability,” said Raymond Parsons, a professor at North-West University’s Business School in Potchefstroom, west of Johannesburg. “There remain tough decisions to be taken.”

Officials at the Department of Public Enterprises, which oversees SAA, and the metalworkers’ union didn’t answer their phones or respond to messages seeking comment.

Lumkile Mondi, an economics lecturer at the University of the Witwatersrand in Johannesburg, sees a symbiotic relationship between a government that he says still believes in state ownership, and unions that are prioritizing the needs of their members above those of the country.

“The government is forcing a crisis so that it can save SAA through a deal that they’ll cut together” he said. “Get ready for the downgrade -- there’s no imagination in this regime whatsoever.”

Latest flights update from SAA:

• Flights will resume to six African destinations -- Accra, Lagos, Lusaka, Maputo, Windhoek and Harare -- from Tuesday.
• All flights to other continents have been reinstated but local flights remain suspended.
• SAA is continuing to work with its partner airlines, Mango and SA Airlink, to accommodate its customers traveling on domestic routes on Tuesday and Wednesday.
• Passengers are requested not to go the airport if their flights have been canceled unless they are in possession of a re-booked itinerary.
• Customers seeking a refund or wishing to re-book their travel on a future SAA flight have until Nov. 30 to complete their travel arrangements.
• Some SAA staff have continued working despite receiving threats and being intimidated.

--With assistance from Prinesha Naidoo.

To contact the reporter on this story: Paul Burkhardt in Johannesburg at pburkhardt@bloomberg.net

To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Mike Cohen, Hilton Shone

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