'SAA can be saved' | Fin24
 
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'SAA can be saved'

Oct 29 2017 06:00
Jan De Lange

The five-year plan to pull SAA out of its nose dive will involve reducing the fleet, cutting routes, and consolidating SAA, Mango and SA Express.

Johannesburg - SAA can recover from the bankruptcy that has driven the airline to the brink of collapse over the past five years, says Vuyani Jarana, who will start his job as the airline’s new CEO on Wednesday.

Jarana gave up a stellar career at Vodacom last year. SAA would have been consigned to the trash heap long ago, had it not been for the string of bailouts taxpayers had to cough up.

Many of the directors that former minister of finance Pravin Gordhan appointed to the board in September last year agree with Jarana.

“SAA will definitely be successful if commercial considerations are allowed to govern the way it’s managed, without any political interference,” one of these directors told City Press’ sister newspaper, Rapport.

They are all independent directors with proven track records in executive posts, some of them in the country’s most successful companies.

And Jarana believes he will get the space to make much-needed changes.

Dudu Myeni, a close friend of President Jacob Zuma, who served on SAA’s board of directors for nine years, the last five of which as a chairperson, will finally vacate her office after the AGM on Friday.

“I am convinced that the worst is behind for SAA,” Jarana said.

“We simply must and are going to do the right thing. No limitations were put to me other than that I have to make things work. And the announcement that was made yesterday [Wednesday, during the medium-term budget debate], well, you can’t get a clearer indication from a shareholder that he is prepared to make that kind of commitment.”

Finance Minister Malusi Gigaba announced that government will recapitalise SAA with R13 billion over the next three years and that it wants to find a strategic equity partner for SAA.

This means the airline’s annual report, which should have been released months ago, will be accepted and released at the AGM on Friday.

“The lifeline [bailout] gives us breathing room, but the equity partner is something I wasn’t expecting. You can’t ask for a bigger sacrifice from a shareholder than going into a partnership,” Jarana said.

Now he will urgently have to ensure that a five-year turnaround plan is put in place.

This will involve reducing the size of SAA’s fleet by 20% and cutting back domestic flight routes by 37%. That could also mean cutting back on staff.

SAA has about 10 000 employees and 55 aircraft, which means it has about 181 employees per plane. This will increase to 222 if it gets rid of 10 planes, as prescribed by the turnaround plan.

“We’re definitely not going to employ more people than we have work for. We have to reach the right efficiency ratios at all costs. To do that, we have to reach the right productivity rates – our income per employee and other related rates.

“We are in a competitive market and we will simply have to ensure that our expenses are within the limits imposed by our size. Our shareholder will have to give us the space to be competitive, otherwise we won’t make it,” Jarana said in response to a question about employee cuts.

Under his management, SAA will be consolidated with SA Express, the niche airline which flies to smaller destinations, and budget domestic airline Mango.

“It’s going to diversify our fleet so that we can better utilise the domestic flight routes. Under this dispensation all three of the airlines can be managed as a diversified asset portfolio.

“It will make it possible to better exploit domestic flight routes. We can send smaller planes in the middle of the day when we’re flying tourists around on certain routes and larger planes in the early morning and late afternoon, when we have to cater for business travellers.”

He said there was major disappointment that SAA would no longer be flying to East London, but the consolidation of the three airlines would make it possible to continue a service to the city.

Myeni often complained that SAA couldn’t get ahead because it did not own its own aircraft and spent about R3 billion a year leasing its fleet. Jarana shrugs when asked about this.

“It’s a purely commercial decision, whether you’re going to lease or buy planes. The question is whether your balance sheet is strong enough so that you can take out loans at interest rates that are low enough so that it costs less to buy than to rent.

“But if you’re in the position that SAA is in now, as I understand it, it doesn’t sound to me as if we will have much of an option other than continuing with the lease contracts.

“You have to determine if there is a suitable market for the used aircraft after it becomes obsolete for your fleet, and whether you’re going to have the capacity to renew your fleet once it becomes obsolete.

“Other airlines sometimes have an effective repeat sales market, which is combined with subletting.

“Ryanair, as I understand it, is in a position where they purchase planes, use them for five years, and then dispose of them.”

He said it was not an “ideological issue” in the manner it was sometimes discussed in Parliament.

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