Things looking up for SAA as it flies out of storm of corruption

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SAA CEO Vuyani Jarana. Picture: Siphiwe Sibeko/Reuters
SAA CEO Vuyani Jarana. Picture: Siphiwe Sibeko/Reuters

South African Airways is slowly “flying out of the thunderstorm” of corruption, mismanagement, nepotism and cronyism which have plagued the airline in the past 15 years.

Following years of daring plunder and theft by politicians and senior executives, things came to a head in 2017 when Citi Bank and Standard Chartered called up loans totalling over R4 billion.

Other funders refused to extend further credit.

In September 2017 City Press reported that Nedbank had told Treasury and SAA executives that the bank will not lend money to the airline if former chairperson Dudu Myeni remained in her position. But Myeni had no intentions of leaving.

The report had also revealed that Myeni was telling people close to her that she will only leave “when ubaba (former President Jacob Zuma) leaves”.

Under mounting pressure from the public and funders, cabinet announced a new board in October 2017.

A month later, Vuyani Jarana took over as chief executive officer, the airline’s first permanent boss in almost a decade.

Jarana walked into a bankrupt SAA and the damage to the airline was deep.

A few months after taking over the reins Jarana was himself accused of splurging on consulting firms and foreign consultants who were working in South Africa illegally, and purging senior and experienced executives who refused his demands to appoint suppliers without following tender processes.

In September last year Jarana presented his board with a turnaround strategy.

Among others, the strategy showed that:

• SAA will only return to profitability in 2021 and that in the intervening period, the airline will need a capital injection of R21.7 billion

• SAA Technical, which has suffered significant losses to “fraud and theft”, is bleeding money, losing up to R560 million a year in penalties from poor turnaround times for aircraft repairs and maintenance;

• SAA’s monthly costs – ranging between R350m and R450m – are significantly higher than its revenue and are not coming down fast enough; and

• SAA needs to reduce costs by 5.2% and increase revenue by the same amount to record a R1 billion improvement by the end of the current financial year.

A new dawn

While the jury is still out on Jarana’s strategy, a briefing to the media and other stakeholders on Monday revealed that SAA’s operations have improved significantly in recent months.

Documents presented at the briefing show that at the end of the financial year, in September last year, SAA’s executives had budgeted for R12.9 billion revenue. But the actual revenue was R13.6 billion.

Operating costs declined from a budgeted R15.4 billion to R15.1 billion. Losses amounted to R2.2 billion against a budgeted R3.4 billion.

However, earnings before interest, taxes, depreciation and amortisation were disappointing.

It amounted to R1.5 billion against a target of R2.4 billion.

One of Jarana’s first bold moves when he arrived at SAA was to reduce the number of daily flights to London’s Heathrow airport from two to one.

Peter Davies, SAA’s restructuring chief, revealed on Monday that the move has saved SAA 50 000 US dollars a day.

“We have been bleeding this money for the past 14 years and no one was able to see it.”

Further, Jarana told the gathering that last week funders were able to extend another loan facility worth R3.5 billion.

The money, he said, will see the ariline through to June.

“Unless you have done a massive cleanup of SAA, you are not likely to get any takers. Banks are now talking to us because of the level of commitment they are seeing. We are putting good governance and consequence management. Lenders want a path to debt reduction and a path to profitability. They can see that we have a committed executive and board,” Jarana said.

“I am quite happy with the trajectory. We are in a much better position that last year.”

A slide presentation made by Jarana and other executives showed that in the 12 months to December 2018, the revenue made by the airline per kilometer improved significantly compared to the same period in 2017.

The average fare paid by customers over the same period is also showing signs of improvement.

While the number of passengers and the available seat kilometres, which is the number of kilometres flown by passengers per flight, did not increase, the airline’s chief financial officer Deon Fredericks said this was informed by a decision taken to re-direct five aircraft to low-cost carrier Mango and to return a further five to lessors.

“Previously planes were full but we didn’t make any money. A plane must be 75% full in order to make money.”

South African Airways Technical, he said, had also contributed significantly to fleet shortages as the unit had fallen behind with maintenance which affected aircraft predictability and availability.

The unit has also been crippled by corruption and the theft of parts which set back SAA by hundreds of millions.

The executives further announced that SAA will be split into three business units: local, regional and international.

These units, Jarana said, will each be run by a managing director and a team of employees. “Currently we run like a domestic airline with offshoots in London, Berlin and elsewhere. We want to build a proper international business that will be broken into three units. We will experiment with a new operating model and a new SAA which will be fit for the future.”

As such, Jarana said, the airline is embarking on a massive restructuring project.

“We are in a much better shape than we were last year.”

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