SAA needs to start flying soon to stave off competitors, interim CEO tells Parliament

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SAA needs to be very cautious about how it selects its routes, says its interim CEO.
SAA needs to be very cautious about how it selects its routes, says its interim CEO.
Silas Stein/picture alliance via Getty Images
  • Parliament's Standing Committee on Appropriations was briefed by SAA and the DPE on Friday.
  • SAA's interim CEO shared some aspects being looked at to make the airline competitive once if can restart scheduled flights.
  • The committee also heard that the DPE was in final discussions with a strategic equity partner.

The longer it takes South African Airways (SAA) to take its space in the market, the more competitors are eating into its share, the state-owned flag carrier's interim CEO Thomas Kgokolo told Parliament's Standing Committee on Appropriations on Friday.

SAA has not operated scheduled flights since the hard lockdown started at the end of April 2020. The pandemic continues to impact the company's plan to resume operations.

The committee is busy with the process of finalising the special appropriation of R2.7 billion from R10.5 billion allocated to SAA, to go to its subsidiaries SAA Technical (SAAT), Mango and AirChefs. Unlike SAA, none of its financially strapped subsidiaries went into business rescue. 

"As we look at the restart and turnaround plan for SAA, we need to look at every cent spent. We need to bring efficiencies into the organisation and strictness around cost management," said Kgokolo.

"Some of the competitive tactics we are developing we want to keep close for now. We look, for instance at lease agreements as they can be costly and can eat a lot into the bottom line. Other things we are looking at is using expertise and the brand we built around the cargo space and to leverage some routes on the continent."

He emphasised that SAA needed to be very cautious about how it selects its routes.

"Our plan is, in the first two years, to have domestic and regional flights to push more momentum and then to consider some profitable international routes. It is very important that SAA only engage in profitable routes. There would have to be a very strong business case to convince us of flying on non-profitable routes," he said.

SAA also wants to look at reconfiguring seating arrangements on planes to be more in line with current market needs.

"It is key that burning cash is kept to a minimum. For example, instead of fixed aircraft leases we might rather opt for so-called 'power by the hour', where you pay as you use. We also need to make sure we retrain our staff to have multiple skills," said Kgokolo.

"One of the important things about aviation is that you must not let your cost get out of hand and to hold people accountable on what money is spent on. We are in a space where we need to do more with less. We cannot take for granted that money will be available all the time. We must plan for cost efficiencies."

Strategic equity partner

SAA's interim chair Geoff Qhena told the committee it is the Department of Public Enterprises (DPE) - as the shareholder of SAA - that drives the process of trying to find a strategic equity partner (SEP) for the airline.

"At the end of the day, the shareholder decides how much of the business they sell and who they want as their partner, including the timeline. For us to ensure SAA is sustainable into the future, the role of the SEP is very key, especially as government has said it does not have any further money. The role of the SEP cannot be overemphasised," said Qhena.

"When the business rescue plan was approved in June last year, we did not know how the pandemic would impact the airline industry further. The SEP would have to look at that."

Melanchton Makobe, deputy director general of legal and governance at the DPE, told the committee the department was in final discussions with an SEP.

We are confident that we can finalise the matter soon as it is critical for the future sustainability of SAA. Once we have made a concrete agreement, we will come back and brief the committee.

Committee chair Sfiso Buthelezi (ANC) would like to see SAA's board and management working towards "a firmer date" of when the airline can start flying again, rather than just an estimate of maybe in July or August. 

Pilot deadlock

The committee heard that delays in the timeous resolution of the deadlock with members of the SAA Pilots Association (SAAPA) will impact plans not only to restart SAA, but also to ensure it is sustainable.

Kgokolo said solving the ongoing deadlock with SAAPA will be key in terms of finalising a restructure plan for SAA.

SAA's interim chair Geoff Qhena told the committee there was a meeting with pilots on Wednesday and it is important to try to find a solution that will assist the new airline to restart.

"Other employees came to the party when we put options on the table to ensure everybody takes a bit of sacrifice to give the new airline a chance to move forward," said Qhena.

"Money is the area of dispute regarding the pilots. It is about how much the pilots feel they should get as result of restructuring. SAA has a different view. The BRPs [business rescue practitioners] managed to reach agreements with the bulk of other employees. The long-standing, evergreen regulating agreement the pilots have, and which gave them some privileges, made it a bit tricky. We are not so close yet where we can say when the dispute will be resolved."

In his view, it is only fair "that everyone takes a bit of sacrifice" to ensure a sustainable airline going forward.

"Taxpayers put in R10.5 billion. We must ensure how best to use it. We do not want evergreen contracts that will put as back. The whole idea was to give SAA a chance to go forward," said Qhena.

Business rescue review?

Qhena said lots of lessons are to be learnt by having had SAA as an SOE in business rescue. SAA was the first SOE to go into business rescue.

The business rescue plan was mainly to restructure SAA's affairs, business, property, debt and other liabilities to maximise the likelihood of the company continuing to operate and restore its going concern status.

"The idea of having a business rescue process was a good one, but there are areas that can improve, especially if there is only one shareholder who is expected to put up all the money," said Qhena.

Buthelezi said, as the lawmakers, the committee would like to know what lessons were learnt from having an SOE in business rescue and what issues arose in terms of the Companies Act.

"From our side, we would like a win-win type of situation. We want to get the fuller picture of the airline after the finalisation of the SEP process. You have a lot of work to do to ensure you are in the sky and not on the ground," said Buthelezi.

The committee heard that R281 million was paid to the BRPs, including money to consultants. About R3.5 billion will be received over three years.

Last, but not least, SAA referred in its presentation to various investigations still under way at SAA. Parliament was briefed on those earlier this year. Eighty-four SAA contracts and 44 aircraft leases are the subject of investigation. In addition, the Special Investigating Unit was requested to assist with civil litigation on eight other matters that the Hawks and National Prosecuting Authority are working on. A senior counsel has been appointed to deal with these matters.

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