News / South Africa

Gosebo Mathope
4 minute read
19 Oct 2017
4:33 pm

SAA facing a steep road ahead, stakeholders agree

Gosebo Mathope

Analysts say the turnaround strategy should resolve over-staffing, technical capacity, proper governance systems and focus on operating flights as scheduled.

South African Airways (SAA) sole shareholders, National Treasury, had no political space left, and thus had to oblige to lenders’ demands that Jacob Zuma Foundation boss Dudu Myeni be removed as chairperson of the board, and that a chief restructuring officer be appointed to oversee a five-year organisational turnaround strategy.

Iraj Aberdian, chief economist at Pan-African Investment & Research Services, an investment company and private equity investor, is adamant “SAA’s loans would not be rolled over unless and until a new board was put in place”.

“The Treasury has no resources to provide bailout, so the government is left with no option but to introduce a new board and then avoid a total shutdown of the airline. If the National Treasury had money to bail out, then it would have paid the banks their loan and had a space to manoeuvre to keep whoever they preferred on the board,” Aberdian told The Citizen.

It emerged this week that parliament chief legal adviser cautioned that Section 16 of the Public Finance Management Act (PFMA) did make provision for the finance minister to dip into the National Revenue Fund to bail out cash-strapped state-owned entities, except under extenuating circumstances, such as the inability to foresee the expenditure.

The Business Day reported that, according to the legal opinion provided to the finance portfolio committee, this bailout could have been unlawful, as the SAA board and executive had known about negative cash flow in advance.

“I do not have sufficient details to establish whether all the conditions of PFMA were fulfilled before the bailout was granted. On one issue, the bailout certainly did not comply with codes of good governance.

“At the time the bailout was announced, the airline did not have a credible board, nor did it have a credible turnaround business strategy. So based on these two items, there were clearly issues that were overlooked,” Aberdian said.

READ MORE: Auditor-general and SAA board in an alleged tussle that delayed financial statements

Aberdian also emphasised that the filling of the position of chief restructuring officer was crucial, as the airline required a multiple-year turnaround strategy, together with management control systems, to “remove the culture of inefficiency and replace it with commercial principles”.

DA shadow minister of finance Alf Lees said Myeni’s removal was long overdue, as she “presided over huge losses”, but expressed cynicism about the new board’s prospects to turn the situation around because SAA simply required “huge cash injections”.

He said the volatile nature of the aviation sector coupled with tight profit margins would give the board and executive sleepless nights.

‘SAA has a bloated staff complement, 30% more than other competitive airlines around the world.’

“SAA has a bloated staff complement, 30% more than other airlines. [Vuyani] Jwara [newly-appointed CEO] and the new board are not going to find this easy to deal with given the employment views by Cosatu and ANC.

“Other robust changes [needed] will be for SAA to be run like a business. Dudu Myeni ran it partly to enrich certain people and partly transformation-based and not so much on competition. Even if you award contracts to BEE [service providers], it must be competitive.

“Let’s take the Jet Fuel tender which was been awarded to small suppliers on a month-to-month basis, she tried to interpose a third party between SAA and the big suppliers.

“All this did was to increase costs to SAA with a few cadres selected to benefit from this deal. The bailouts were based on foolishly awarded government guarantees to the tune of R91 billion. Now you gotta meet your guarantees, you have no choice. The issue is not whether it had an option. It had an option when the guarantees were issued, it knew the airline couldn’t meet repayment options,” Lees said today.

Turnaround Management Association of SA executive member Robin Nicholson, formerly SABC CFO and acting CEO, says the new board should focus on “proper governance systems”.

“Rebuild your brand, it’s not about what happens in the boardroom, it’s about what happens when people get in the plane. The capacity for them to deliver through equipment, people and scheduled arrival and departure. Board members should focus on governance and not be operational, it has good people working on it. It has an impeccable safety record.

“Build capacity on the executive team. Get rid of your noncore assets and noncore operations. They don’t need to do certain things themselves, they are not core and could be managed by an outsourced service provider. The [current] model … the system is depleting cash reserves at the airline and not generating any income.”


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