SAA to overhaul business model

Staff Writer
In a move that South Africa’s Public Enterprises Minister Alec Erwin described as “tough love” for the embattled national airline, the chief executive officer of South African Airways (SAA) Khaya Ngqula has announced details of the most far-reaching restructuring of the airline yet.

Among the highlights of the restructuring, which Erwin said must be implemented this year in order for the airline to qualify for further financial help from the government, are the grounding of SAA’s entire fleet of six Boeing 747-400 aircraft, and the axing of 30 percent of SAA’s 600 managers.
But perhaps in fear of inciting anger among trade unions, SAA was coy about releasing details of any further retrenchments among its 10085 workforce, as it prepares to “renegotiate the working conditions” of those employees.
The announcement comes weeks before SAA is set to announce yet another year of losses, likely to be at least in the region of R700 million (about P609 million).
This could spark further questions about the R1.3 billion (about P1.1 billion) that Erwin has already pumped into SAA in the past year, with more taxpayers’ cash set to flow into SAA’s bank account to shore up its precarious financial position.
According to Ngqula, the restructuring plan is the most fundamental in SAA’s history, and entails an overhaul of its business model that will hopefully spark a R2,7 billion (about P2.3 billion) turnaround in profits, pushing it back into the black within 18 months.
Ngqula said “with the cost structure we had, it was almost impossible for us to compete in this environment.”
The costs of the turnaround are high. When asked if he would quit as CEO if the restructuring plan did not work, Ngqula said that if the plan failed, there “will be no SAA”.
When it came to the grounding of the 747-400s, Ngqula said the idea was to “bring down the onerous cost” associated with running the Boeings, and replace them with three aircraft that had been leased to India’s Jet Airways, but which were due to come back to SAA this year.
This is an important development, as SAA leases five of the 747-400s and owns the other - contracts entered into by former CEO Coleman Andrews, who left SAA under a cloud with a R230 million (about P200 million) paycheque in his pocket in 2001.


As the leases near the end of their term in the next three years, SAA will have to make “balloon payments” of hundreds of millions of rands. By grounding the aircraft, SAA will be hoping to sub-lease them to other airlines, and avoid the bulk of the balloon payments.
SAA is also re-examining its routes with a view to axing the least profitable.
Already SAA has canned its route to Zurich and its flights to Paris, and yesterday said it was postponing the launch of flights to Chicago and Buenos Aires.
On the other side of the coin, it plans to increase its profitable flights to Africa, opening a route to Libreville in Gabon, and Munich later this year.
The airline also plans to lure more business travellers for its domestic routes.
It denied it was planning to discontinue serving food on some of its short routes.
Ngqula’s announcement was vague on how many of SAA’s 10085 staff members would join the 180 managers in the unemployment queue.
Human resources General Manager Bhabhalazi Bulunga refused to confirm earlier statements that up to 1000 staff stood to lose their jobs.
Bulunga said he “wouldn’t want to speculate” on job losses, and the company was set to begin negotiating with trade unions.
SAA is planning to renegotiate staff working conditions. This is likely to lead to changes in leave, allowances and pilots’ perks.
SAA Pilots’ Association chairman Jimmy Conroy said if the association did not think the restructuring plan was feasible, “we will be more reluctant to make meaningful concessions”.
The South African Transport and Allied Workers’ Union said while it was “satisfied” the restructuring plan did not involve any forced retrenchments of cabin crew and ground staff, it would declare a dispute and strike if there were retrenchments.
SAA will be reorganised into seven business units: its main passenger airline, low-cost airline Mango, cargo division SAA Cargo, ground services, loyalty programme Voyager, technical division SAAT, and travel agency SA Travel Centre. Its catering unit Air Chefs and ticketing arm Galileo will be sold. (Business Day)


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