A Proposal to the Department of Public Enterprises
Drafted and Presented by SATAWU
South African Airways (SAA) has for over a decade been retarded by failure to transition from a traditional state-owned enterprise (SOE) to one that is agile and adheres to optimum operating costs in a viciously competitive environment. Numerous attempts to change this operating mindset have failed to yield acceptable results. This submission proposes a strategy for a creation of a new SAA in the post Covid-19 era that focuses on a comprehensive approach that involves participation from all stakeholders.
It is also anchored on a clear understanding that the operating environment has now been dramatically disrupted by the Covid-19 pandemic and that the envisaged new SAA will be smaller and may result in significant job losses. In the immediate we recommend that Government to bailout SAA with current COVID – 19 Funds furthermore:
This submission was triggered by the BRP paper titled SAA Crisis: Resolution Overview (13 April 2020).
A critical point of departure is a proper articulation of the problems that have beset SAA over time in order to be able to frame a proper context for a responsive solution. It is important to underscore that there are two distinct markets at play.
The documents provided indicate that the recognition of these separate and different markets (domestic and international) has long been recognized. However, the boards of SAA and management have inexplicably not sought to review its repositioning and operating mandate in relation to these issues. This opportunity was best presented when Mango was created in 2006. Such a decision and clarity was significant as it could have set a basis for determining the vision and business models applicable to both entities and all other associated questions including;
These issues demanded the keen attention of the shareholder as represented by the board and management.
Under Causes of the Crisis this critical and foundational determination has been overlooked or ignored. By stating the destructive role of the incompetent management and some corrupt Board members that were appointed with the approval of the shareholder is not minimised.
It is important to underscore that Labour was not consulted in debating the key operational issues. But it is labour now that faces the harshest outcome of the current crisis.
The Way Forward – Post Covid-19 Era
We find nothing in the BRP document that articulates a clear strategy on the recreation of the new entity and a template for testing the viability of such a strategy. In our view, such a template would provide a basis for discussing how long it would require to test the viability and what other actions will be urgently needed to mitigate the economic and social and stem the cash burn in the interim. The current BRP approach has mainly been financially driven without addressing what it would take to establish/recreate the new SAA.
We believe it has failed to produce a basis for determining the viability of a new SAA and the impact of the pandemic has created a new and different reality. It must be scrapped. We highlight below some of the critical ones we have identified.
The above statement is based on the reality that:
Regional market using narrow-body aircraft
Long haul continental and intercontinental market using wide-body aircraft
The work on recreation scenarios will include, but not be limited to the following:
We have identified the major reasons for the lack of profitability in the international market as lack of scale as well as geographic positioning of South Africa being at the end of the Hemisphere. Geographic positioning together with network effect of global airline schedules meant that SAA got limited flight hours out of its international fleet, making it impossible to recover the costs of leasing and operating the international fleet even on good load-factor and average price conditions. These were systemic constraints in SAA international business leading to poor return on investment.
Given the systemic challenges in the international markets, we need to look to collaboration as an instrument to address SAA’s woes in the international market segment. The best option is to focus on commercial joint ventures in the international business to share the profits and losses with partners who share the same values and aspirations in the African Aviation Market.
Preliminary discussions had already been held with Ethiopian Airways who were keen to participate in order to achieve the long-standing hope of creating an African Intercontinental airline with both SAA and ET as anchors. The current situation presents an ideal opportunity to pursue this vision
Rationale for Recreating SAA
First, it will cost too much to close it down, and we can’t afford it. SAA is about R40-billion in debt to the state and to banks and it has about R80-billion worth of aircraft leases, which will cost plenty to wriggle out of. Without flight operations to service that debt it just becomes a deadweight that the state (we the taxpayer) will still have to pay for. Other Airlines are in operational downflow with some to be working on downsizing their employees, failed to pay their employees with such scenarios providing business opportunities to the new SAA National Airline
Second, the airline employs 5,000 people – and 10,000 in the SAA Group. If SAA and SAE were to close, about 80% of those jobs would be lost. The pilots would accept jobs at overseas carriers and may be able to continue. But without SAA as their primary customer, SAA Technical and Air Chefs would collapse. And this is only the loss of direct jobs. Thousands more high-value jobs in support industries would also be lost. The cost, both in terms of human suffering and to the national economy would be huge.
Third, the airline performs an essential enabling function to the South African economy – and the rest of Africa as well – in that it provides essential air transport connectivity. The facile response to this claim is that private sector airlines which are now collapsing are waiting on the wings of SAA to wait to collapse and move into the gap left by SAA. Covid-19 has redefined the operating context in a very dramatic way. The regional and continental absence of SAA will negate the stated efforts of the President as Head of the OAU to realize a rapid recovery for the continent, whilst SAA through SAE & Mango would be able to fit well in the domestic – regional activities with SAA focusing in the International activities.
Fourth, in 2017, Oxford Economics updated its seminal study on the value of aviation to South Africa, and the results are startling.
Headline numbers show that the aviation sector supports 490,000 jobs and adds R160-billion to South Africa’s GDP. In addition, by buying goods and services from local suppliers the sector supported another 130,000 jobs.
It is our view that the current status of SAA qualifies it perfectly for funding under the Covid-19 R500 bn budget.
The immediate challenge is to fund:
The exact budgets will emerge from the work of the Working Group but our estimate is R15 bn.
SATAWU General Secretary
Mobile: 082 660 4793/082 951 1181
Further details from Anele Kiet, Deputy General (071 021 1903) and Nelson Lamityi, Sector Coordinator (076 402 0308)