Restructured SAA will boost aviation sector
While I believe that freedom of expression is an important resource of our times and that it should be nurtured without marginalising and trivialising the facts, cobbling issues without a central theme has often created false impressions and misunderstandings about why the government is committed to the emergence of a competitive, commercially viable and sustainable national airline for SA.
The road travelled and the road ahead
The reasons the government wants SAA to succeed are simple. The aviation industry generates employment and economic activity across several areas, including supporting tourism, enabling international business and economic growth. Therefore the creation of an integrated air transport network with SAA as a player is key to the success of the SA economy.
So, let us let the facts about the road SAA has travelled and the road ahead do the talking. For many years SAA strategies — nine of them to be exact, including some mutations — touched on revenue stimulation and network optimisation, supply chain transformation, augmenting skills to ensure the effective execution of the approved strategy, the implementation of appropriate governance structures and processes, and securing liquidity and restructuring the airline’s balance sheet.
The truth is, great plans and strategies are meaningless without effective execution. Dynamic planning ensures that meaningful strategies are in place, but planning doesn’t occur every day. Focused and tactical execution does. So why were these strategies never fully implemented? The reality is that for more than 10 years SAA faced major challenges, both internally and externally, which were never adequately addressed. These affected its ability to operate profitably.
Internal challenges
Internal challenges included a lack of stability at board and executive level leadership. This led to skills erosion, leaving SAA vulnerable, especially in the commercial areas of the business. Key roles were filled by ill-intentioned, temporary or inappropriately skilled individuals, and this affected the speed and quality of decision-making.
The lack of stability undermined strategy execution and affected business results. For example, between 2013 and 2017 SAA had six CEOs, some of them in an acting capacity during the height of state capture. The culture that developed at the airline of leveraging key positions to make decisions to benefit certain interest groups was not helpful. The stakeholders refused to listen to each other, and leadership at all levels failed to forge a united front to address the clear threats that were circling the business.
There has also been undercapitalisation, which was not helped by many years of poor financial performance. We all agree on the vital role adequate capital plays in ongoing success, and lack of capital is the devil everyone is familiar with. The business rescue plan is premised on reducing the debt burden of SAA, and the government’s R16.4bn is a clear statement of intent in this regard.
External challenges
The confidence of the company’s partners, such as lenders, suppliers, trade partners and employees, waned significantly, and as the trust deficit widened credibility was eroded.
The airline has seen its market share decline from more than 90% in the early 1990s to less than a 10th today, if the associated airlines’ share is excluded. The local market has seen fierce competition, with additional capacity brought in by new players, shrinking margins in a business notorious for thin returns. The post-Covid market will not be any different in this respect.
Additional external challenges included end-of-hemisphere geographic location, foreign exchange fluctuations and a volatile oil price, combined with a global slowdown in the economy, which severely affected the travel industry. Labour strikes and the grounding of its fleet in November 2019 have added to the headwinds for the new SAA and local industry as a whole.
Business rescue
The government placed the airline in business rescue on December 6 2019 and immediately appointed business rescue practitioners in a bid to find a fundamental solution for an airline that faced the prospect of permanent demise. For eight months the business rescue practitioners analysed all revenue and cost drivers and defined short- and long-term strategic and tactical measures to optimise operations, structure and processes en route to profitability.
Additionally, a future SAA will require the sourcing and appointment of an executive management team with deep knowledge and experience in the aviation industry and business acumen, to accelerate and successfully implement the plan. They will also need to be of the highest integrity to ensure there can be no return to the corruption of the previous decade.
Why the government wants SAA to succeed
The business rescue of the airline provides the most viable solution, a lower capital requirement in the short and medium term together with profitability and sustainability for the airline in the long term.
Based on a preliminary analysis conducted in February 2018 by Bain & Co, in the event of liquidation SAA would be liable for R30bn-R50bn, mainly due to guaranteed debt, existing liabilities as well as employee benefits, with marginal recoverable assets.
So why does the government want the new SAA to succeed? With SAA as a player, the government is able to leverage the airline to ensure affordable air travel and improve connectivity in a country and region with large distances between its economic hubs.
Africa itself continues to be a highly competitive market, contested by African and non-African aviation companies, and SA stands to benefit greatly if the state aviation assets remain strong and reliable operators on the continent and beyond. The drive for increased investment in infrastructure, local manufacturing, tourism and beneficiation of natural resources on the continent will require seamless air connections with major trading partners.
According to a study by the World Economic Forum, the aviation industry contributes at least 2% to the GDP of a country, suggesting that the aviation industry and a high level of development mutually reinforce each other. That is to say, as a nation develops so does the aviation sector, and as the aviation sector develops economic activity and living standards are improved.
The study found that the aviation sector also contributes to other industries by facilitating their growth and supporting their operations, even if these industries are far removed from the direct or indirect components of the aviation sector itself.
Through its speed, convenience and affordability, air transport has increased the opportunities for leisure and business travellers to experience a host of geographies, cultures and markets.
We want SAA to remain a catalyst for wider benefits in its role as a critical component and facilitator of global business and tourism. We look forward to seeing SAA flying to greater heights.
