The SAA revival has the potential to be a South African success story

Major lessons have been learnt from the SAA business rescue
Robin Nicholson
Director: Corporate-911

It is always good to see a success story.

While the South African Airways saga was one of the most popular news stories over the past years, it was popular for the wrong reasons. Instances of mismanagement were unearthed, the airline was shedding routes and it became the proverbial Oliver Twist with its hand out to Government asking for more bailout money.

Eventually, enough was enough and the airline was put into business rescue. Again, the press surrounding this was not flattering as the process became very drawn out with massive delays becoming the order of the day.

We are now at a stage where the airline has taken to the skies again. Once the pride of southern Africa (SAA was the second largest airline behind Ethiopian Airways), the only way that the airline can salvage some pride is if it can return to a profitable core. And that will take a lot of work and a good measure of discipline.

Take to the skies
After many months on the ground, SAA is taking to the skies once again.

One of the challenges that the airline faced in the past was that it was significantly overstaffed. A recent article by EWN points out that the airline cut its pilot complement from 600 (prior to the pandemic when the airline was placed into business rescue) to just 88 pilots.

First good decision…check.

The second problem that SAA had in the past was that the airline had a massive fleet which serviced way to many routes. The EWN article points out that the airline has reduced its fleet significantly. From the 46 aircrafts that the airline had going into the business rescue process, the airline only has 14 aircrafts.

Second good decision…check.

The third problem, which has already been alluded to, was that the airline serviced way too many routes in the past. The EWN article points out that the airline is currently flying to Cape Town at the moment and plans to open up routes to Accra (Ghana), Kinshasa (Democratic Republic of Congo), Lusaka (Zambia), Harare (Zimbabwe) and Maputo (Mozambique). With six aircrafts in the airlines fleet. This looks like it will be the immediate routes that the airline will focus on.

Third good decision…check.

Accra is one of the destinations on SAAs new route
Photo By: SA Tourism

Renewed focus and vigor
Business 101 says that when a company designs products or services, it must do so with the consumer at heart. While there is no doubt that this was the case with SAA in the past, another EWN article points out that the airline said it would be focusing on a new business and operating philosophy, which would put customer service at the core of its operations.

The airline received a lot of bad press in the lead up, and during, the business rescue process. A lot of South Africans felt that Government was wasting taxpayers money bailing out the airline.

That horse has bolted, and it is now up to the incumbents to prove the sceptics wrong by transforming the airline into one that the people want.

Mpho Mamashela, SAA Chief Pilot, is hopeful that customer confidence and South Africans’ trust in the brand will push them into profitability again, although for now, they are starting small. He also acknowledged that Government needs to seriously think about procuring more fuel-efficient aircrafts.

Fourth good decision…check.

Going back to the focus on consumers, Mamashela said that the airline will be listening to the public more and taking on board concerns about the airline is run.

Easy does it
During the business rescue process, Government sold 51% of SAA to the Takatso Consortium. The sale was made to raise funding to inject into the airline.

A recent interview with Moneyweb pointed out that, even here, the airline will have to prove its mettle before funding is handed over.

Ryk van Niekerk (Moneyweb Editor): And the R3 billion funding – is that still available?

Gidon Novick (Takatso CEO): Well, that R3 billion is an estimated commitment over time. It’s certainly not an upfront commitment. As we learn more and more about the business and the business plan we’re getting a better sense of the exact quantums involved.

But there certainly will be a significant upfront investment into the business; importantly it’s going to be going into the business and not as a purchase of shares or not a quantum for a purchase of shares.

But the exact quantums of investment are one of the issues still being negotiated.

Ryk van Niekerk: So how long do you think it will take for you to actually put ink on paper?

Gidon Novick: Ryk, you know what, I’m actually not even going to give a timeline, because you just can’t predict these things. On the one hand we want to do it sooner rather than later, but on the other hand we’ve just got to get it right. And in my mind that’s more important than speed.

Thomas Kgokolo should be appointed as the permanent SAA CEO
Photo By: SAA

Learning lessons
Implementing a business rescue is a learning process for all parties involved.

BRPs learn a lot about their own abilities and the skills within their companies to successfully implement a rescue. And credit must be given to the SAA BRPs. As pointed out, a lot of South Africans criticized Governments seemingly open purse policy with the airline and many BRPs advised that the airline would be an ideal candidate for liquidation as opposed to rescue.  

Credit must also be given to SAA. Over the years, I have seen a lot of companies not take any of the advise that was given to them on board. The result is that they either continue their existence as a significantly smaller version of their former glory, or they become insolvent.

This was not the case with SAA. The board acknowledged that some uncomfortable conversations needed to take place and that some tough decisions needed to be made. I think they approached the advise given to them with the right frame of mind, the advice was not a criticism, it was an observation of what needed to be changed.

We have pointed out four good decisions that have been made by the company. The last one needs to be made by Government. One of the biggest challenges faced by the company is the past was mismanagement by leadership. The courts found that Dud Myeni was a delinquent director and who knows the damage that she did to the airline. Currently, Thomas Kgokolo is acting as an Interim CEO of the airline. It would be a good decision to make his appointment permanent, provided that he has the right credentials. Government needs to stop appointing people into top positions based on favoritism, a strong CV needs to take precedence.

The SAA revival has the potential to be a South African success story. The company has made some smart decisions and is looking to build on the momentum of these decisions. But, as Mamashela points out, this will be a long process. This is a case where slow and steady will win the race.