South African Airways (SAA) acting CEO Nico Bezuidenhout announced on Tuesday that the company was implementing a 90-day action plan to enable the full implementation of the airline’s already approved Long-Term Turnaround Strategy (LTTS). The 90-day period of the action plan will end on March 24 next year. “The 90-day action plan all emanates from the LTTS,” he affirmed.

The LTTS was presented to Cabinet and approved some 18 months ago, but has not been properly implemented. “And the world has changed,” noted Bezuidenhout. “There is more competition. SAA’s competitive position has deteriorated.”

The airline has also suffered from “governance challenges” with its board recently being reconstituted. He recapitulated that the company is, for the third year in a row, late in publishing its financial statements. Its annual general meeting has been deferred. “Our business is in an amount of trouble. ... Since 2007, SAA has been reliant on State guarantees. ... SAA has not, and is in no immediate risk of, defaulting on a debt. We do have the ability to service our debt.”

The action plan has six main thrusts. The first of these is to immediately deal with SAA’s liquidity situation and solvency. To these ends, the airline has already identified R1.3-billion in possible savings. These include R300-million in savings in aircraft leasing costs; saving R507-million on certain intercontinental (particularly Asian) routes; saving another R95-million on domestic routes; saving R250-million through renegotiating all the company’s 180-odd supplier agreements (the airline currently has a procurement spend of R2.5-billion and Bezuidenhout affirmed that this could be cut by 10% “quite comfortably”) and saving R175-million on other supply agreements and on labour (but retrenchments are not yet under consideration – natural attrition might suffice).

The second thrust is to immediately investigate and determine what the options are for the future funding of the airline. “We’ve had a number of years of shareholder value destruction,” he stated. “SAA is totally dependent on debt finance. Interest payments are [now] half-a-billion rand a year.” But the government is now “more open” to the strategic equity partnerships for the airline. However, SAA is now effectively a group, composed of SAA itself, SAA Technical, low-cost carrier Mango and airline caterer Air Chefs. Each, he pointed out, had different needs when it came to possible strategic equity partners.

The third thrust is to deal with governance defects. The airline’s commercial rivals had proven to be more nimble in dealing with the changing environment of the air transport industry. An Inter-Departmental Task Team, comprising representatives of the Department of Public Enterprises, the National Treasury and SAA, has been set to accelerate higher-level decision-making processes regarding (not within) SAA.

Inside SAA itself, a “War Cabinet” of executives has been established, “totally focused on getting the LTTS back on track”. The War Cabinet meets twice a week. “It’s an operational meeting, to make sure we address shortfalls in the 90-Day Plan.” The Ministers of Public Enterprises and of Finance have agreed to fast-track Public Finance Management Act approvals for SAA, once the company’s board has approved a decision.

Because of changes in the global commercial aviation environment, the LTTS needs some reconfiguration. For example, the fall in the fuel price means that the replacement of the airline’s wide body aircraft fleet is no longer an urgent requirement. Cheaper fuel has “changed the operational efficiency of our [Airbus] A340-600 fleet”. 

The fourth thrust is concerned with legal and high-level governance. This will involve an immediate review of all the company’s contractual burdens and any defects in its legal structure.

The fifth thrust is to reorganise and optimise the company’s assets. “We are going to create a holding company structure,” explains Bezuidenhout. “We’re going to move the subsidiary companies out and make them sister companies to SAA. This will provoke certain cultural changes in these companies.” (Mango has always been run separately from SAA, has always had a different culture to SAA and is usually profitable.)

The sixth thrust is to improve communication, both internally, with the government, media and people. He promised the media updates on the implementation of the action plan.

He reported that SAA’s intercontinental routes were losing money (although the fall in the fuel price will help), but that the African routes were doing better. “It [Africa] is the highest yielding portion of the SAA market.” While certain intercontinental routes were being reconsidered, “Africa remains our focus. ... The commercial opportunities in Africa are substantial.”