THE SHAKE-UP: Proud SAA reduced to shambles

JOHANNESBURG – Sometime in the early 1990s, a young wannabe newsman boarded a plane from a bitter cold Ottawa International Airport in Canada to Jan Smuts International Airport in Johannesburg.

Like many South Africans who had been scattered across the four corners of the wind at the time, the trip back home heralded an end to the vicissitudes of solitude and loneliness that came with being forced to be away from their loved ones.

The plane was a South African Airways (SAA) aircraft.

It still had the old apartheid flag on the tail and the Afrikaans Suid-Afrikaanse Lugdiens on the side. But it felt good to be going home.

The young man made sure to pamper himself with everything that was South African on the plane, from biltong and other foods to the beautiful waters of the big company that was previously known as South African Breweries.

And with all the political changes that were taking place in South Africa, the young man took it upon himself to assume a significant patriotic ownership of SAA.

It was time to suspend suspicions and forge something called national pride, which would make all of us share the burden of building a new nation.

When the flag on the tail of the plane changed, the young man’s personal ownership of the airline soared.

It lifted at least a hundred-fold more when SAA became the official carrier of the nation’s new sporting heroes, Bafana Bafana – who, despite that ugly zebra-like kit that they donned at the time, still managed to bring home some decent results – as well as the Springboks and the Proteas.

But the young man’s patriotic ownership of SAA waned over the years as SAA continued to pound the fiscus with its chaotic leadership.

From a profitable airline that was one of the best in the world SAA has become a symbol of national shame.

Last week, the airline claimed its biggest scalp in recent memory when chief executive Vuyani Jarana tended his resignation, citing regulatory hurdles that made it difficult for him to change SAA into a competitive business that could take on the market.

In his letter to the board, Jarana spoke of restrictions imposed by the Public Finance Management Act that delayed turnaround times in state-owned companies because they required, in some instances, three levels of approval for matters that need urgent action.

Jarana said for SAA to break even by 2021, the airline needed to be under the National Treasury and that the board composition would not change more than 30percent, among others, to ensure consistency and stability.

Jarana’s sober assessment of the problems created by multiple reporting structures should be particularly instructive if the government hopes to halt the decay that has become the hallmark of state-owned entities (SOEs).

For far too long, SOEs have failed to execute their plans because the government itself does not appear to have a clear vision of where the entities fit in its broader agenda of transforming the country’s economy. The doling out of bailouts just to keep SOEs afloat does not make any business sense.

Even Finance Minister Tito Mboweni’s eccentric approach of closing down SAA will not go any further, because the debt that the airline has accumulated will still need to be serviced.

Governments the world over do fund their SOEs, but only for a stipulated period that sets out targets to be achieved under a clear vision that is canvassed with both the boards and the executive for execution. It took Ethiopians at least 10 years to reposition an almost ruined airline to become one of the most competitive in the world.

The country head-hunted its best brains to implement a turnaround strategy for Ethiopian Airlines that the government had crafted with the help of Ernst & Young.

It focused on its domestic markets and increasing its destinations internationally to hike its turnover.

The long-term view was to turn a $400 million (R5.8 billion) operation into a $1bn turnover between 2004 and 2010.

In the 2016/17 financial year, Ethiopian Airlines revenue increased 11 percent to $2.7bn compared to the prior year. Passenger numbers also rose more than 18 percent to 9 million, while net profit was $233m.

So drunk has Ethiopian Airlines been with its phenomenal success that it has now revised its 15-year turnaround plan to buy more planes and fly to more destinations across the globe.

Kenya Airways is not lagging behind in competitiveness.

Jarana wanted SAA to break even in four years. He says he needed R21.7bn, R9.2bn of which would be old debt and R12.5bn working capital.

In his boyish enthusiasm to reach his goal, Jarana spent millions of rand on executives and consulting firms to effect SAA’s long-term turnaround strategy. He says he did so to analyse SAA financials and restructure its debt.

While his heart may have been big, Jarana did not enjoy the backing of the country’s political elite like his Ethiopian counterpart, Tewolde GebreMariam.

Jarana’s departure, however, should serve as an incentive and a red flag for the government to rethink its SAA restructuring strategy.

The government first needs to derive a clear plan with specific time lines to turn around the loss-making airline. After that it will have to identify the most suitable person, without cronyism, to lead the turnaround.

It needs to enable easier decision-making by the person leading the airline to cut the red tape, but who is still held to account.

Above all, that person must have the political clout to take even the most unpopular decisions for the sake of the airline. That way, funding the SAA debt would make more sense than just national pride.

Failure to do that will see the doors of SAA Airways Park headquarters churning out more chief executives without any return for its biggest investor, the taxpayer.

Oh, about the erstwhile young man and a former member of the Stone Throwers’ Society let us just say he has grown comfortably in his trade.


SAA - THE SHAKE-UP: Proud SAA reduced to shambles
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