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Cloudy future still for SAA

Another projected three years to break-even ‘creates a degree of cynicism’, says CEO Vuyani Jarana.

NASTASSIA ARENDSE:  SAA reported their numbers today and saw a net loss that more than trebled to R5.6 billion. Today officials mapped out a turnaround strategy for the struggling airline. They expect to break even by 2021, and they are still in talks with unions about reducing staff costs.

I spoke to the chief executive, Vuyani Jarena.

VUYANI JARANA:  The immediate issue we need to deal with is dealing with liquidity challenges, getting the lenders as well as the shareholder to be able to inject working capital for the business to support the turnaround strategy. And we are dealing with the lenders with a high-level task team that’s been formed between the board and Treasury to look into the issue and solutions.

The second critical thing is to stem the losses, to make key decisions on the strategy, to arrest the decline in the business – and we have been doing this since I joined in November, together with Peter Davies, really looking at the revenue side and the market size, and taking certain decisions that are on the market-facing side, market stimulations revving up to optimisation.

The next three big-ticket items now are around dealing with the direct expenditure costs –…that talks to making sure that the aircrafts fly a lot longer hours in a day, but also to look the costs…with travel…with cabin passengers whether it’s to manage distribution costs or just looking at all the line items in the direct expense area.

The third area is going to be addressing fixed costs of the business, which means reorganising the business based on a new operating model to make sure that it’s fit for the future.

It also talks of simplification of the organisation, making sure profits are a lot simpler…on…additional VAT and administration you can optimise the resources and of course, alongside that, is the whole procurement spend – how we look at it and make sure that we can extract value for SAA in order to make sure that we can…

NASTASSIA ARENDSE:  One of the things you mentioned at the parliament standing committee on finance on Tuesday was that you were concerned that there was a lack of critical business skills that would be able to help in the implementation of the long-term turnaround strategy. Are there measures in place to be able to attract people to SAA to help you in being able to get the long-term strategy going?

VUYANI JARANA:  Yes, we have suffered three challenges…of us getting skills into SAA. One obviously is around long term finding people with records with experience in turnaround environments who want to sign up for SAA, to work for SAA. So we need to also acknowledge that the brand as it stands today is not attractive to people who are looking for a long-term career, given the kind of issues that we are facing. So it’s difficult to get people from jobs that are secure and bring them to SAA. But we are working around the clock to make sure that, based on the strategy and our commitment, together with the board, the people who are committed to be part of the turnaround will join us. And I think we are going to achieve that first. But that’s more a medium-term kind of intervention.

Alongside that, we are looking at bringing in skills on a short-term assignment. So people who are highly skilled, whether its retired executives who’ve done great work outside, people who are flexible and available but with a great sense of experience and energy. So those are going to be gap-filling interventions once we are rebuilding the brand, to attract talent for the longer term. Alongside that it’s going to be bringing in skills from consulting firms, so that we can industrialise the intervention of strategy.

It was not just the top team but also just the people to do the detailed work, the coding, the review of supply chains, all those kind of things. You need people who have been exposed to higher-order interventions that are linked to turnaround.

NASTASSIA ARENDSE:  If I understand this correctly, I think break-even should have been achieved in 2016. Looking at your strategy going forward, and some of the challenges that you currently experiencing, when are you seeing a chance of break-even for the airline?

VUYANI JARANA:  The irony of strategies at SAA – they all have an three-year ambition to break even point, and that on its own creates a degree of cynicism to many people say ah, it’s another three years. But what we see today is that three years from now we should be able to break even.

And the problem with SAA is not like the strategies were wrong in the past. I just think there was no will to execute those strategies. And what we have shown already is that we are prepared to take a hard course based on science and market insight. So we are talking three years down the line where we should reach a break-even point for SAA, and that’s a date in the future when the business should be able to pay for its own operation.

NASTASSIA ARENDSE:  One of the things the finance minister mentioned during his medium-term budget policy statement was that SAA would see a strategic equity partner. Is that still on the cards, and from your understanding when is that likely to be implemented?

VUYANI JARANA:  That’s a very critical decision for us because what it does it creates and opportunity to bring support in terms of the skills, a better operating leverage, but also that will also help with the funding of the business alongside the shareholder. So that’s a very big strategy lever we have. However, our view is that to get to a strategy that could…partner a conversation we need to first improve the performance of SAA. We need to make it look a little bit better.

We are of the view that that conversation is more in the after years, perhaps in the year three of our strategy implementation because we do not believe that SAA in its current form would be marketable enough to attract a suitor.

But if we do get a partner who is prepared to get into the room with us and we do go through the hard route of transformation, restructuring, we would welcome that. But we are very cautious about it because even to have false ambitions for…we are very practical. We would rather be more conservative than to think that there is going to be an investor that comes and invests in an airline that’s undergoing a huge transformation.

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Other countries have been in the same position – after bail-out no. 18, costing taxpayers another fortune, without critical skills in critical places and the will/skills to deliver on turn-around plan no.18 – the company is SOLD, if they can get a buyer.

End of comments.

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