State-owned aircraft maintenance company SAA Technical (SAAT) has suffered a steep decline in its monthly revenue as the South African Airways (SAA) business rescue combined with the Covid-19 pandemic led to a drastic reduction in passenger numbers.
In March 2021, SAAT’s revenue was down 83% to R43 million compared to the same period last year when the company recorded around R246 million in revenue.
SAA accounted for only R9 million in revenue for its subsidiary in March compared to R150 million during the same month last year.
SAA’s low cost subsidiary Mango Airlines and Comair (which operates British Airways and Kulula.com) accounted for R10 million and R16 million of the revenue respectively.
At the end of April, SAAT was responsible for maintenance and repair services for 34 aircraft fleets, including those of Mango, SAA and Comair, the company confirmed to Moneyweb.
Prior to the outbreak of the pandemic, the company provided services to 86 fleets.
SAA accounts for 70% of SAAT’s revenue and 17 of its aircraft are currently maintained by SAAT, according to the aircraft maintenance company’s interim CEO Terrance Naidoo. Prior to the Covid-19 lockdown (implemented from March 2020), SAAT was responsible for 56 SAA aircraft.
In a notice sent to labour unions the National Union of Metal Workers of South Africa (Numsa), the South African Transport and Allied Workers Union (Satawu), the Aviation Union of South Africa (Ausa) and Solidarity in April, Naidoo said the reduction in the number of aircraft in SAA’s fleet and those of other airlines means there is insufficient work for SAAT’s employees.
He added that: “SAAT has no choice but to seriously consider a reorganisation/reduction in the dedicated lines for wide body [aircraft] work.”
Comair is in business and not all its aircraft are flying, partially due to the reduction in passenger numbers worldwide.
Comair spokesperson Stephen Forbes says of the airline’s fleet of 23 aircraft, SAAT currently maintains 11 Comair-owned aircraft and four leased aircraft. Lufthansa Technik Maintenance International (LTMI) maintains three Comair-owned and five leased aircraft.
Losses and bailouts
Naidoo says SAAT has made a cumulative net loss of R1 billion over the last six years. The company has managed to sustain its operations with the help of continuous bailouts from the government, but post-SAA business rescue, the company has to “stand on its own and generate revenue to sustain its operations”.
“SAAT cannot rely on inter-company loans nor financial bailouts to sustain its operations,” Naidoo said.
Although SAA exited business rescue in April, its subsidiaries SAAT and Mango have not been spared from the impact of the 16-month rescue process and the subsequent grounding of the SAA fleet.
SAA subsidiaries are due to receive R2.7 billion from the R10.5 billion allocated to the airline to implement its business rescue plan.
SAAT and Mango are due to receive the bulk of the funding (R1.663 billion and R819 million respectively) but it is unclear whether these amounts will be sufficient to turn the tide at the two companies.
SAAT informed its employees at the end of April that it would begin the Section 189 process that would see its staff complement of 2 019 employees reduced to 1 203 due to “ongoing business challenges faced by the company worsened by the impact of Covid-19 on the global aviation industry.”
The retrenchment process is expected to conclude in June. The company says it will propose severance packages as part of the process. The severance packages will however not be paid to workers “who unreasonably refuse an offer of a reasonable alternative employment, as well as terms and conditions of employment made by the company”.
Numsa, the South African Cabin Crew Association (Sacca) and Solidarity previously told Moneyweb that there is still no clarity on the payment of salaries at SAAT for May and June.
Termination of agreement
The Section 189 notice informs unions that the company is terminating the Technical Employment Conditions Agreement, which accounted for nearly R500 million of the total wage bill for the 2019/2020 financial year as follows:
The company’s labour costs amounted to 73% of its revenue in March 2021 which is well above industry peers, according to Naidoo.
To reduce its wage bill, the company has since January 2020 implemented various measures including placing a freeze on new recruits, reducing fixed term contracts and reviewing a number of supply chain contracts. These measures have however not been sufficient to ensure that the company remains out of the red, said Naidoo.