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SAA Technical revenue plunges 83%

Due to SAA business rescue and pandemic toll on operations.
Not enough aircraft to keep SAA Technical busy. Image: Supplied

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. 

Source: SAAT Section 189 Notice

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. 

Insufficient work

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.

Read: SAA subsidiaries to receive funding

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. 

Retrenchments

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.”

Read: The DPE and Mango locked in talks over airline’s funding

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:

Source: SAA Technical Section 189 notice

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. 

 

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Not a problem – Pravin will pull out another rabbit out of the diminished tax payers hat. Smoke and mirror accounting.

It’s only DPE and Gordhan – seemingly for political and ego reasons – who can insist on beating this dead horse – using scarse taxes on top of it!

Why has Gordhan been so quiet lately? Scopa should have a special meeting where he is present to be held accountable. (He will pass the buck to the various boards of SAAT, Mango, BRPs, etc)

Ah –But the revenue stream from the presidential aircraft will continue uninterrupted ne !!

Thats how they do it, stuff em all just carry on as normal, the rest suffer.

The problems started loooong before Covid. It started when the ANC took over. When the cadre placement happened. And these aircraft SOE’s became a feeding trough for the ANC looters.

Take money from the people to pay, there we go.

In fact take money from the Covid-19 PPE and Vaccine funds to pay.

Allowing 250 million in overtime is shocking- no company can run like that. Unfortunately very common to see this in SOE’s – the employees all know how to game the system and management incompetent

And with so much overtime, the revenue should have skyrocketed ? No control on productivity – serves the bunch right!

Guess who pays in the end? You and I.

You even see it at municipal level. I asked my garbage collector why he collects on Sundays. Big smile. Says they go slow in the week and get overtime on weekends.

… plus R28 m in sick leave. That R280 m is classic cadre gaming, as you say. Shameless

R250m in overtime when hardly any aircraft were flying due to Covid! They must’ve stripped and reassembled the presidential jet several times to arrive at that figure!
Probably went for the Jack Daniels and caviar in the bar fridge…

And when will the first plane fall because of this???
Who are still flying these planes regardless?

No one is flying the SAA planes. I heard the maintenance of the others is being done by Lufthansa Technical????

Some others, not all; Comair is still caught in a contract with SAAT that hasn’t expired yet – that’s Kulula and British Airways. The rest have alternative arrangements.
And obviously Mango, a SAA subsidiary like SAAT, is with SAAT for maintenance but Mango now relies exclusively on tax bailouts and with some travel agents refusing to book customers on Mango due to uncertainty if the flights will take off, and if there will be refunds, Mango shouldn’t last very long. The sooner it faces up to the fact that it’s bankrupt, the less of our tax is poured down the drain!

I find it interesting that this level of detail is ‘suddenly’ made available to the press just as the section 189 negotiations begin? A magnifying glass needs to be taken to it. Also, we need to see the split on salaries between Exco, the different management levels, technicians etc. Especially since the beginning of 2021 and after salary cuts began in earnest (March onwards). Are Execs sacrificing to the same extent as other staff? A 50% cut of someone earning R250k a month is not having the same impact as cutting 50% off someone who earns R30kpm? Also, that overtime bill….how does that occur in a depressed activity period that we are in??? Who is incurring this overtime and why is it being approved?

Did anyone else notice the wording “cash receipt for the month” where it must read “received”?

I would love to meet the financial director of that outfit! No doubt another cadre member with crap for brains.

End of comments.

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