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Goodbye, SAA

News that Vuyani Jarana has resigned as CEO of SAA is an indication of the difficulties facing the national airline.

A cruel but accurate summary of the state of the airline: We regret that the flight will be delayed due to a technical problem. The pilot heard an unusual noise from one of the engines and won’t take off until it is attended to. We will take off as soon as we get another pilot.

It seemed like a good idea to put a seasoned executive with experience in the business world and good standing in financial markets into the left-hand seat. But it was only going to work if he was given ultimate control of the aeroplane. Vuyani Jarana’s resignation over the weekend indicates that this didn’t happen.

Jarana had a better chance than most of getting SAA right. Despite lacking experience in the highly competitive aviation industry, his experience and success in the equally competitive telecommunications sector as senior executive at Vodacom would have been enough to get SAA on the right heading. Vodacom is a huge business, much bigger than SAA. In the year to March 2019, Vodacom reported turnover of R74 billion from 110 million customers, which translated into an operating profit of more than R24 billion.

Vodacom spent R13 billion in capital expenditure and still reported free cash flow of nearly R15 billion. This performance allowed a black economic empowerment transaction to the tune of R16 billion. Comparison to SAA might be unfair. Nevertheless, SAA booked fewer than 10 million passengers in the year to March 2017 and reported turnover of R31 billion, less than half of that of Vodacom.

However, it seems Jarana could not transfer any of the success of the private business sector to state-owned SAA – and neither would anybody else, unless they had the freedom and authority to make tough business decisions.

Two reasons

Reports on Jarana’s resignation list two major reasons for his decision to quit: the difficulty in taking business decisions, and the precarious state of SAA’s finances.

A lot of difficult and politically unacceptable business decisions are necessary to save SAA. The airline needs to re-evaluate every route, aeroplane and service contract, and every little operational action. It needs to re-evaluate every single job.

The only way to get SAA financially sustainable is to cut costs. The only way to cut costs is to work more efficiently and more effectively, which implies that SAA needs to retrench a large percentage of its staff. It would be a business decision in a private company; it is a nightmare in a state-owned enterprise.

SAA employs more than 10 000 people. While only an aviation and business expert with free access to SAA would be able to determine the right staff levels and optimum level of service, most experts are of the opinion that a staff complement of 10 000 is way too high for the number of flights SAA operates.

Hands tied

Any CEO with a business background and the goal of making SAA successful would have been able to force through the necessary changes to the operational structure of SAA. Jarana was unable to, and if the next CEO’s hands are similarly tied, they won’t be able to either.

The second reason given for Jarana’s resignation is even more important: that he has concerns about SAA’s financial sustainability.

In this he is probably correct. The airline has not published financial statements for years.

The most recent available financial statements for SAA are for the year to March 2017. Jarana’s previous employer Vodacom has published its results five times since then.

And the latest SAA annual report – so old – does not make for relaxing reading. After struggling through 104 pages of whatever, the income statement reveals a loss of R5.4 billion. And the balance sheet shows that SAA is bankrupt, with negative equity of nearly R18 billion.

While most companies are busy working on their results for the year to March 2019, SAA is still to produce statements for 2018.

Which brings us back to the question of financial sustainability. Given that there should be no argument that banks’ first responsibility is towards their depositors, should any funding requests from SAA be entertained?

Parlous state

SAA’s expenses exceed its income by far. Its liabilities exceed its assets. Its audited financial statements are two years out of date. Daddy stands to guarantee the loans, but Daddy’s own finances are suspect. Thus, it is not unreasonable to ask if SAA can survive.

Nobody can blame Jarana for leaving. Deon Fredericks, who recently joined SAA as chief financial officer after success at Telkom, will probably be the next to resign.

On a personal note, I love aeroplanes and SAA. In 1991, the airline invited me to Toulouse in the south of France to fetch their very first Airbus A320. I also attended the christening ceremony in a hanger a few weeks later. The plane was named Blue Crane. I still see it from time to time when I fly. My daughter is currently sitting her airline pilot examinations.

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My problem with these turn around ceo’s is that they enter a business, make bold statements and nothing happens except that the entity performs worse. Maximum, within two months, a seasoned business expert should ascertain the steps needed to turn the failing entity around and start implementing changes. If they are unable to implement the necessary changes because of third parties they should leave. They are damaging their own reputations by overstaying. I would not employ this ceo or the one of Eskom to run any business. They are simply not capable.

Nevermind the enormous salary for that “prolonged” period.

It’s not a “business”. It hasn’t been for years. It’s a political ponzi scheme running on the taxpayer’s dollar.

Here’s a simple exercise: assume that SAA makes a 3% profit on turnover starting in 2022. Now consider the company’s debt. Neglecting interest and new debt, divide the average annual profit into the accumulated debt to establish how many years it would take for the company to become debt-free. The answer, depending on how you calculate it and what assumptions you make, is 35 to 60 years.

SAA is a dead duck. The only reason the ANC allows it to limp on is because allowing it to collapse would trigger massive cross defaults which would trigger a fiscal default. That would lead to an IMF bailout, which in turn would come with stringent conditions like eliminating social grants and halving the size of the civil service.

After a calamity like that, the ANC would be lucky to get 20% of the vote in 2024, if it even survived till then. SAA’s continued operation is ANC political gamesmanship. It has nothing to do with business at all.

Put another way: if SAA collapses, Julius Malema will probably be SA’s president in 2024.

i doubt it.. in Zim the teachers aren’t paid but ZanuPF is still in power..

Agreed Rob and a little detail from my guesses. It isn’t just the fiscal default scare that keeps the ANC keep SAA “going”. As noted, it is the loss of the perks, the loss of jobs for chums and cadres, it is the tenderpreneuring largesse coming in to cadre pockets (and the ANC party). Too greedy to act in SA’s interest; fat chemist Gordhan and lazy game “farmer” Ramaphosa both.

Yep … but it doesn’t matter how easily detailed you make the impossibility of ever making a profit, if the listener has no intention of absorbing it, you’re wasting your breath.

Unfortunately it does not matter how big the mess, ANC will always get at least 55% vote.

Air travel is a very much regulated and subsidized industry, practically governments competing

Who can compete with the likes of Qatar Air, Emirates?

It seems a successful manager of a successful corporate entity will not be successful in a parastatal/SOE, or at least, is unlikely to be successful. Not because of any personal deficits, but purely because of the options that are NOT available in a SOE.

In the corporate sector retrenchments, outsourcing and especially offshoring are easy tools for reducing costs. None of that will fly at an SOE. One can also argue Vodacom and Telkom have very little in common with SAA and Eskom. Telkom achieved some of its success through retrenchments. It’s mobile division, like Vodacom, basically manufactures its own abstract product (data) which is sold to customers on good terms. The only time the telcos take a hit is when ICASA steps in. Government intervention in other words. Customers who do not play they bills are disconnected. Try that in Eskom. Customers who are not able to access a contract and go prepaid. If you can’t buy it you can’t use it.

SAA and Eskom are buried in government intervention. Eskom’s customers are using a product without paying for it, and it cannot control access to the product. In this environment, an exec from the commercial sector is facing an “unknown” customer and a very hostile competition (stakeholders). Success is possible but very unlikely.

SAA is ANC office perk and will never be relinquished.

The whole of the ANC want unsustainable perpetual free flights to everywhere.

Correct. Problem is some ANC functionaries have become so big they need their own VIP cargo ship, with blue lights and everything.

SAA is a proxy for the local economy and local politics. Runaway debt, general incompetence, uncompetitive behaviour, bad management or no management, ulterior motives, no accountability, negative cash flow and increasing speed on a downward trajectory.

SAA is a financial crash site, the disastrous result of socialist ideals. The local economy is on the same down-spiralling trajectory because we have the same clueless people in the cockpit. Brace! Brace! Brace!

He knew they weren’t gonna let him let go of staff easily in addition of the fiscal position of the company. Hell most of Sa professionals know this.. so saying it was due to this makes one wonder why he bothered.. it’s like having an escape clause ready to pull.

That being said, gov needs to stay out of SOEs particularly when it comes to staffing & procurement. Under Zuma these two were abused and it seems like it continues on.. I suspect with the two resignation (SAA, Eskom), similar issues, ANC clearly stating they not letting go of jobs.. expect a downgrade coming fast and a mass exodus of skilled professionals.

Why did it take so long for the penny to drop with Jarana? Surely he picked up on the red tape, etc, a while ago already. It’s the fat salary and perks that kept him there – he also milked the airline – could have left long ago as it was never going to work.

whilst sal / eskom are state owned /semi state owned entities and political decisions and priorities(especially for the anc cadre pals still on the entity’s payroll) are influencing any business decisions these entities do not have a hope in hell to recover, not even with an angel as ceo. it is a straight forward mathematical problem – expense (including salaries to an overstaffed organisation producing nothing) is exceeding the income that the entity generates – simple as that.

This so reminds me of VARIG, dragged on for years due to being a parastatal and I assume that government also used as their personal Perk there in Brasil-i do recall a couple of flights with them when government… ministers joined the flight and were treated like royalty.
And then suddenly, handing my return ticket over at the check-in counter in USA to be told VARIG no longer exists-cant honor the ticket, buy another from another airline……Same will ultimately, like gravity …happen here with SAA

All SA’s SOE’s need to be ring-fenced from the ravages of BEE and the ANC.

How? The clue is in the name. “State-owned”. The whole SOE project was a bad idea from the start and can be divided into two portions: businesses the government shouldn’t be involved in, like airlines and harbours, and functions of government which should be carried out by the civil service like they used to be, like the RTMC, SANRAL, etc.

Government stuff works much better when it’s run by career civil servants who are told to stick to a budget. Spin it off into notional “private” companies and you get…well…what we currently have.

State / Non State – the principle remains.

The ravages of BEE afflicts the public and private sector alike.

The how? Well that is the radical change that Cyril has to contemplate to turn the tide on unsustainable erosion of market through corruption, wasteful expenditure, inefficiency and mismanagement all as a result of BEE.

ALL businesses need to be ring-fenced from the ravages of BEE and the ANC!

They have to take money that should be destined to uplift the poor and thereby literally uplifting the rich. It’s not to poor flying.

When government ties your hands you move on.

Why did he stay so long – they tied his hands ages ago.

At least when Hadebe resigned from Eskom, he had something to SHOW for his time there; an unpopular decision (to freeze salary increase, which didn’t work because of the unions.) But at least he tried! Jarana has no similar proof of being serious about HIS turn-around attempts.

He was hired because in his CV there is a reference to airtime. The goons thought that was time “IN” the air like pilots do………

Both Mr Jarana and the former CEO of Eskom have track records of delivery and capability. Both cited government interference as the key issue why they chose to resign. And the common denominator is the disgusting Zupta FD , Comrade Pravin Gordhan who bought votes for his criminal organization by halting the proposed salary freeze at Eskom.

Surely Mr Ramaphosa can find someone better than this 1960s soviet style Red? Please…this guy must go. His insincerity and utter incompetence are an indictment to this so called (fading rapidly) new dawn.

I see Eric Venter, CEO of the perpetually profitable Comair, has suddenly resigned.

I wonder if CR is not going to appoint Venter as SAA CEO.

Excellent idea; then he will replace aircraft with hot air balloons – helium is cheaper than jet fuel!

But what you say makes sense – many years ago British Airways (Comair) won in the Competition Tribunal against SAA in a matter about unfair competition and market manipulation. SAA received one hell of a fine in damages payable to Comair – obviously to date this has never been paid.
So what better plan than for Comair to buy SAA at market value for one rand (R1), and at last get compensated for the outstanding money?

Sorry, misinformation on my part – just checked and SAA recently settled the R1bn fine to Comair a month or two ago. That was after 14 years.

The board never bought into the turnaround strategy. Remember Pravin pleading with him to stay some months ago following tensions with the board.

A solution that relies on restructuring will not achieve a quick turnaround. SAA and Eskom both have restructuring as the solution.

Eskom requires more energy to sell and SAA more bums on seats. I support the board in dumping the ceo who could not deliver. Jakana’s bleat about lack of support and political interference are rubbish. If his strategy could show increased bums on seats the support would materialize and political interference abate. His leadership and strategy was not bankable.

This is nothing but a vanity project and a political sop to appease the trade unions. It should have been shuttered years ago. We do not NEED a national airline. All available funds and efforts should be focused on preserving ESKOM which, unfortunately, is essential to the survival of this country. And right now, its all about SURVIVAL.

I agree but qualify; not “preserving” Eskom but dismembering it without threatening electricity supply. You cannot preserve a rotten piece of junk, overloaded and driven by unlicenced, thieving drivers.

If Mr. Jarana can’t reduced the wage bill, the next CEO won’t be able to either. Their hands are tied.

Wait till these babies start dropping from the sky because maintenance has been decolonised …

Even with the best CEO with the best business background and best intentions SAA can’t be saved. The sooner EVERYONE accept this the better.

SAA got it coming … … … since the Helderberg!

At last I am going to find some inner peace … … …

Thank you for these 6 up votes — it really means a lot to me to know that somewhere there are people who shares this terrible burden.

There is no funding Guavament is bankrupt and scared of the trade unions to cut costs. Why do you think Pravin was behind increases in a failing business.

The unvarnished truth: The ANC Government has been incapable of managing much less than a national carrier and until they learn how to plan effectively, execute properly, maintain operations with proper budgeting disciplines and realise that proper functioning comes before racial obsessions then SAA may come back into play. Until then you can only dream.

SAA and Eskom have had 21 CEOs in 10 years!!!

Astounding. This is an ANC merry-go-round of ridiculous cadre deployment that has led to a massive destruction of value.

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