SAA 'is on verge of bankruptcy'

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This topic contains 82 replies, has 22 voices, and was last updated by  capetonianm 2 Mar 2019
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  • BA789
    Participant

    Thanks for the reply!

    It’s good to see an African airline doing well (especially as I was born in Zambia)


    LuganoPirate
    Participant

    Yes, [Ethiopian} made $232 million last year and the government is looking to sell it

    I can see Lufthansa being interested in a stake which would stop the ME3 muscling in.

    As for SAA, while looking to reduce staff is a necessity, it’s also politically dangerous. Instead they should look to deploy staff by increasing the business, such as restarting CPT, and maybe adding Milan, Madrid, Amsterdam and perhaps Paris to the route network. They could also be more competitive and efficient locally on high demand routes such as George, and opening Lanseria to more direct flights.


    AMcWhirter
    Participant

    Swiss newsletter ch-aviation reporting that SAA is set to lay off 1,000-1,500 staff as part of the restructuring plan.

    SAA executives have taken the step of hiring personal bodyguards at a cost of ZAR 35 million rand or US$2.66 million.

    https://www.ch-aviation.com/portal/news/68074-saa-preps-for-redundancies-execs-hire-bodyguards?utm_source=dlvr.it&utm_medium=twitter


    capetonianm
    Participant

    It would be more to the point to get rid of the executives, most of whom are likely to be overpaid and underskilled ANC appointees, and keep the people who do the work.


    capetonianm
    Participant

    Airline caterer Airchefs is to layoff about 10 percent of its workforce, as its parent company, loss-making South African Airways (SAA) develops its latest turnaround plan.

    The National Union of Metalworkers of South Africa (NUMSA), which represents workers at Airchefs, said it had been informed of the layoffs of 118 people out of a total workforce of around 1,200.

    The union condemned the layoffs while the airline is still in the process of formulating a turnaround strategy.

    “The Airchefs board and management did not consult the union when it made the decision to retrench workers,” a NUMSA statement said.

    “It is also strange that the board of the catering company is not waiting for SAA to implement the turnaround strategy before resorting to the drastic step of shedding jobs.”

    The union said it was engaging with SAA group chief executive Vuyani Jarana and would do all it could to defend workers and their jobs.

    The South African flag carrier is heavily loss making and hasn’t made a profit in the last six years. Jarana is expected to cut staff numbers at the airline with at least 1,000 of its 10,000 workforce expected to go.


    capetonianm
    Participant

    Do SA a favour, close down SAA
    Temba Nolutshungu |
    28 June 2018
    Temba Nolutshungu writes that the state airline is a massive drain on the fiscus

    Do SA a favour: Close down SAA and pay all staff one year’s retrenchment package. Bargain!

    There is much hype and little logic in the hysteria surrounding what to do with SAA. A national asset? A flag carrier? A development tool, a bringer of tourists, a gateway into Africa – all fanciful ideas to keep SAA flying at the expense of the poor. The reality is simple. SAA is a massive drain on the fiscus and should be closed down – but with careful thought and consideration of employees. People and jobs matter.

    In 1994, South African Airways (SAA) dominated 95% of domestic and international market share. Today this is only 23 % and 17 % respectively and falling rapidly according to their own financial statements. SAA needs another R9.2 billion just to pay off loans and R15 billion to fund daily operations. This does not take into account other contingent liabilities such as fines owed to Comair (R1.8 billion and rising) and unknown fees owed to ACSA and to SARS in tax on ticket sales. It does not take account of aircraft lease liabilities.

    Added to this, SAA is at the wrong end of the African continent and is being overtaken by Middle Eastern airlines intent on creating their own hubs and carry through destinations. SAA’s own CEO has said that there is no cash with which to buy new competitive aircraft, so SAA will continue to lag behind its rivals’ ability to offer the best in airline experience and travel time. SAA is finished.

    Some say a national carrier is needed to carry the brand of the country. But is a failed airline, sucking billions in diverted resources from the poor and the taxpayers, really a brand to promote for national excellence and to carry our national pride? Simply, no.

    A key question remains around the 10,100 employees. Employees are important and jobs are critical in South Africa. Job losses cannot be taken lightly. But these SAA jobs come at a cost of R6.1 billion per year according to SAA’s latest financial accounts 2016/7. This amounts to a cost to company of a staggering R610, 000 per employee and an estimated 156 employees per aircraft. Although direct comparisons are difficult as local narrow body and wide body fleets require different staffing levels, the global benchmark for international wide-bodied routes is 120-130. A local profitable carrier operates on approximately 90-100 for domestic operations. SAA jobs must be the most expensive jobs in South Africa and on the African continent.

    There is a solution and one which labour unions and SAA employees should seriously consider. It would favour employees, the taxpayers and the SA economy.

    SAA should pay loyal staff a very generous retrenchment package, more than is the norm, and spend money on training and development to create a true set of transferable skills for current employees. This can be achieved within one year, and will ensure that employees are portable and equipped to get future jobs. The best and only guarantee that any employee has to earn a living is marketable and portable skills. If properly done, this is an opportunity to take a whole group of SAA employees and train them for the new artificial intelligent future of the workplace. It need not be confined to aviation skills but other skills in short supply such as IT and developing ICT technologies.

    It may seem extravagant, but a generous retrenchment package of 6 – 12 months would save South Africa billions over the next 3-5 years. The R15 billion SAA is demanding would more than cover this with much left over to wind down SAA in a responsible manner including the reskilling of all retrenched employees. If the above rough calculation of an average R610,000 annual cost to company is paid out to each employee (there would be exceptions), then this would cost R6 million in one year. Only! Employees take note. Unions think even harder. How many SAA employees would jump at the chance. Most would, according to a seasoned labour lawyer. SAA wants R5 million a year to continue to make a loss. Assume the amount to reskill is an average R200,000 per employee, for 10,000 employees, this amounts to R2 million. Small change in SAA terms and results in a group of highly skilled employable individuals. In colloquial parlance, a “no brainer”.

    Add the above to the knowledge that the World Bank, the Organisation for Economic Co-operation and Development and the International Monetary Fund all say that the main risk to South Africa’s debt sustainability is the increasing contingent liability in State Owned Enterprises. The writing is plainly on the wall. Get rid of SAA, release funds to the poor, retrench and reskill SAA employees and alleviate the skills shortage in the economy to boot.

    It’s a bargain!

    Temba A Nolutshungu is a director of the Free Market Foundation, 28 June 2018


    Alex McWhirter
    Participant

    It’s reported by Bloomberg that two Gulf airlines have been in discussions with SAA re equity investment.

    https://www.bloomberg.com/news/articles/2018-07-22/gulf-giants-in-talks-with-south-african-airways-city-press-says


    AMcWhirter
    Participant

    SAA is “technically bankrupt.” It will not present any financial results for 2017/18.

    via businesstech.co.za

    SAA is technically bankrupt – and bleeding cash: report


    capetonianm
    Participant

    For years the airline has lurched from one crisis to the next, with nobody doing more than papering over the cracks and uttering promises which never come to fruition.

    SAA is considering selling off assets after banks have refused to lend it any more money – and its debt ballooned to R15bn more than its assets at the end of July.

    A senior SAA executive told City Press this week that the airline’s finances are in tatters and the Auditor-General has raised serious concerns about its viability.

    SAA, which is technically bankrupt, will therefore not present its 2017/18 financials to Parliament by the end of this month, as required by law.

    Senior SAA staff and a confidential report, presented at the company’s board strategy session 10 days ago, reveal that the airline’s management is now looking at a number of aggressive cost-cutting measures, including selling off its catering arm, Air Chefs, and outsourcing or selling SAA Cargo.

    A top official at the national carrier told City Press that in the meantime, the company would look to government for more bailouts because banks have “hardened their attitudes” and are “continuing to refuse” to lend it more money, despite Treasury guarantees.

    SAA has about R19.1bn worth of government guarantees.

    In September last year, Treasury gave SAA a R3bn cash bailout to avoid defaulting on a Citibank loan.

    The report, a turnaround strategy document which SAA chief executive Vuyani Jarana presented to the board last week, reveals that:

    – On March 31, the last day of the 2017/18 financial year, SAA had R13bn in assets and R26bn worth of debt. But by July 31, the company’s assets remained at R13bn while its liabilities burgeoned to R28bn;

    – The airline will record a R6bn loss by the end of the current financial year;

    – SAA Technical (Saat), which has suffered significant losses to “fraud and theft”, is bleeding money, losing up to R560m a year in penalties from poor turnaround times for aircraft repairs and maintenance;

    – SAA’s monthly costs, ranging between R350m and R450m, are significantly higher than its revenue and are not coming down fast enough; and

    – SAA needs to reduce costs by 5.2% and increase revenue by the same amount to record a R1bn improvement by the end of the current financial year.

    Although the report did not mention anyone by name, it slated the previous board, led by former chairperson Dudu Myeni, for leaving SAA with rampant corruption, low pilot productivity, a significantly weak balance sheet, liquidity problems, loss of confidence from suppliers, a lack of critical skills and fragmented IT systems.

    “Unfortunately, SAA has had acting people in most senior positions. The board was also fractured and there was a lot of instability. The problem here is not even the market, but within, with people stealing and committing fraud,” another executive said.

    “But SAA is absolutely fixable and Jarana is moving things in the right direction.”

    Selling assets

    Although no decision has been made to sell some of SAA’s business units, the report shows that the matter was discussed at the board meeting. Jarana, who has led SAA for almost a year, asked board members whether the SAA Group needed all the businesses “given the relative sizes and impact on financials”.

    A senior SAA official said: “We continue to review our portfolio and we continue to engage with the shareholder. There is no holy cow and everything is under consideration. There is no pressure to sell anything, but does SAA really need Air Chefs?

    “We are not in the business of selling food and it is not our core business. We just need ready-made food at the cheapest cost available, without having to worry about management and staffing issues.”

    Regarding SAA Cargo, the document said while the division generated more than R2.1bn last year and made a R387m profit, it had major problems – including antiquated warehousing facilities, rigid pricing models and extensive dependency on aircraft that ferry passengers and cargo at the same time.

    Jarana asked the board to consider a full cargo division or to outsource the business completely.

    The document shows that Jarana is inclined towards outsourcing the cargo division to a private third party.

    Banks won’t finance SAA

    A senior SAA executive said government will have to continue funding the airline until 2021, when its balance sheet becomes self-sustainable.

    “Banks have walked away from us despite our guarantees from Treasury. It is true that they don’t want to fund us. They will only fund us once they see a path to debt reduction,” he said.

    “If you are a shareholder of a company and you are unable to source funds from banks, what do you do? You have to step in and rescue the situation, to the extent that you believe the turnaround strategy is worth the paper it is written on.”

    The report shows that the airline will need R21.7bn between now and 2021, when it is expected to return to profitability. The R21.7bn is made up of government bailouts amounting to R12.5bn, and loans of R9.2bn.

    In addition, it shows that in the current financial year, Jarana’s executive management is projecting a 5.2% loss which, according to projections, will be reduced to 1.9% in the 2019/20 fiscal year before returning to profitability, with a projected 1% profit, in 2021.

    In September last year, City Press reported that Nedbank told a meeting – attended by Treasury’s director-general, Dondo Mogajane, and SAA’s former chief financial officer, Phumeza Nhantsi – that the bank would not lend money to SAA as long as Myeni was still on the board.

    Nedbank was not the first bank to withdraw support for SAA. In July last year, Standard Chartered revoked its R2.207bn loan, and a month later, Citibank pulled the plug on a R1.8bn loan.

    However, another SAA executive said Treasury and the department of public enterprises were in discussion with the banks to try to convince them to change their minds not only regarding the funding of SAA, but of other state-owned entities as well.

    “But when it comes to SAA, a funding plan must be created. You cannot just rely on debt for such a big company. The problem with SAA is that it doesn’t sell as a brand. A brand must sell.”

    The document shows that Jarana’s corporate plan was beginning to bear fruit. The plan, approved early this year, has as its focus revenue stimulation, flight schedule reorientation, organisational design, supply chain transformation and the overhauling of Saat’s logistics and operations. The report shows that during the first quarter of this year, SAA’s revenue improved.

    Jarana refused to comment about the plan. However, another official said this had been brought about by the realisation of a “dramatic shift to low-cost airlines, and the executive management decided to shift four aircraft from SAA to Mango”.

    In April, SAA also reduced the number of flights to London’s Heathrow from two each day to one. SAA also introduced new aircraft on this route which caused SAA to post a profit on the route for the first time in more than a decade.

    A revamp of the airline’s flight schedule will involve rescheduling flights to Germany, Hong Kong, Perth and Buenos Aires to improve connectivity for passengers, capture more traffic and extract more flying hours on each aircraft, the document shows.

    SAA, another executive said, was also looking at establishing new routes from West Africa to the US and London, and from Johannesburg to the Asia-Pacific region.

    “We need to grow and we want to use the same aircraft to fly more,” he said. We are focusing on route profitability. The plan is to grow and become a commercially viable airline. The corporate plan has identified a number of risks and mitigation strategies.”

    He blamed government for SAA’s woes, saying: “Airlines need stability. Most of the chief executives of most of the big airlines have been there for more than a decade. The mind of the shareholder is reflected on the board.”

    SAA spokesperson Tlali Tlali said the airline was unable to comment because it had not seen the strategy document. “We will soon address the media on the progress we have made, milestones, and the path that lies ahead in transforming SAA … We are confident that the airline is moving in the right trajectory and we are making steady progress.”

    1 user thanked author for this post.

    openfly
    Participant

    @capetonianm….we all know the next move. The SA government hands SAA another R20b, while most of the country lives in shacks. No way will the SA government hierarchy, and their kling-ons, lose their free shopping travel.


    capetonianm
    Participant

    openfly

    Just to clarify for hose who don’t know as much about this as you and I do,

    …..we all know the next move. The SA government hands SAA another R20b

    OF TAXPAYERS’ MONEY

    while most of the country lives in shacks.


    openfly
    Participant

    Yup….thanks for adding that important piece.


    capetonianm
    Participant

    R5 billion too SAA, 1.2 billion to SAX announced in today’s budget to keep these money sapping behemoths going, and in the same breath :

    Mboweni is open to closing down SAA
    At a media conference on Wednesday morning, Mboweni said a “reconfiguration of state-owned enterprises” could include the closure of parastatals, including SAA.

    He said that South Africans should be “open minded” about what happens to SAA, citing the example of Swiss Air, which was shut by that country. If SAA in its current form is closed down, government will “invite those who know how to run a new airline” to establish a new national airline, Mboweni said. Alternatively, private equity partners may be invited to buy into parastatals, he suggested.

    For now, SAA received another R5 billion to prevent a call on the airline to immediately repay outstanding debt of R16.3 billion. More than R1 billion will go to the struggling South African Express.


    capetonianm
    Participant

    This letter was in yesterday’s Financial Mail (a well respected ZA publication). It sums up what ails not just SAA, but most of the SOEs here, that they are run by political appointees rather than by people competent to do the job.

    SAA-letter

    Another revenue loss results from the situation north of the Limpopo.

    SAA’s Zimbabwe revenue up in the air
    As Zimbabwe’s various forms of local payment deviate from their supposed underlying dollar value, SAA is coming up short in a big way …
    25 October 2018 – 05:00 Peta Thornycroft

    Anyone in Zimbabwe can nip along to SAA’s lovely offices in Harare to book and pay for a holiday overseas at about a half to a third of the real price. Paying with Zimbabwe’s “funny money” means a trip, beginning in Harare, can be a bonanza for travellers using the airline. And anecdotal evidence suggests anyone seems to be able to do this — Zimbabweans, foreigners, even tourists in Zimbabwe can buy a cheap ticket if they have access to someone local to pay the cost for them, and if the journey begins in Zimbabwe.

    But the money paid for that ticket, cheap as it may be, has been stuck in Harare, with SAA unable to get its hands on it as a result of the foreign-currency shortage in Zimbabwe.

    Neither have other airlines in the same position — RwandAir and Fastjet (which operates out of Johannesburg but recently began providing daily domestic flights between Harare, Bulawayo and Victoria Falls).

    The inability to repatriate funds from ticket sales has prompted a number of airlines to move to hard cash. A month ago, Kenyan Airways pulled out of local ticketing.

    Last week, as fuel queues grew and there was a rush on the supermarkets for cooking oil, bread, flour and sugar, and SA franchise KFC closed, Emirates and Ethiopian Airways shut up shop for local ticketing payments. (It’s just as well; the FM has heard of an individual who paid a pittance last month for about 10 Emirates tickets for a family reunion in Europe.)

    Cautious British Airways, operated by Comair, which flies into Zimbabwe daily, withdrew local ticketing a year ago. It’s probably the only airline that doesn’t have money stuck in the system.

    For SAA, the cash caught in the remittance grid amounts to a small fortune. Though the airline will not confirm the amount, nor how long the cash has been there, airline experts in Zimbabwe say it is probably about $100m.

    How did this come about?

    Zimbabwe abandoned its local currency in 2008, after years of hyperinflation rendered it worthless, switching to a multicurrency economy that favoured the US dollar for cash. Zimbabweans started to fear for the future as the end neared for the Zanu-PF and Movement for Democratic Change unity government of 2009-2013.

    When a new (equally shambolic) Zanu-PF government emerged in 2013, some who could afford it took their cash out of the country (carrying suitcases of dollars, it’s said, with very few searched leaving Zimbabwe) or stuck it under the mattress. As a result, it became ever harder to find greenbacks, and by mid-2016 ATMs were regularly without cash and withdrawals were limited. Even international banks such as Stanbic and Standard Chartered dramatically reduced withdrawal limits.

    Later that year, the central bank, under John Mangudya, introduced low-denomination bond notes, a locally designed currency available in $2 and $5 denominations and pegged to the US dollar value.

    Cautious BA Comair, which flies into Zimbabwe daily, withdrew local ticketing a year ago

    So other forms of payment emerged — forms of payment that now account for more than 90% of all transactions.

    To shop in supermarkets and the like, Zimbabweans load money onto a registered mobile number through EcoCash, with a 5c premium logged on these transactions; more Zimbabweans have started using debit cards, known as “swipe”; and most commercial transactions now take the form of real-time gross settlement (RTGS), or bank-to-bank transactions.

    For its ticketing, SAA accepts “swipe”, bond notes and RTGS. The ticket must be booked to fly out of Zimbabwe (though one need not return), and travel must take place within 60 days of purchase. Any travel agent will make such a booking, or bookings can be made on the FlySAA website, on which customers can choose the “pay later” option, then visit the SAA office within 72 hours to pay by swipe or bond notes, or settle the bill by internet bank transfer. However, bond notes and dollar bank balances have lost value against real US dollars. Almost anyone can tell you at almost any time of day what the going rate is for Zimbabwe’s money. On Monday, the rate was three “swipe”, EcoCash or bond note dollars for every $1 cash note.

    So booking with SAA for a Harare-Johannesburg-London-Johannesburg ticket and paying in local currency amounts to about R7,000, all in.

    But even that money has so far not been repatriated to SA by the cash-strapped airline, which already relies on R19.1bn in state guarantees just to keep flying in SA. The airline is able to pay its local running costs, such as fees to the Civil Aviation Authority and salaries for its 20-odd staff, out of its Zimbabwe bank account. But the rest of the cash from tickets issued in Zimbabwe and paid for locally has been trapped by the Reserve Bank.

    SAA in Harare did not return the FM’s call, nor reply to an e-mail asking if and when it will curtail payment of air tickets by electronic money. It did, however, tell the Sunday Times a week ago it has no plans to do so. SAA would also not say how much cash it has tied up in the system or in the International Air Transport Association clearing house, where travel agents lodge payments.
    WHAT IT MEANS

    Customers can pick up air tickets from SAA for a song in Zimbabwe, though the cash-strapped airline has been unable to repatriate the funds to SA

    However, subsequent to the FM going to print with this story, the Zimbabwe ministry of finance & economic development announced it would begin paying $4m a month to foreign airlines. On the back of this, SAA country manager Winnie Muchanyuka told local media: “We negotiated and came to an agreement on a payment plan. Airlines welcome the move as this will allay any fears from us as airline operators.”

    Insiders, however, remain sceptical about Zimbabwe’s ability to pay off the $150m owed – the bulk due to SAA – in real foreign cash.

    Meanwhile, President Emmerson Mnangagwa wrote in his column in the state-controlled Sunday Mail last weekend: “We have suffered massive market failures, manifesting in complete collapse of the pricing framework for virtually all commodities, regardless of import component. There has been a run on the bond note.

    “Those hit hardest are the sick, the unemployed, the poor and the vulnerable, including our hard-pressed workforce. Reports and submissions before me on illicit currency dealings point to an intricate network of currency speculators mostly in high places and in places of trust.

    “In a number of cases which have now been brought to government’s attention, some of our guardians of the financial services sector have either not discharged their roles fully, or have not done so honestly.”

    Mnangagwa says he will use his powers to institute a new law, valid for six months, to make currency dealings illegal. At present, the smaller deals are usually done openly outside top hotels, and at the main bus terminal in central Harare. Others are more clandestine. But there’s no doubt money is changing hands everywhere. People importing spares, hardware, services and the like are all in need of US dollars; they cannot get forex from the central bank or if they can, the delay in doing so would be too long.

    Mnangagwa wrote: “It has come to light that the money changers we see on street corners are mere ‘runners’ who work for big currency sharks who operate from high places in air-conditioned offices … these runners are on pittance commission from large sharks who are the real offenders we should bring to book. And we will do just that.”

    For the moment, it’s looking like a repeat of the years leading up to the collapse of the Zimbabwe dollar in 2008.

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