South African Airways reports on conclusion of 90-Day Action Plan

South African Airways (SAA) recently completed its 90-Day Action Plan that commenced late last year.

South African Airways reports on conclusion of 90-Day Action Plan

South African Airways (SAA) recently completed its 90-Day Action Plan that commenced late last year. The plan was a roadmap to stabilize the carrier and resume full implementation of a refined Long-Term Turnaround Strategy (LTTS). The plan comprised 6 pillars – to immediately address the liquidity of the business, resolution of future funding, a full review of its high-level governance framework, correct governance defects, the reorganization and optimization of assets, and the implementation of an effective communication plan.

During the International Air Transport Association (IATA) Annual General Meeting (AGM) held this month in Miami, Florida, eTurboNews (eTN) Publisher Juergen T. Steinmetz had the opportunity to interview Nico Bezuidenhout, Acting CEO of South African Airways (SAA). The initial part of this meeting focused on Nico sharing with eTN about SAA’s new service from Washington, DC, to Accra, Ghana, on to Johannesburg, South Africa. Here, the interview turns to focus on the process of the 90-Day Action Plan.

eTN: Now that SAA has concluded its 90-Day Action Plan, what can you share with us about what was accomplished during this process?

Nico: As the 90-Day Action Plan period concluded, South Africans now has a national aviation asset that is well on its way to relative stability. There is no doubt that while we have achieved significant milestones during the 90-Day period in review, the real task of full implementation of a refined Long-Term Turnaround Strategy is at the starting block.

eTN: What did the 90-Day Action Plan entail?

Nico: A full review of the current macro-economic conditions impacting the LTTS formed part of the 90-Day Action Plan. The intent and core strategic impetus remains a constant. The Board and management of SAA are unyielding in their resolve to fuel SAA’s future success and short- to medium-term stability. During the 90 Day Action Plan period, SAA was tasked and delivered against several areas.

eTN: What was involved in the first step?

Nico: First we address business liquidity and on-going solvency. SAA received a going-concern guarantee from the National Treasury on December 22 with the 90-Day Action Plan. This enabled the company to finalize its annual financial statements and hold its annual general meeting.

eTN: What does this mean for future funding of SAA?

Nico: The Board has investigated several future funding models and will table recommendations to National Treasury. Steps have been taken to change the debt profile of the business, including correction of governance defects. SAA has completed all identified contract renegotiations, which forms part of a strengthening of governance controls within the procurement area and a re-focus on cost compression. Implementation of an overhaul of governance structures has seen the airline place a substantial focus on accountability, particularly in terms of implementation of the 90-Day Action Plan, as well as, moving forward, the refined LTTS. A key component of the 90-Day Action Plan was a refinement of the Long-Term Turnaround Strategy which has included revisiting SAA’s network structure, fleet solution, and financial forecasting and planning.

eTN: Was there any other issues regarding governance that were addressed?

Nico: SAA conducted a review of its high-level governance framework, and onerous agreements were identified and renegotiated. Among them, SAA renegotiated fleet lease re-extensions of 3 of its fleet of 8 Airbus A340 aircraft representing a positive impact of R 112 million annually. Further, aircraft lease extensions and renegotiations currently in play are expected to yield additional savings in excess of R 150 million later in the year. Total savings expected amount to R 262 million. The airline’s position vis-a-vis all long-term contractual engagements, procurement governance, and other legal positions were examined with recommendations submitted to the Board for approval and, subsequent action by SAA management.

eTN: Has anything changed regarding how the airline handles its assets?

Nico: SAA reorganized its assets after reviewing and optimizing its Network and Fleet Plan to ensure commercial sustainability. Recent network reconfigurations stand to positively impact SAA in the region of R 440 million per annum; arising from the closure of loss-making direct flights between Johannesburg and Beijing and Johannesburg and Mumbai, sans sacrificing connectivity through deepened commercial relationships with a number of Gulf-state and other carriers. SAA launched its first direct flight between Johannesburg and Abu Dhabi on March 29 that will enable further network growth through end-point code-sharing with Etihad, particularly to China and India.

SAA has also grown its sub-Saharan African network due to strong commercial demand with frequency additions between Johannesburg and Maputo, Harare, and Mauritius among others. SAA has also embarked on a process to right-size its human capital through a natural attrition process.

eTN: What would you say was an important area of enlightenment for the airline during this 90-day process?

Nico: Our airline has come to learn about the value of implementing effective communication. SAA has made positive inroads into repairing its relationship with the media, ensuring the constant flow of information, proactivity, and cooperation with journalists.

eTN: Specifically, what financial goals have been achieved due to the success of this 90-day plan?

Nico: Total annualized EBITDA improvement, from the commencement of our new financial year on April 1, 2015, realized through the 90-Day Action Plan, will amount to R 1.25 billion as per the initial target as agreed in November 2014. This consists of: R 440 million through network changes; R 290 million relating to fleet financing/composition changes; R 100 million recovering stalled LTTS implementation measures; and R 425 million from reviewing onerous agreements, including over 150 procurement contracts. This represents the achievement of our target set for the 90-day period, but is by no means the full potential of what we can achieve as we continue to review every aspect of our business

eTN: Is there anything you would like to add about how this whole process went?

Nico: The successful completion of the 90-Day Action Plan has placed SAA in a better position to drive further achievement. In addition, the principle of transparency and continually communicating our successes and challenges to South Africans will continue. We need the support and contribution of every stakeholder. When we get it wrong, we expect criticism, but, concomitant to that support and recognition of achievement is equally as important.SAA is an asset whose economic benefit is realized daily, in many shapes and forms and stretches across every socio-economic strata of our country.

SAA connects South Africa to its major trade and tourism partners, and in so doing supports 33,000 jobs in South Africa, contributing R9bn (US$ 900m), or approximately 0.3%, to the country’s GDP every year. Approximately 40% of all passengers and more than 50% of all air cargo within and to South Africa last year was carried by the SAA Group or under the SAA code. No South African airline trains more pilots and technicians, procures more from local suppliers, or has taken more steps to protect the environment than SAA.

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