RUNNING AT A LOSS
‘Lack of critical skills’ jeopardising SAA’s turnaround strategy
South African Airways (SAA) is facing a critical shortage of business skills, which if not addressed could jeopardise the implementation of its long-term turnaround strategy, MPs were told on Tuesday.
"There is a serious and dangerous lack of capacity at the executive leadership level of SAA," the airline’s chairman Johannes "JB" Magwaza said in a presentation to Parliament’s standing committee on finance.
In the past this had resulted in strategies adopted by the board not being implemented.
The lack of critical skills ranged from financial, commercial to supply chain management. "In that scenario you are en route to disaster. That is the serious quagmire that SAA finds itself in at present," he said.
Leadership instability among executives had also persisted for some time and the organisat-ional culture of the company was one in which people believed that "someone owes them a living and [they] have no real understanding of the state of the airline".
There was an expectation that if the airline was in trouble the government would step in and bail it out. "It is a bad culture indeed," Magwaza told MPs.
Despite these problems, the chairman insisted that SAA was a solid business with a bright future if its capital structure was tackled and a turnaround stra-tegy implemented.
SAA CEO Vuyani Jarana also noted that the airline had been depleted of business-related skills and that most of the executive management was in an acting capacity.
The number one risk facing the airline was its inability to execute its strategy because of a lack of skills.
Jarana said it was difficult to attract people to work at SAA given its reputation and the plan was to employ highly skilled executives on an interim basis to "jumpstart" the business pending the employment of good permanent people.
MPs heard that SAA’s revenue was trending R1bn below budget for the nine months to end-December.
The airline posted a R3.7bn loss for the period, 71% higher than the R2.2bn loss that was budgeted. This was driven by lower revenue and higher operating costs due mainly to higher fuel costs. Year-to-date costs were R561m above budget.
The airline is forecasting a loss of about R4.8bn in 2017-18 and about the same in the 2018-19 financial year but sees a sharp improvement in the 2019-20 financial year as the effects of its long-term turnaround strategy kick in. SAA foresees a return to profitability in 2021.
Revenue for the nine months to end-December was R23.3bn, 4% lower than the budgeted R22.2bn. Operating costs of R23bn were 2% higher than the previous period.
The committee was told that international sales had declined 9% (R816m), regional sales 2% (R91m) and domestic sales by 16% (R617m).
The company plans to hold its annual general meeting on March 29 and to table its 2017-18 financial year in April.