Don’t blame the unions for SAA’s demise, blame the executive
Politics attracts neither the brightest nor the best, so it is little wonder that government ministers have failed to appoint ‘real’ directors to SAA
The grounding of SAA aircraft from November 15 due to strike action will probably result in a fatal stall for the airline, which has burned through a reported R28bn in National Treasury bail-outs since 2007.
If the current acting chair of SAA is to be believed, the crisis now faced by the airline is the fault of unions, which by their actions “are responsible for the death knell at SAA”. No doubt the board will attempt to sustain this narrative to muddy the water and provide the necessary cover for the real culprits of SAA’s demise.
It is time people were reminded of who the miscreants really are, using headline numbers extracted from the SAA group annual financial statements (AFS) to identify key problem areas, which, had they been timeously addressed, would have resulted in the avoidance of the huge, recurring financial losses now responsible for what appears to be the imminent winding-up of SAA.
Contrary to the current SAA PR spin, the numbers confirm that responsibility for the losses incurred since 2007 rests with consecutive SAA boards, their executive and senior management teams, and the government as shareholder. Cabinet ministers who have acted as the shareholder representative for SAA over this period include Alec Erwin, Pravin Gordhan, Lynne Brown, Malusi Gigaba and Nhlanhla Nene.
It is they who have appointed the SAA board of directors, who have in turn appointed CEOs, acting CEOs and executive management to run SAA.
It is this cohort of cabinet ministers that has consistently appointed politically connected, incompetent and apparently dishonest individuals and given them free rein. Conspicuous by their almost total absence have been appointments of hard-nosed, independent directors possessing backbone and the prerequisite experience in aviation, general business, corporate governance and thorough knowledge of the Public Finance Management Act.
Against the backdrop of political interference, dishonesty and incompetent boards, is it any wonder that mostly unsuitable and inexperienced permanent as well as acting CEOs have been appointed to SAA, with the knock-on effect of a top-heavy executive, and senior- and middle-management teams earning well above the industry norms but with limited capacity or capability to properly execute their job functions?
It was this absence of control that provided the fertile environment for the type of procurement irregularities that have been highlighted at the state-capture inquiry
As space does not allow a detailed analysis of the SAA group income statement, the headline observation since 2007 is that, on average, smoothed out expenses have exceeded revenue by R2.5bn a year, resulting in the inevitable bailouts from the treasury.
Average operating costs at the SAA group have totaled more than R30bn a year, with the biggest line items being fuel at about R8bn; maintenance at about R5.5bn; and other operating costs of R4.5bn. Aircraft lease costs and navigation and landing fees total R5.2bn on average, and accommodation comes in at about R1.3bn.
Salaries and employee benefits for the SAA group is a separate line item of about R5.8bn. Procurement totals about R23bn a year, on average, and it is fair to assume — as the state-capture inquiry reminds us daily — that although figures of this magnitude require board approval and oversight, procurement by government departments and state-owned entities (SOEs) routinely build in premiums of between 10% and 20% to cover bribes, unnecessary commissions and the insertion of questionable middlemen.
From 2007, committed and capable SAA boards with fit-for-purpose CEOs should have been able to implement sound internal controls that would have resulted in a highly competitive procurement regime. The auditor-general, in his report contained in the 2017 SAA group AFS, confirmed that the board was unable to implement sound internal controls, and it was this absence of control that provided the fertile environment for the type of procurement irregularities that have been highlighted at the state-capture inquiry.
Had SAA boards implemented sound internal controls all those years ago, it is not inconceivable that savings of 10% of annual procurement, or R2bn, would have been made each year.
It is patently obvious that the SAA group is not only overstaffed at head office through duplication and sometimes triplication of roles, but that significant numbers of these staff, as well-meaning as they might be, are often ill-suited, poorly qualified and overpaid in their positions.
At the heart of any commercial airline is the position of “director of operations”, which encompasses both ground and flight operations. It is critical that this position be filled by an individual with significant aviation experience (by definition, a senior pilot) and who also has a proven business management track record and relevant tertiary business qualifications.
This suggested skills-set must be juxtaposed with SAA’s requirements, where senior aviation experience does not appear to be a prerequisite for this vital position; where a proven management track record at the highest level seems to be overlooked; and where the “lucky packet” version of business school short executive courses is an acceptable substitute for real tertiary qualifications.
Politics attracts neither the brightest nor the best, so it is little wonder that government ministers have failed to appoint “real” boards of directors to SAA. Had proper boards been appointed, there would have been none of the pie-in-the sky, “long-term turnaround strategies” trotted out each year at press conferences, because CEOs with the appropriate and proven experience and capability would have been appointed from 2007 onwards to provide direction and effect the necessary changes required.
Such boards and CEOs would have identified and managed the shambolic internal control and procurement issues, introduced exacting consequence management, and ensured that all executive, senior and middle managers reapplied for their jobs pending skills audits. The net result would have been the off-loading of a significant excess of SAA management baggage through the emergency exit and/or demotion of significant numbers, resulting in a large decrease in the salary expenses line item.
It would appear that their knee jerk and opportunistic retrenchment proposals were designed to target those employees at lower levels whose future re-employment opportunities are decidedly bleak
These boards would also have allowed for natural attrition, thereby reducing the headcount further and developing a lean organisational structure in which key positions, such as that of a director of flight operations, would only be filled with best-in-class candidates. Further assessments of the balance of SAA group’s lower level staff should have been implemented years ago.
These initiatives could have resulted in a gradual headcount reduction of between 8,500 and 8,800, compared to an estimated 10,000 employees at the SAA group as at 2019. Such a headcount reduction would have translated into further savings of between R700m and R1.3bn a year.
The savings on procurement and human resources that should have been implemented from 2007 onwards, together with dumping unprofitable routes, would have allowed ample financial space for the phasing out of inefficient aircraft and introduction of those with the most economical fuel burn rates per kilometre. The outlook for SAA going into 2020 would have been optimistic.
It is apparent that consecutive boards and their senior and executive management have completely failed to properly implement any of the above since 2007. Given the crisis at SAA, one must ask why the first action of the SAA board was not to set an example and target all the dead wood at executive-, senior- and middle-management levels for retrenchment, and then impose salary freezes on those remaining.
It would appear that their knee jerk and opportunistic retrenchment proposals were designed to target those employees at lower levels whose future re-employment opportunities are decidedly bleak. One cannot therefore blame the unions for their unbending position.
While it is a modern day tragedy that a once proud airline with enthusiastic and polite check-in and support staff, friendly and capable cabin attendants and highly competent pilots has been allowed to get to a point of total collapse, it must not be forgotten that it is the politicians, cabinet ministers, their board appointments and SAA executive and senior management who, by their acts of commission and omission over the past 13 years, are ultimately responsible.
• Mantell, a chartered accountant, is a businessman and governance activist. He writes in his personal capacity.
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