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Oct 15, 2012

Gigaba hints to yet more SAA support, but wants new plan first

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Public Enterprises Minister Malusi Gigaba on the role of a task team in devising a new turnaround plan for SAA. Camera Work & Editing: Darlene Creamer. Recorded: 15.10.2012.
Public Enterprises Minister Malusi Gigaba responds to concerns over a possible blurring of corporate responsibilities at SAA. Camera Work & Editing: Darlene Creamer. Recorded: 16.10.2012.
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Public Enterprises Minister Malusi Gigaba has set a December 15 deadline for the delivery of a “road map” for turning around loss-making national carrier South African Airways (SAA), which reported another loss of R1.3-billion in 2011/12, contributing to cumulative losses of around R14-billion over the past few years.

The State-owned airline had, over a ten-year period, also received cumulative shareholder support of more than R15-billion to facilitate its survival and was recently granted a controversial R5-billion guarantee from the National Treasury to stave off immediate liquidity threats.

Gigaba hinted to yet further “shareholder support” on Monday, which could flow on the back of a “robust” plan that delivers financial independence, operational efficiency and a long-term strategy to “become a competitive and well-run airline”.

The “immediate” focus, though, would be on cost cutting and revenue enhancement measures to stabilise the business, whose 6% rise in revenue to R23.9-billion in 2011/12 was more than offset by a 17% rise in operating costs to R25.2-billion. The “cash burn” was so intense during the year that the airline’s cash and cash equivalents fell from R2.3-billion in the previous financial year to a negative R33-million by the end of March, 2012.

However, the business model, structure and strategy would also be reviewed by a Ministerial task team led by SAA’s current executive chairperson Vuyisile Kona, the chairperson and the CEO of South African Express respectively, Andile Mabizela and Inati Ntshanga, Mango CEO Nico Bezuidenhout and acting deputy director-general for transport enterprises at the Department of Public Enterprises, Adam Seedat.

The task team would provide the Minister with “a consolidated view on the critical success factors for the turnaround”, as a well as a turnaround plan.

The plan would have to show how SAA could be made independent of government support over the medium term; outline a route network and fleet plan that ensured earnings made domestically and regionally were not “rubbished” by losses associated with long-haul routes; and incorporate safeguards against exogenous shocks, such as the rise in fuel costs. In 2011/12, fuel costs rose 36% from R6.1-billion to R8.3-billion.

The task team would also interrogate bottlenecks in the decision-making processes at the level of the shareholder, particularly where these impeded flexibility and the implementation of decisions that were urgent for the commercial viability of the airline.

Gigaba indicated that he was sensitive to a possible “blurring” of roles between the shareholder, the board and the executive and said he was studying a board-led submission to him on how to mitigate that risk.

Deadlines for both the finalisation of the turnaround plan and the selection of a new CEO, following the October 8 resignation of Siza Mzimela, were held up as key to ensuring that the roles were not distorted.

The new SAA board would need to complete the selection and recruitment of a new CEO within three months.

Agreement had also been obtained from the remaining executives that there would be an increase in remuneration packages for the foreseeable future.

“I am determined to see to it that SAA gets on the path towards recovery. We do not have the luxury to fail and I shall, hence, brook no indecision on anybody’s part,” Gigaba stressed.

Edited by: Creamer Media Reporter
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