South African Airways (SAA) reported on Thursday that it had not only achieved its target of making savings of R1.25-billion under its 90-Day Action Plan, but had slightly exceeded it, achieving R1.28-billion. These savings will, however, only come into effect in the current financial year, which started on April 1.
The action plan, which was launched in December and ended on March 24, was aimed at enabling the company to implement its previously-approved Long Term Turnaround Strategy (LTTS). “SAA was in a very precarious position [in December],” group acting CEO Nico Bezuidenhout told a media conference on Thursday. “Essentially, it was not a going concern.”
“The objective for the 90-day period was to stabilise this organisation,” he clarified. “It was clearly not to achieve a turnaround – that was not a realistic objective. ... The company’s going concern status has been restored. The liquidity position has improved. Cost reduction gains have been realised. Network remediation has been done. The company is a going concern.”
The savings achieved are composed of R440-million obtained through changes to the airline’s network, including the cutting of lossmaking routes to Beijing, China and Mumbai, India; R425-million from overhauling onerous agreements (including more than 150 procurement contracts); R290-million from changes to the composition and financing of its fleet; and R100-million from “recovering stalled LTTS implementation measures”, in SAA’s words. However, thanks to agreements between SAA and Air China and Etihad, South Africa’s air links with China and India are maintained. Air China now operates the Beijing-Johannesburg route, while SAA, since March 27, flies directly to Abu Dhabi, from which there are connections to 15 Indian cities.
“SAA is a heavily geared [indebted] organisation,” noted Bezuidenhout. “We’re in a process of completely restructuring the debt profile of this business.” This will reduce the current heavy burden of interest payments.
For the quarter ending November 31, 2014, SAA suffered an average daily net loss of R6.9-million. For the quarter ending March 31, 2015, that average daily loss declined to R5.02-million – a reduction of 28%.
Low cost carrier subsidiary Mango is profitable and improved its profitability by 10% in the last (2014/2015) financial year, in comparison to 2013/2014. Maintenance, repair and overhaul subsidiary SAA Technical (SAAT) made a profit in 2013/2014 but was “very close to break-even, a break-even scenario [in 2014/2015]. ... Too close to the wind, for my liking,” he stated. Remedial actions will be taken at SAAT to ensure its profitability.
SAA has completely re-engineered its procurement processes. “We also corrected non-compliance in this company as far as the Companies Act is concerned,” he added.
“We specifically spent time on reviewing the Long Term Turnaround Strategy,” highlighted Bezuidenhout. “We specifically took direct input from National Treasury, as our new shareholder. We translated all of this information into an actionable three year plan. Corporate plans are plans all businesses have. A corporate plan is usually a three year cycle. ... This is the normal cycle in a State-owned business. The next step is to implement the corporate plan in the normal corporate cycle.”