National flag carrier South African Air-ways (SAA) could decide in January to acquire extra aircraft.
The company’s return to growth could make such a step possible.
“If we continue to grow at the rate we’re growing now, we may have to acquire further aircraft, whether new or old, in the future,” states SAA CEO Dr Khaya Ngqula. “This is now on the horizon. We’ll have workshops first and then discuss the issue with the board in January.”
The company is emerging from the severe turbulence it has suffered in recent years and is setting its new course. Only a couple of months ago, company management still feared that the airline might have to be closed; now, they are able to start thinking of the future.
The final stage in the company’s restructuring is about to begin: this will involve its unbundling into seven separate units. Of these, three will remain wholly owned by SAA, and four will be partly sold to strategic equity partners. Two other divisions, catering firm Air Chefs and travel distribution platform Galileo, will be entirely disposed of. This process will be overseen by Jan Blake, currently head of SAA Technical, who will become group GM: mergers, acquisitions, and disposals, with effect from December 1.
The seven units are Mango (the low-cost airline), Cargo, the passenger airline, the South African Travel Centre (SATC – basically, an internal travel agency), Technical, Voyager (the ‘air miles’ incentives operation), and Ground Services. Of these, Mango, SATC, and the passenger airline will remain 100% SAA. Cargo, Technical, Voyager, and Ground Services will be partly sold.
“We have had approaches for all four of the subsidiaries we want to partially retain,” reports Ngqula. “But it is very early days, as we had to wait until September before we could be certain that SAA would survive and would not be shut down. Now it is clear that the airline will continue, so these talks to select strategic equity partners can now begin. Blake will really start focusing on this from December 1, when he takes up his new post.”
Seeking a strategic equity partner for Cargo may seem strange, given the very considerable global air freight business. “SAA Cargo already has four dedicated freighter aircraft, and the potential is big. But we don’t have the resources to invest properly in expanding the cargo business,” explains Ngqula. “A partner would provide the investment needed, and, perhaps, also contribute its existing aircraft. This would also reduce risk.”
The company has also received approaches to buy Sky Chefs and Galileo. “I think we can do this speedily,” he says.
Concerning the company’s fleet, he states, “we’re talking about reconfiguring some of our aircraft to expand their premium and business class capacity as the demand for these classes is very high.” The airline has completed its programme of axeing unprofitable routes. “All the routes that we now have, we want,” asserts Ngqula. “We are looking at additional routes, but we will need board and government approval for these.”
SAA made a net profit, before taxation and restructuring charges, of R136-million for the six months ended September 2007. Net profits, after restructuring costs, were R80-million. During the same period last year, the company suffered a loss of R650-million.
For the entire 2006/7 financial year, the airline lost R883-million.
It was this loss that led to the company’s current restructuring programme, which has also seen the retirement of all six of its Boeing 747-400 Jumbo jets, the reduction in the number of management levels from seven to three, and the concomitant departure of 232 managers. Currently, voluntary severance packages have been offered to other staff, and so far some 900 applications have been received. It is likely that the number of staff reductions required will be around 1 100. At one point, it was feared that 2 232 jobs would have to go. The aim is to have a total complement of 7 500 to 8 000 by April 1, 2008.