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An Open Letter to the New SAA CEO Vuyani Jarana

September 19, 2017

Dear Mr Jarana

You are either very brave or very foolish to have accepted what must be the biggest hospital pass in corporate South Africa.

 

I have to wonder what possessed you to give up your nice job in a successful telecoms company for the snake pit that is SAA. Perhaps you did it for the challenge, in which case you have a formidable mountain to climb.

Don’t underestimate the forces arrayed against you. If you threaten the corrupt, you will be fighting a political battle which you will be hard pressed to survive, let alone emerge unscathed. For that reason, I hope you used a remuneration consultant to negotiate your package. Take a leaf out of your predecessor Coleman Andrews’ book. Make sure you are protected against being forced out for anything but incompetence. I hear that Chairperson Ms Myeni will only leave after the next AGM, which could be in a year’s time – an appalling thought. I would not blame you if you changed your mind now and scuttled back to the relative sanity of Vodacom.

In the meanwhile, assuming you stay, allow me to presume to give you a few pointers about how to tackle the challenge.

Firstly, it doesn’t matter that you reportedly have no airline experience. At first, I was aghast that the government, as the sole shareholder, could have once again appointed a CEO without industry experience. I reckon it will take anyone at least a year to acquire sufficient airline experience to have the authority to control those with entrenched interests who insist that their way is the right way.

However, there are immediate fixes that need to be tackled that do not need aviation experience:

Stop the bleeding by managing cash flow. You have expensive consultants on hand to replace the quality management forced out by Ms Myeni and her cronies. Get Seabury to launch another ‘Cash Converters’ campaign. At least you won’t have to beg for money each month to pay salaries and maintenance.

Also, get going immediately with your biggest problem – corruption. There is growing evidence of gross corruption at almost every level of the organisation. And many of the allegations carry much weight. Thus, an Ernst and Young (EY) forensic investigation found that “more than half of the 48 sampled contracts at SAA and its subsidiaries were improperly negotiated, poorly contracted or poorly managed.” This is just a euphemism for corruption and it is horrifying that more than half the contracts sampled were corrupt.

The EY report continued: “A logical deduction must be that … potentially 60 percent of SAA’s total procurement could be in one way or another subject to weak business controls.”

Then there is SAA Technical with the report by the Open Water Consultancy revealing how a tender to supply Airbus parts had to be adjudicated five times to wrest it away from the proven supplier, Air France, and give it to some unknown front company. This was followed by the huge logistics contact awarded to Bollore. The company was found to have misrepresented its capacity, Black Economic Empowerment status and infrastructure and should have been disqualified. It also employed the daughter of a senior employee of SAA Technical who sat in on the bid committee for this tender.

SAA spends around R25 billion a year on procurement. If more than half of this is corrupt, that’s around R13 billion. There are indications that the cost of corruption is at least a 10% to 15% premium on the base price – so that’s R1.3 billion to R2 billion. And guess what, that’s more than the average SAA loss per year – at least until the rampant looting under Ms Myeni’s Chairmanship really took hold and pushed the annual loss to R3 billion or more.

The problem is politics. As a state-owned corporation, SAA is supposed to be dealing with Black-owned suppliers. A noble ideal, but this has enabled the most blatant fronting. The stories about the extent of corruption in the airline are now becoming legend. From the supply of bottled water on flights where the airline is reportedly paying R17.00 for a bottle that should cost R2.50. To the monsters, like the supply of fuel. SAA spends around R10 billion a year on fuel, or R27 million per day. It’s claimed that at least one front company has become a fuel supplier to SAA and is charging 10-15% above the going rate for JetA. That’s a cool R3 million they are skimming off – per day – to a company whose head office is a townhouse in Jo’burg?

So, don’t worry about not knowing anything about airline business, Mr Jarana – just clean up this rampaging looting and the airline should make a billion Rand profit a year. You’ll become a hero. But you really will have to be brave, because as with Dr Khoza, you will probably receive death threats to you – and your family.

And even for someone with no aviation experience, there are easy fixes that can be made on the flight operations side. Your airline is flying some truly inexplicably financially bad routes. A case in point is the Accra-Abidjan and return route. What on earth are we doing flying regional routes so far from South Africa? And worse, we are flying them with massive 300-seater Airbus A340 or 330s, reportedly with loads of around 20 pax. This is financial suicide.

While you are at it, another easy win that would show you are not scared to tackle technical airline issues is your airline operating A340-600s on the Jo’burg-Cape Town route. Years back, somebody thought it was a bright idea to use the A340s that flew to Europe at night on a quick Cape Town to Jo’burg schedule during the day. The problem is that an A340-600 uses about 16 tonnes of fuel to get to Cape Town, whereas the Boeing 737-800s operated by the low-cost carriers use just four tonnes. Even if you filled the A340 with 317 passengers, you would still be using more than twice the fuel per passenger than a B738 with 170 pax.

So, make a rational decision and stop flying flights that can never hope to make money.

Once you have tackled corruption and loss-making flights, move on to the harder stuff. Your airline is around 20% overstaffed, with many middle managers having built mini-empires by appointing minions to do their work. Feel free to employ chainsaw consultants to hack away the dead wood, as was done with Project Bambanani. Just ask your respected new board member, Tryphosa Ramano, who as the then SAA CFO, was responsible for the project back in 2007.

But I must caution you against the temptation of going after the pilots and their benefits. While this would be popular with those who believe that the pilots are a cossetted and over-paid White elite, there are far easier battles to be won. And in fact, it might be completely counterproductive to go after the pilots’ pay. Let me point out some basic facts: SAA needs its pilots and they are largely irreplaceable. It takes at least ten years to develop a competent airline captain. So even though there may be hundreds of young pilots desperate to be employed at almost any salary by your airline, whatever you do, don’t be the cause of the experienced captains deciding to take up direct-entry captain positions at Middle Eastern and Chinese airlines. Your senior pilots are already hard pressed to resist the siren call of salaries two or three times better than their take home pay here in SA. Yes, SAAPA has successfully negotiated great ‘evergreen’ conditions for your pilots, but you really need to keep them on your side.

They are intensely loyal and do everything they can to save the airline money. The biggest favour they can do for you is to takeoff with as little fuel as possible. This risks the captain getting into an embarrassing and reputation compromising position. The pilots would love to carry more than the absolute minimum amount of fuel needed, but it costs fuel to carry fuel, so they loyally risk their reputations and careers by carrying the minimum. On a long-haul flight, it costs four tonnes of fuel to carry 10 tonnes, which is just another 45 minutes safety – not much margin on a 14-hour flight.

If you alienate the pilots, they will be reluctant to resist the urge to carry another couple of tonnes of fuel – for safety’s sake. At over R12,000 per tonne, or say R50,000 per long-haul flight, that’s hundreds of thousands of Rands it could cost you to save perhaps R20,000 per month from a 10% salary cut.

The pilots hate talking about this and most swear blind that they would never carry unnecessary fuel, but when you feel you are being screwed by management, the temptation will be hard to resist.

And in all the noise and shouting of the unions, don’t lose sight of the big picture. There is a growing worldwide shortage of experienced pilots. If you lose pilots, you won’t be able to replace them fast enough. Remember that, regardless of what the desperate board is trying to do now by cutting routes and planes, you can’t shrink the airline into profits – you have to grow it, and that means that sooner or later you will need all your pilots.

So, to recap, here’s a quick four-point strategy:

Stop the bleeding by conserving cash.

Don’t be afraid to take a flame thrower to the cancer of corruption.

Tell your political masters that you are not prepared to fly loss-making routes for whatever prestige reason.

Cut staff costs by cutting staff – but be very careful of messing with the pilots who look after your expensive planes and fuel bill.

I wish you the best of all possible luck.

Guy

 

 

SAA 10 years ago - not much has changed

 



 

 

 

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