Opinionista Simon Mantell 19 November 2019

Blame Cabinet and management, not the unions, for SAA’s death spiral

The tailspin at South African Airways must be blamed on Cabinet ministers who have consistently appointed often politically connected, incompetent and allegedly dishonest individuals who have been given free rein by a coterie of fellow board members whose contribution appears to have been little more than that expected of useful idiots.

The grounding of SAA aircraft on 15 November 2019 after strike action will probably result in a fatal stall of SAA which has burnt through a reported R28-billion in National Treasury bailouts since 2007.

If the current acting chair of SAA is to be believed, the crisis now faced by the airline is a result of the unions, which, by their actions “are responsible for the death knell at SAA”. No doubt, the SAA board will attempt to sustain this narrative in order to sufficiently muddy the water and provide the necessary cover for the real culprits of SAA’s demise.

This article will attempt to remind readers as to who the miscreants really are and via headline numbers extracted from the SAA Group Annual Financial Statements (AFS) 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 the airline.

Who, then, is responsible?

Contrary to the current PR spin of the SAA board which suggests that the unions are to blame, the facts confirm that the responsibility for the R28-billion of losses incurred since 2007 rests with consecutive SAA boards, their executive and senior management teams and the shareholder, being the government.

Cabinet ministers who have acted as the shareholder’s representative for SAA over this period include Alec Erwin, Pravin Gordhan, Lynne Brown, Malusi Gigaba and Nhlanhla Nene and it is they who have appointed SAA boards of directors who, in turn, have appointed CEOs and acting CEOs and executive management to run the airline.

It is this cohort of Cabinet ministers which has consistently appointed often politically connected, incompetent and allegedly dishonest individuals who have been given free rein by a coterie of fellow board members whose contribution appears to have been little more than that expected of useful idiots. Conspicuous by their almost total absence have been appointments of hard-nosed board members 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, alleged dishonesty and incompetent boards, is it any wonder, then, that mostly unsuitable and inexperienced permanent as well as acting CEOs have been appointed to SAA, with the knock-on effect being top-heavy executive, senior and middle management teams earning well above industry norms, but with a very limited capacity or capability to properly execute their job functions?

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 about R2.5-billion per annum resulting in R28-billion worth of bailouts from National Treasury up until 2019.

Average operating costs at the SAA Group totals more than R30-billion per annum with the biggest line items being fuel at about R8-billion, maintenance at about R5.5-billion and other operating costs of R4.5-billion. Aircraft lease costs and navigation and landing fees total R5.2-billion and accommodation comes in at about R1.3-billion

Salaries and employee benefits for the SAA group is a separate line item of about R5.8-billion.

It is fair to say that procurement totals about R23-billion per annum and figures of this magnitude require board approval and oversight — and the State Capture commission reminds us on a daily basis that procurement at government and State-Owned Entities (SOEs) builds in premiums of anything 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 which would have resulted in a highly competitive procurement regime. The Auditor-General, in his report contained in the 2017 SAA Group AFS confirms that the SAA board was unable to implement sound internal control and it is this absence of control which provides the fertile environment for the type of procurement irregularities highlighted at the State Capture commission. Had SAA boards implemented sound internal control all those years ago, then it is not inconceivable that savings of 10% of annual procurement, or R2-billion, would have been made on an annual basis.

It is patently obvious that not only is the SAA Group 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.

It is argued that the heart of any commercial airline is the position of “director of operations” which encompasses both ground and flight operations and it is critical that this position be filled by an individual with significant aviation experience (by definition, a senior pilot) and who also has the proven business management track record as well as the relevant tertiary business qualifications.

The skills-set suggested above 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 for this complex position seems to be overlooked and where the lucky-packet version of business school short executive courses is an acceptable substitute for real tertiary qualifications.

If politics attracts neither the brightest nor the best, then 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 at SAA.

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 management reapply for their jobs pending skills audits. The net result would have been the offloading of a significant excess of SAA management baggage through the emergency exit and/or the demotion of significant numbers, resulting in a significant reduction in the income statement line item of salaries and benefits expenses.

These boards would also have allowed for natural attrition, thereby reducing the headcount further and developed a lean organisational structure where key positions such as that of a director of flight operations would be filled only with best-in-class candidates. Further assessments of the balance of SAA Group’s lower-level staff should have been implemented years ago and the initiatives set out above would have resulted in a gradual headcount reduction to between 8,500 and 8,800 versus an estimated 10,000 employees at the SAA Group as at 2019. Savings on such a headcount reduction would have translated into further savings of between R700-million and R1.3-billion per annum.

The savings on procurement and human resources which should have been implemented from 2007 onwards, with dumping of 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 passenger and the future of 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 current crisis at SAA, one must ask why the first action of the SAA board was not to set an example and target all the deadwood at the 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 are designed to target employees at lower levels whose future re-employment opportunities are decidedly bleak, and one cannot blame the unions for their unbending position.

While it is a tragedy that a once-proud airline with enthusiastic and polite check-in and support staff, friendly and capable cabin attendants and highly competent pilots have got to the point of total collapse, it must not be forgotten that it is the 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 the ones ultimately responsible for this modern-day tragedy. DM

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