Potential bidders may think again before taking on SAA’s losses, now set to top R400-million, writes Ferial Haffajee
SOUTH AFRICAN AIRWAYS (SAA) may now be up for grabs, but potential bidders are likely to baulk at the extent of its losses – now tipped to top R400-million in 1996-97.
The disappointing prognosis comes at a bad time: earlier this week Public Enterprises Minister Stella Sigcau announced plans to fully privatise the national carrier. Until now, the government’s stated intention has been to sell only a stake.
Last week, the airline’s management told staff that unaudited figures showed a loss of R345-million, but industry sources say the figure is likely to top R400-million, with one pessimistic pundit placing it as high as R438-million.
It’s been quite a slide for SAA. In the previous year, it showed a healthy profit of R147-million. But increased competition – 66 new airlines have come into the country since 1994 – and a weaker rand took their toll. Most of SAA’s costs, such as fuel, maintenance and spares, are paid in dollars.
There are other reasons for the poor showing. Industry insiders say management needs a shake-up. They point out that other than the appointment of SAA executive director, Zukile Nomvete, there’s no new blood at SAA. “There’s no one new at SAA; the old-style apparatchiks still rule the roost,” says an aviation analyst.
There’s also been a brain drain from SAA. Andre Venter, the president of SAA’s staff association, Salstaff, says: “There’s a terrible lack of trained supervisors and management. People are still in a comfort zone. They must know the ossewa [ox-wagon] age is over.”
The staff association is likely to give privatisation its stamp of approval. So are the South African Pilots Association and the Flight Engineers Association. But the Congress of South African Trade Unions- aligned South African Railway and Harbours Union will take greater persuasion.
The SAA sell-off is still many negotiating hours away, however, as plans must be passed by all parties in terms of the National Framework Agreement agreed to by government and labour.
In the meantime, it may be difficult to find a buyer for an airline returning such a loss. The Transport Department’s Director General Khetso Gordhan says: “The loss is of great concern to us. The Transport Department’s policy is to maximise competition and SAA’s loss is creating an unlevel playing field.” Commercial airlines would not survive such a loss and SAA can only stay afloat because it falls in the Transnet stable.
Gordhan says SAA’s privatisation should be “fast-tracked” to get it back into the black more quickly. Gordhan says that despite SAA’s poor showing, there’s great international interest in SAA, most notably from British Airways and Lufthansa.
But one aviation analyst doesn’t think it will be so easy to lure a foreign buyer. He points out that British Airways has already tied up a lucrative (and free) deal with Comair. “They get their branding on all Comair flights. There’s a natural flow of passengers and cargo; why should they invest in an airline that’s losing money?”
Lufthansa’s new business credo is “if we don’t have to spend money, we won’t”. So that airline is likely to look for synergies – like complementary flights – instead. Both KLM and Virgin have set their sights on Sun Air.
SAA’s fleet is also old and expensive to maintain. The airline has a bloated staff and a management corps that avoids making tough decisions about unprofitable routes. But this week it announced it would cut loss-making routes and take other “ruthless” business decisions to break even in the new financial year.
Despite the bad news, some local and regional aviation companies are keen to buy into SAA. The editor of Air Report, Linden Birns, says the airline has a competitive domestic network and strong regional links. And while complaints about shoddy service standards are growing, Birns says “the airline has a very highly trained staff, especially in the safety field”.