South African Airways (SAA) is to undergo comprehensive restructuring aimed at a R2,7-billion improvement in profitability within 12 to 18 months.
”That [R2,7-billion] is the improvement we need to put this airline into a profitable situation,” CEO Khaya Ngqula told reporters in Johannesburg on Monday.
The board-approved plan would see management cut by at least a third, as well as negotiations on employee working conditions.
The under-performing airline was to be unbundled into seven subsidiaries as stand-alone entities with possible outside equity partners for some of the units.
Other objectives were to dominate domestic and Southern African routes following a R500-million profit having been generated on continental routes in the last financial year.
Public Enterprises Minister Alec Erwin said the success of the ”well-conceived” plans depended on introducing it according to a time schedule.
”The government is fully behind the turnaround strategy but will not support the airline if this strategy is not implemented.”
The government gave the airline a R1,3-billion guarantee in March with the condition that it would turn to profitability.
”The key elements of the strategy need to be implemented during this financial year,” Erwin said.
International routes would be rationalised with the ”cash-negative” Paris route to be eliminated in October.
Furthermore, a fleet of five leased B747-400 Boeing aircraft would be grounded and new aircraft purchases put on hold.
Ngqula said that operating costs could be reduced by 10% by increasing seat density on flights.
The carrier’s cost structure had ”moved out of line” with competitors and failure to act would destroy the airline, he said.
SAA had his support but could expect ”very tough love” in the next year.
Airline human resources general manager Bhabhalazi Bulunga said negotiations with unions around working conditions would start this month.
He would not speculate on the potential of job losses as this would be ”pre-meditated”.
The company’s few costly 747s will be replaced this month with three aircraft leased to India’s Jet Airways.
Chief financial officer Gareth Griffiths said it was hoped to sub-let the aircraft to off-set the ”substantial” future value of the lease costs.
Cost-cutting exercises would continue irrespective of the restructuring, he said.
The unbundling into independent subsidiaries will involve the existing SAA Technical, low-cost carrier Mango, and the SA Travel Centre.
In addition, loyalty programme Voyager, SAA Cargo, airport operations and the passenger airline would be established as new entities.
The carrier’s catering company, Airchef, and its travel industry platform, Galileo, would be sold.
This was expected to be completed by December next year. Ngqula said the airline’s new website, with simplified booking facilities was launched on Monday.
New routes to Munich, Germany, and Libreville, Gabon, would be established.
”We see ourselves as an African line with a global reach,” Ngqula said.
Food would still be provided on domestic routes.
The restructuring plan was developed by American consultants, the Seabury Group.
The company has been involved in the restructuring of eight of the 10 largest airlines in the world. – Sapa