/ 17 September 2015

SAA’s Dudu Myeni in Nene’s crosshairs

SAA board chairperson Dudu Myeni may be Zuma's good friend but Nene apparently wants her and her board out.
SAA board chairperson Dudu Myeni may be Zuma's good friend but Nene apparently wants her and her board out.

The future of Dudu Myeni is hanging in the balance. The SAA board chairperson, who is known to have a close relationship with President Jacob Zuma, may pay the price for the ailing national carrier’s precarious financial position and its management woes.

SAA is expected to have a new board by next month, if the finance minister gets his way. Nhlanhla Nene, whose department has been running SAA since December last year, confirmed this week that the treasury is working on a turnaround strategy for SAA, which would include making changes to the board.

“We are working on a complete turnaround plan, so we are working on everything. We have an interim board at the moment, so we finally have to have a full board,” he told the Mail & Guardian on the sidelines of Zuma’s briefing on foreign relations in Pretoria this week. “We are looking not only at the board but at governance in general.”

It is an open secret that Myeni, who also chairs the Jacob Zuma Foundation, and Nene do not see eye to eye.

Sources in SAA said the relationship is so strained that the two have not held a meeting for some time.

But Nene rejected claims that there are tensions between the treasury and the SAA board, or any individual serving on the board.

“I don’t deal with any individual,” he said. “I deal with the board in its collective form.”

Four sources, two from the treasury and two from SAA, said this week that Nene will soon announce major changes that will exclude Myeni, because the finance minister

prefers a board led by someone with a proven track record in the airline industry.

Mooted changes to the board come amid revelations that the airline has requested another R5-billion government guarantee. If this is granted, it will be the second this year, following the R6.5-billion guarantee that was given in February.

SAA continued to lose money in the first five months of the current financial year, despite the efforts to make the airline profitable.

It is said that Nene will also rather approve the R5-billion bailout under a new board and a seasoned chief executive with the skills to steer SAA in a new direction, according to sources.

The SAA board has yet to find a suitable candidate to replace former chief executive Monwabisi Kalawe, who resigned in April this year. He was appointed in June 2013 but suspended at the end of October 2014, at Myeni’s behest.

Nene would not give the finer details of the changes that are likely to be implemented, but government sources familiar with his department said Myeni is likely to get the chop.

Nene said SAA should have a strong board in place by the beginning of October when it holds its annual general meeting.

Asked about SAA’s application for another cash guarantee, Nene said he does not deal with these applications – a committee is charged with that. “In fact, I don’t even sit on that committee,” Nene said.

SAA sources said the airline is so broke that it might not be able to convene its annual general meeting if the treasury does not approve its application for guarantees. The airline, according to a recent Business Day report, has not been able to table its financial results because auditors have raised concern about its financial position.

Removing Myeni as SAA chairperson is likely to be controversial, considering that she is perceived to be politically connected because of her close friendship with Zuma.

The move is also likely to put the government at odds with the trade union federation Cosatu’s affiliate, the South African Transport and Allied Workers Union (Satawu). It has praised Myeni’s efforts to transform the national carrier, which it has described as “too white”.

Its general secretary, Zenzo Mahlangu, said this week that removing board members will not boost SAA’s fortunes. “The company has not been performing for ages. Its performance will never change if we only concentrate on the position of CEO and chairperson.”

The major problem is middle management, Mahlangu said. He added that Myeni is passionate about transformation and he accused the former SAA acting chief executive Nico Bezuidenhout of awarding tenders only to white-owned companies. He cited examples such as the catering contract that was awarded to a German-based supplier and a uniform tender to a company based in the United Kingdom.

Bezuidenhout, who resigned in July, was not available for comment by the time of going to print.

The treasury’s spokesperson, Phumza Macanda, confirmed that SAA has applied for another guarantee, but refused to divulge further details.

“There is an application from SAA for a guarantee that is currently receiving attention. It’s not finalised yet, so it would be premature to discuss it,” Macanda said.

SAA’s spokesperson, Tlali Tlali, refused to comment on the application, and said the parastatal fully concurs with the treasury’s response to the M&G.

SAA has, to date, received a total of R14.5-billion in debt guarantees from the government, but the airline’s financial woes appear to be far from over. Its borrowing

costs are to be about R500-million a year. SAA is expected to show a loss when it releases its financial results next month. The airline has been trying to cut costs since 2013 and told Parliament it had managed to save R2.2-billion by the end of last month.

This year has been particularly challenging, with increased competition, revenue pressures caused by the outbreak of Ebola in West Africa and xenophobic attacks in the country, which affected tourism negatively.

The weakened rand, legal damages and a R1.2-billion impairment that SAA recorded following the delivery of 10 aircraft over the past two years have also strained the airline’s bank balance.

In an effort to cut more costs, SAA has decided to cancel some of its costly routes, including to Beijing, which has recorded more than R800-million (R30-million a month) in losses since it was launched three years ago.

In addition, SAA is considering selling its catering line, Air Chefs, a full or partial sale of SAA Technical, a full sale or public listing of its subsidiary, the low-cost carrier Mango, and selling its loyalty rewards programme, Voyager, according to a Business Day report.  

Myeni told Parliament that SAA’s operating costs are too high because the airline is paying almost R2-billion a year for the pilots’ salaries, among other things.

Macanda said any proposal to sell stakes in some of the SAA subsidiaries will have to be supported by a sound business case and be submitted to the treasury for consideration and a decision. “As yet, no such proposals from SAA are on the table,” he said. 

Myeni told Parliament earlier this month that, although the parastatal is still losing money, its year-to-year operating results have improved by 43%. The revenue levels were 11% below the ones from the previous year as a result of a significant drop in fares in the industry because of lower oil prices and competition.

The conditions laid down by the treasury when it approved the guarantee of R6.488-billion early this year included strengthening governance and internal controls, cutting costs, timelines for targeted savings and weekly reports to the shareholder.

Deputy President Cyril Ramaphosa has been tasked with overseeing the turnaround strategy of SAA. He told Parliament last week that “operating costs are consistently being reduced and operational efficiency is improving”.

He added that a 90-day action plan has been successfully implemented and that a long-term turn­around strategy has been developed and is being implemented.

Myeni could not be reached for comment.