South African Airways restructuring

Meeting report

SAA Presentation
The SAA presentation was made by Ms Vera Kriel, Head: Corporate Strategy and Business Planning, Mr Chris Smyth, General Manager: Operations, and Mr Bhabhalazi Bulunga, General Manager: Human Resources. The presentation outlined the progress made in restructuring, the labour agreements that had been concluded, and an update on efforts to address the boarding and disembarking of disabled passengers.

The restructuring plan had been approved by the SAA Board in May 2007, and publicly launched on 4 June 2007.
The plan envisaged the airline returning to profitability by March 2009. As a result of the restructuring process there was an overhaul of SAA’s website, which was enhanced with the launch of the online check-in service.

Sponsorships had been reduced from 37 to five titles and travel packages had been put in place for most sponsored events.

 SAA also closed some of its international offices to where SAA was not flying and replaced them with agents, saving the airline R33m. Business class and economy class pricing initiatives were also implemented and this saved the airline an additional R115m.

Wage negotiation meetings had taken place between SAA management and unions representing the airline’s ground staff and cabin crew members.  This followed an agreement by labour to freeze wages in 2008 as part of their commitment to support the restructuring process.

In May 2008 a multi-year wage deal was reached which involved a 9% wage increase for 2008/09. So far 1992 employees left the employ of SAA during the last financial year and 963 of these were Voluntary Severance Packages (VSPs). The majority of these staff members left within a six-month period.



Discussion
Mr P Hendrickse (ANC) said that it would be very useful to receive a progress report from SAA on all their initiatives that they have undertaken over the past four years. SAA should also comment on the SAA Technical board.

Ms Kriel replied that she had not been involved in the past initiatives. However she pointed out that the past initiatives were run separately from the financials, therefore there was no way of tracking the finances.  What was different about the new initiative was that a total integrated approach was taken in order to work with the financials. SAA would send information on the SAA Technical board to the Committee.

Dr M Van Dyk (DA) requested that the attendance register of all the board meetings be forwarded to the Committee and he asked SAA to comment on the savings in millions. It had been reported that SAA received R3.6 billion from National Treasury in the past financial year. SAA however was heading for a loss of R3 billion, and also owed Transnet R9 billion, which was meant for a previous restructuring.  Taking into account all the losses that had been made, and the debts that were owed, how was SAA planning on making a profit?

Ms Kriel replied that SAA had made it very clear that they were looking for sustainable savings and accountability. The money that had been given by National Treasury was merely a guarantee and was specifically to be used for the grounding of the 747s. On the losses and the way forward, SAA was still striving to make a profit and was still in a restructuring mode. Projected profits were constantly under review as a result of the volatility of the fuel price.

Mr C Gololo (ANC) asked for clarity on how many lost baggage claims had been registered and settled with SAA.

Mr Smyth replied that the figures would be forwarded to the Committee.

The Chairperson asked if the reduction in costs of airline spare parts compromised passenger safety.

Mr Smyth said that SAA had to adhere to certain airline industry standards and there were various bodies which checked the airline in order to determine whether SAA complied to the standards. There was strict monitoring on the parts that were used in the aviation industry and each approved part had a unique serial number.
 
The Chairperson asked for a detailed written response on the matter.

Mr Hendrikse added that a written reply should be provided on the previous restructuring initiatives.

The Chairperson referred to the table in the presentation which dealt with staff turnover and asked for clarity.

Mr Bulunga replied that the presentation dealt with the number of people that had been given VSPs, those that had resigned and employees that had retired.  Some posts where people had resigned, had been filled, but the number of replacements for those empty posts that were filled, was not shown.

The Chairperson asked in writing for the number of replacements and the level of their competence.

Dr Van Dyk said that according to the SAA balance sheet, they had one airplane. Clarity should be provided on the leased planes and whether they imported spare parts from Airbus and were they received on time? On the financials, SAA indicated that the R3.6 billion was merely a guarantee. The SAA should therefore comment on whether they would use the guarantees if they faced a situation where they were unable to cover their losses. On the freezing of wages, the CEO said that no one would receive any salary increases. However according to reports, R72 million was set aside for bonuses. Clarity should be provided on the matter.

Mr Gololo asked if the schedule for SAA routes would change for 2010. It was well known that the fuel price increases had greatly affected the airline industry and he asked how much it cost to fly a plane from Cape Town to Johannesburg. SAA should also state whether they had benefited from the demise of Nationwide Airlines.

Mr R Nogumla (ANC) referred to the SAA staff that had voluntarily taken severance packages, and asked if any people would be retrenched.
 
Ms P Lebenya (IFP) noted that she had seen new SAA staff being trained at Cape Town International airport and asked for clarity on this.  When an organisation such as SAA lost 235 managers in such a short space of time, then surely there would be no continuity and organisational culture?

Mr Bulunga replied that the matter of 235 managers was a major challenge to SAA. SAA had tried to find ways of reducing costs while still remaining sustainable. Six different managerial levels had been collapsed to three levels. The only area where there was currently management shortage was the lack of women at the executive level. The VSPs were voluntary severance packages and there was no forced retrenchment. The environment for replacing people was always going to be a challenge to SAA, and it should be noted that not all technicians and pilots were leaving because of the turnaround.  The Committee should also note that SAA would not be paying bonuses for the next three years. However retention packages would be paid out, which would act as an incentive for highly skilled employees to remain. If employees receiving an incentive package left the organisation within the next three years, they would be required to pay back the package. Therefore the amount quoted was not a bonus.  It should also be noted that all employees did not receive a salary increase.

The Chairperson asked for a written explanation of the retention scheme as well as the people who qualified and what the criteria for qualification were.

Mr Bulunga replied on new staff, saying that the only positions that were being filled were for the people who resigned. Regarding skills replacement, SAA would employ inexperienced technicians and train them over time through various programmes. This would be more efficient than poaching experienced technicians from other companies.

Ms Kriel added that in terms of new routes for 2010, there might be additional changes to the SAA schedule. SAA would still run its normal operational schedule and from a 2010 point of view, SAA would have to re look at its schedule and was looking at working the various partnerships that had been formed quite closely.

The Chairperson asked for clarity on when SAA planned on having the 2010 strategy in place

Ms Kriel replied that SAA would have to provide an operational plan to the Department of Transport and SAA could implement 80% of the schedule almost a year in advance. However given the changes in the market, it would have to be implemented closer to 2010.
 
Mr Smyth explained that SAA was passing 33% of the fuel price increase to the consumers. On a 737 flight from Johannesburg to Durban it would cost approximately R40 000 and a flight to Europe would cost approximately R630 000 in fuel. On the delay of spare parts, it was very expensive to keep the airline on the ground, and the suppliers worked very hard to ensure that the airline worked efficiently. Therefore SAA did not experience undue delay from the manufacturers.

Ms Kriel added that it all depended on what the competitors were doing and whether they passed the increase on to the consumers. On Nationwide, SAA did benefit from its demise in many ways. Many of the staff from Nationwide joined SAA.

Mr Smyth noted that even though SAA also gained several pilots from Nationwide, none of the SAA pilots received VSPs during the restructuring process. 

Ms Kriel said that in terms of its balance sheet, the organisation had a very thin balance sheet, and it was something that needed to be worked on continually.

Mr Hendrikse noted that it was unacceptable for an organization to have such a high turnover rate of employees. Clarity should be provided on whether the VSPs were racially skewed and whether SAA made their skilled employees feel welcome.  SAA should also comment on how much of the fuel levy cost was passed on to the customer.
 
The Chairperson referred to Slide 30 of the presentation and said she was shocked by the fact ACSA had failed to provide a tendering service for baggage handling to SAA, which was one of their biggest clients. Clarity should be provided on what the progress with ACSA was in terms of the issuing of licences for baggage handling. The level of customer service by SAA staff at OR Tambo International was unacceptable. SAA should comment on what was being done to address the matter.

Mr Smyth replied that he was not criticizing ACSA in the presentation. There was a tendering process which was run by ACSA, and the process was sub-optimal to SAA.

The Chairperson noted that it was not SAA’s fault, however if the problem was not addressed, SAA would be faced with greater challenges.

Mr Smythe replied that SAA was going out to tender to create a long term arrangement for the baggage handling. The tender process would be a short process and would hopefully be completed within the next month or six weeks. Going forward, ACSA was tendering a third licence and there would be two big players competing for the tender. SAA would be given the opportunity to choose one of the two big baggage handling players. On the poor customer service by the staff at OR Thambo, SAA was working very hard to turn staff morale around. The airline was going through a restructuring process and people were very scared about their future. It should be noted that the on-board services in the airline had improved.

Mr Bulunga added that SAA faced a difficult situation and the staff morale was definitely affected. SAA however expected managers to keep the airline motivated and able to deliver world-class service.

Ms Lebenya noted that she got the impression that SAA was failing to keep its staff happy. Clarity should be provided on the measures that SAA had in place to ensure that the staff was happy.

Mr Smyth relied that SAA held monthly meetings with staff in order to address key issues. The forums were meant to give SAA feedback and respond to the requests of the staff. Some of the requests were not achievable and some were.

Mr Bulinga replied that it was impossible to keep managers happy all the time and managers needed to ensure that there was adequate training of employees. SAA noted that employees’ rights needed to be guaranteed during the restructuring; however management could not be held responsible for the happiness of employees.

Dr Van Dyk said that taking into account that Parliament was going into recess at the end of June, there was very little time. The engagement had been a waste of time, due to the fact that the officials present had very little experience working with the organisation. He recommended that the Committee forward a letter to the board of directors asking it to take the Committee seriously.

The Chairperson noted that Dr Van Dyk had been given an opportunity to ask a final question and he had wasted it.

Mr Nogumla said that there was hope in SAA given the nature of the report that was provided. Previous reports indicated that no one knew what was going to happen and SAA had finally provided clarity on the restructuring process. There was also movement towards the staiblity of the balance sheet, and it was good to know that there were positive developments when it came to addressing key issues.

The Chairperson noted that there was a small misunderstanding between her office and the parliamentary liaison officer and at short notice SAA officials had made themselves available. There was no insistence for the attendance of the CEO at the meeting; SAA was merely informed of the key issues that needed to be addressed in the presentation. The Committee was glad that SAA had finally made progress with key issues pertaining to the restructuring; however SAA was not out of the woods and there were still many areas of concern which needed to be addressed. There was still a problem with the ground staff, particularly at OR Tambo Airport and it was an issue that SAA needed to urgently look into.

The meeting was adjourned.