MIAMI— Any airline that has had five changes of CEO in three years has a problem. When it admits it is effectively insolvent and is relying on government guarantees to keep flying, the scale of that problem comes into sharp focus.
That is the situation currently facing South African Airways (SAA), as it starts the search for yet another occupant for its top position.
SAA is one of the world’s oldest airlines, having been founded in 1934. In recent years, however, it has struggled due to a combination of an uneconomical long-haul fleet, a weak national currency and increasing competition.
In February this year, the state-owned carrier admitted the depth of its problems in a statement: “SAA has been reliant on guarantees from its shareholder for several years and the delay in the release of the financial statements for the 2013/14 financial year is directly related to the continued weakness of the company’s balance sheet and due to the company being technically insolvent.”
The latest in a series of cash props came in February when the South African government guaranteed $565 million for SAA, taking its total backing for the airline to around $1.2 billion.
The company has had a ‘Long-Term Turnaround Strategy’ (LTTS) in place since 2013. This is designed to be a 12-year, four-phase project with goals including trimming SAA’s traditionally high costs, improving yields and cutting unprofitable routes that have sometimes been retained for political, rather than economic, reasons.
The airline’s revolving door of CEOs, meanwhile, began in October 2012 when Siza Mzimela – together with eight board members – resigned in a move airily dismissed in a company statement as “turbulence of a temporary nature.”
Now, pay attention from this point, because we’ll be asking questions on it later.
Mzimela’s replacement as acting CEO, company chairman Vuyisile Kona, lasted only until February 2013 when he was suspended by the board for unspecified reasons. He was followed as acting CEO by Nico Bezuidenhout, who heads SAA’s low-cost subsidiary, Mango. Bezuidenhout moved swiftly to reduce costs and stabilize the carrier, but made way in April that year for Monwabisi Kalawe. Kalawe survived into 2014, but was said by the company last November to be “absent” from his post. He, too, was then suspended and faced disciplinary action early this year for alleged “gross misrepresentation” to a government minister.
Kalawe and SAA reached an agreement in April that he would resign to avoid potentially protracted litigation and Bezuidenhout, who had been reappointed – again in an acting CEO capacity – last December announced a 90-day action plan to kick-start the languishing LTTS.
Having apparently been successful in doing so – it is estimated that the action plan will improve SAA’s results by $100 million this year – Bezuidenhout suddenly returned to Mango in late July; no new CEO has yet been announced for SAA.
Confused? Think how SAA’s employees must be feeling.
Telephone calls and e-mails to SAA seeking comment on Bezuidenhout’s move and its plans to improve its trading position were not returned.
This turmoil at the top has distracted attention from trying to fix the airline’s chronic financial problems. Its short-haul and regional services are profitable and growing them is a key plank of the LTTS. The problem has lain in its long-haul flights. SAA’s long-haul fleet is made up of 17 Airbus A340s and the four-engined European aircraft has struggled in an era of high fuel prices.
While that situation has eased recently with the past year’s sharp drop in oil prices, a long-term solution is required to renew the long-haul fleet and the company’s financial problems are likely to make this difficult to fund.
In the interim, some of the most heavily loss-making routes – notably direct services to Beijing and Mumbai – have been dropped in favor of codeshare arrangements with Air China, India’s Jet Airways and Etihad Airways.
In recent years, losses have admittedly been exacerbated by factors outside the airline’s control, namely a sharp fall in the value of the rand against currencies such as the US dollar, the denomination in which many aviation bills have to be paid.
And the ‘Big Three’ Gulf carriers see Africa as a major market for expansion and are eating into SAA’s business with multiple daily flights from South Africa’s cities to their hubs.
Whoever is next to sit behind the CEO’s desk at SAA will have his work cut out for him.