Open letter: This is how we fix SAA

This week we received another reminder that South African Airways is hanging by a thread when reports surfaced that the Government has not come up with the R2bn it pledged as part of a larger R4bn in funding to keep the airline flying. It followed after SAA was placed under business rescue in December last year. There were also reports that SAA sought to sell nine of its aircraft, but management later clarified that it was done to accommodate the new Airbus A350-900s. Finance Minister Tito Mboweni admitted yesterday that the National Treasury was still trying to find the additional funding for the cash-strapped airline. It is easy to write SAA off and to regard it as another failed state-owned enterprise, but that is not what South Africans are known for. Many have come up with suggestions on how SAA can be saved on social media sites including that SAA should only concentrate on local routes and leave the international routes to competitors. It is that ‘Boer maak ‘n plan’ attitude that has pulled us through many crucial moments in the past. Businessman Simon Larsen, an entrepreneur who has established nine companies over the last 30 years, says he believes in his country and has come up with suggestions to rescue SAA and remove it as a significant burden on the South African fiscus. – Linda van Tilburg

Open letter to President Cyril Ramaphosa; Minister Pravin Gordhan and Mr Les Matuson: Suggestion to rescue SAA and remove a significant burden on the South African fiscus 

By Simon Larsen*

I wish to offer a suggestion by which the challenges posed by SA Airways may possibly be solved.

As a layman observing from the side-lines I see the following challenges:

  • Insufficient management resources to run the company well – back into profit;
  • Insufficient capital to continue to operate let alone invest in growth;
  • Significant debt which cannot be paid and which adds to the huge danger posed to SA revenues should the country finally be fully downgraded to junk;
  • Constant drain on state finances – which it can ill afford given the massive burden already posed by a number of other SOE’s that are in trouble;
  • Large numbers of jobs at stake – both directly in SAA and indirectly in supporting the aviation industry – of which SAA is a major client;
  • Long term loss of significant aviation skills and associated industry, which would take decades to recoup – if ever;
  • Significant pressure from labour and affiliated political groupings to prevent down scaling and job loses;
  • Significant pressure from certain political groups against privatisation – they demand that SAA should exist in order to somehow fly the flag of socialism.

I propose that all the above issues could be resolved in the following way:

  • Approach the major competitor of every significant international route with an offer to franchise the SAA operation on that route – and to sell all assets required to operate that route under the SAA banner.

e.g. approach BA to take over the UK route – and offer to supply all planes, staff, support etc. for a commensurate and reasonable fee. The same offer could be made to Air France, KLM, Lufthansa, Swiss, Turkish, Emirates, Cathay Pacific, Qantas, Delta, Singapore, Ethiopian etc.

  • The competitor would assume all costs & operational responsibilities for that route – including employing the SA staff and running SAA booking desks in their home country.

As a result SAA would lose responsibility for all international operations and costs – but the SAA brand would continue to exist.

  • The same could possibly be done for SAA Airlink and SA Express – these operations could be amalgamated into one – and offered to existing local operators to run under a single banner;
  • SAA would effectively be reduced to a small, easily managed and financed marketing and booking operation based in SA. They will continue to run the booking desks in SA airports & they will offer the full set of SAA services from all parts of the world on one booking platform.

What will this structure achieve?

  • South Africa will receive a significant inflow of finance that could be put towards paying off SAA debt;
  • SA fiscus will no longer have to concern itself with the on-going funding of a loss making operation;
  • SA does not have to have a huge team to run operations all over the world – but the SAA brand continues – we can still take pride in having our own airline;
  • All jobs are preserved and the aviation industry in SA is preserved – and can potentially offer more jobs as the new operators streamline and improve their services to SA;
  • Due to the fact that the brand and “operation” of SAA will continue – once the SA economy has recovered and the industry builds the necessary resources – it may be possible to claw certain routes/operations back into SA ownership.

Why would the “competitor” carriers be interested in such an offer?

  • Acquisition of “sole access” to their route. For example – BA would be offering the UK-SA route via both BA and SAA – and would therefore have direct access to the full income stream of that route;
  • In so doing they could streamline their operations & maximise the code-sharing opportunities on this route. Since they would acquire some infrastructure and staff to run this route under the SAA banner – they may be able to free up some of their planes & staff to meet demands in other parts of the globe;
  • They will acquire infrastructure at a fairly competitive price (I’m not advocating we give it all away – we need to maximise the return to SA public in order to pay off the SAA debt);
  • They will gain qualified and competent staff – massive savings on training;
  • They will be running part of a strong global brand which will feed customers to their operation – but will not have to spend much to market it
  • Goodwill towards us : I believe that many nations want us to succeed; their public like to visit our country – and we are a good trading partner for many of the counties concerned. If they can see that this structure will help us solve a significant issue; I like to believe that they will do so – even if it requires some work with the respective governments on the diplomatic front;
  • The cost of “solving the SAA problem” would be split over 10 or 15 different global operations – making the cost of each individual “route” far more “affordable” and manageable.

In conclusion – I have no delusions that this proposed “fix” would be easy to achieve. There would be countless details to attend to and many parties to convince. However I do believe it provides a suitable solution for many parties – and significant opportunities for others, so I believe it would be worth some exploratory discussions at the very least.

  • Simon Larsen completed a BA in Economics and Industrial Psychology at the University of Natal in 1987. He is an entrepreneur, establishing several companies over the last 30 years. He believes that South Africa has the potential to be great.