#220 South African Airways: Where are the performance targets?

Performance targets will only provide relief, maybe piece of mind, a ticket to pressurise the airline to do better—but that alone won’t save the airline.

TWO PERSONALITIES- One Airline in the sour limelight.

The SAA situation is quite complex, and should not be underestimated. While in the most logical spectrum of argumentation one could connect a few dots simplistically. I’ve followed this debate from 2018, with arguments around privatisation and presented an investment case; into the Business Rescue situation and even an assessment of the peculiarities in the Business Rescue Plan. More broadly, one of my core arguments is that the aviation industry as a whole should be a priority because it is an ecosystem that SAA has spent some time a decade ago trying to distort. In this one, I just want to rant and rant and rant about performance.

Letter under the door

The Business Rescue Plan was accepted, and the Department of Public Enterprises (DPE), lenders and some unions are pleased with this development. Public opinion leans on a leaner airline, but much concern is placed upon how well tax payers money will be used. 

Government’s letter to the BRPs is only a statement of commitment, meaning that there is a latent guarantee, until the hard-cash kicks-in in trenches. No numbers in the letter yet, but something could be in the pipeline to salvage the business model proposed in the BRP: a lean airline, 13 aircrafts, limited routes, low cost base, high severance package costs and a difficult climate for the aviation industry. 

Little can be said about what this means really, for me it only implies a degree of commitment that the plan will proceed. More deeply, it raises questions about where the DPE sees the role of the airline, and if their initial thoughts about the airline in their earlier positions has evolved or remained fixed. So far, the airline has been missing in action in the public policy discourse around the future of transport SOEs—which is barely a good sign. 

Breaking blacksheep, and take no nonsense

SAA has been the Blacksheep for some time, but it even with a new board, or executive team in place, the right mix of expertise, experience, competence and limited government interference would be a healthy dose out of the 2009-2019 problem. This however does not solve its basic fundamentals: the 2005-2008 framework around the three P’s. 

Some might confuse my calling for a shareholder compact as me calling for a corporate plan, or an outline of the mandate, or something. Instead, treating SAA with the same hard performance targets as its former parent company Transnet was in 2004/5. A level of serious indicators that are industry specific, financial and have organisational implications would do the airline well. These performance targets would only come from a consultative DPE, a hard handed National Treasury, and a concerned Transport Ministry. 

Treasury should not take the hook if there are no performance guarantees from the airline’s primary shareholder. I mean think about it, tax payers want value for money, but no one has actually articulated how that will be measured in the new deal. Taking no nonsense, as it were the case with Transnet Ltd’s transformation would go a long way. (I’ll share more about this, but you can read a note here.)

Only performance targets will save us!

Maybe we wait for the new board, or an executive team—but as in a complex project, the shareholder should be making a firm public statement regarding the performance targets of the airline. More importantly, the implications if these targets are not met. If an equity partner comes on board, what will they be there for without a clearly articulated and measurable set of performance targets—certainly not a “mandate”. 

This is where I would like to draw the line, there’s no room to play politics through an ideological ‘mandate’ that has no publicly available and tangible targets. Some questions:

  1. What is the load factor, ASK, RSK etc. by 2025?
  2. What is the Internal Rate of Return by 2025?
  3. What is the debt to equity ratio by 2025?
  4. What kind of profit margin is expected by 2025?
  5. How many employees by 2025?
  6. When will there be enough capital to procure additional aircraft, what is the fleet plan, and how will it be rationalised?
  7. How will governance and organisational performance be measured by 2025?
  8. What are the developmental objectives, and how will they be achieved by 2025?
  9. What is the best, worst, ideal and do-nothing scenarios toward 2025?
  10. And many other indicators that the advisory team within the DPE and at SAA should be able to articulate, even within the current COVID-19 situation. 

I hold my criticism around the single scenario approach used to develop the operational plan (or maybe this was the best one of many), and the performance targets which the airline should achieve over the next 5 years. Performance targets will only provide relief, maybe piece of mind, a ticket to pressurise the airline to do better—but that alone won’t save the airline.

The day we stop playing politics with commerce, our aviation industry would develop, people will work with dignity, and our industry will soar without inhibition. I feel for the DPE, they weren’t the ones playing– they inherited a game. There is room for another airline in SA, we just need to give it space to soar. SAA should stay lean, and focused and the floodgates will open. But, for as long as we have to stare at the state for a commercial airline to function efficiently, we are most probably going to have more questions than answers.

As for me, there’s nothing more disturbing than looking at a Blackbox hoping for some light to come out.  

I really don’t want to write about SA Express, its the most heart-wrenching situation I’ve seen. Once calmness settles, maybe something will come forward. For now, yes, it has been some time since, but the time is neigh. Thank you for reading.

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