Airports Company of South Africa: Budget and Strategic Plan 2007/08

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23 May 2007
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Meeting Summary

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Meeting report

23 May 2007

Mr J P Cronin (ANC)

Documents handed out:
Airports Company South Africa presentation

The Airports Company of South Africa briefed the Committee on its budget and strategic plan for the forthcoming year. Detailed slides were given of projects and the costings. Efficiency of operations end to end was a primary focus area and ACSA was committed to ensuring good treatment of customers. The budget was healthy. There had been an increase in revenue to R 2.7 billion in the 2008 budget. ACSA would invest R4.6 billion in capital expenditure. It was aiming to be ahead of demand and to look at alternative means of transport to and from the airports. Key infrastructure projects were tabled and described. Growth in capacity was important in the lead up to the 2010 passenger influx. The spending of ACSA over the last few years had been substantial and ACSA was committed to seeking longer term financing.
It was also concentrating on human resources and investing more on training and monitoring of service standards. Questions by members addressed the La Mercy airport issues, and sought clarity on developments at OR Tambo airport, which it was agreed would be clarified during a site visit. Baggage handling was seen as a major problem, and several questions related to this, to the thefts, baggage being left open after searches, the need for an integrated response from all stakeholders, ACSA’s role in the total airport infrastructure and its obligations to supervise licensees and other contractors. Further questions were raised around ramp handlers, security, infrastructure at different airports, capacity plans and designs. The Chairperson asked that the Committee be kept fully informed of all developments.

Airports Company of South Africa (ACSA) Briefing
Ms Monhla Hlahla, Managing Director, ACSA, noted that the efficiency of operations end to end was a primary focus area of ACSA and this covered every aspect of the business, so that the customer was looked after properly from the time of driving into the airport premises to the time he or she boarded the aircraft. ACSA aimed to provide good value and money for customers, had achieved a strong rating and was looking forward to improving in the lead up to 2010. The strategic deliverables were set out in the presentation (see attached document)

Mr Brooks Mparutsa, Executive Director, Finance, ACSA, tabled slides dealing with financial performance, and stated that the budget was good. ACSA was developing differently in reaction to the demands for infrastructure and services. HE particularly highlighted the increase in revenue to R 2.7 billion in the 2008 budget. ACSA would invest R4.6 billion in capital expenditure in the next financial year, which would largely deliver infrastructure and capacity. ACSA was aiming to be ahead of the curve and therefore needed to anticipate for demand. It was also looking at alternative means of transport to and from the airports. It wished to use technology as a means of achieving efficiency. There had been concerns around inflation in the industry, which impacted on the cost of infrastructure, and ACSA would be concentrating on those issues and on the issue of demand exceeding supply at the present time.

Mr Bongani Maseko, Group Executive: Operations, ACSA, tabled the key infrastructure projects. The next phase of development was the international pier, which would be done in June. He also touched on the Gautrain to be implemented in 2009. At Cape Town International Airport there had been various developments, that were tabled, and the International Arrivals section of the airport would be upgraded. It was hoped that the upgrades would not involve too much disruption. A multi storey carpark was anticipated, similar to that at OR Tambo airport. There would be more connecting stands for all arriving aircraft. There would be growth in capacity at the Cape Town airport to accommodate a huge number of passengers. Increased passenger throughput would be important at all airports.

Ms Hlahla added that ACSA had the capacity to accommodate a large number of people. It was envisaged that 350 000 people would visit South Africa for the World Cup in 2010, and ACSA should be able to accommodate even more than that.

Mr Mparutsa stated that in 2005 ACSA invested R476million and were hoping to spend R4.6 billion in 2008, so that the growth rate had been quite substantial. This would continue post-2010 as ACSA was doing projects to extend the capacity. Inflation was ahead of what it had been anticipated. ACSA was busy putting all its figures together and these would be verified once it had met with the Regulator, so that only estimates were available at present. ACSA was aware of the quarterly reporting environment. The capital expenditure and investments were fully summarised in the presentation slides. It was noted that this year the five-year DMTN programme was registered on the bond exchange, which was a 12-year bond. ACSA was committed to seeking longer-term finance and would maintain the balance between shareholder’s needs and business needs.

Traffic assumptions were a core part of asset business and at the moment ACSA forecast up to 20 years to make sure the projects encompassed the demands. ACSA recognised new entrants into the air traffic market, such as Mango. It was anticipating an increase of air traffic movement of 9% domestic, for the 2008 financial year, and overall a 6% increase. Earnings before tax, depreciation and amortisation (EBITDA) were the key determinant in the aviation and airport sector, and those were anticipated to increase by 12%. He stated that the landing fee was 33% of the total revenue. He further mentioned that Aeronautical revenue contributed to funding, since the domestic charge was R30 per departing passenger and international charges were R80. Commercial services acted as a contributor to maintaining lower charges,

The Chairperson interjected to ask what lease smoothing was.

Mr Mparutsa stated that lease smoothing was an accounting adjustment made when ACSA adopted international financial reporting standards two years ago. This effectively had been done to smooth the lease over the term.

Mr Mparutsa continued that ACSA was currently focusing on human resources in terms of training, and ensuring that it invested in human capital to provide good service delivery. In 2008 it was forecasting an increase of 300 personnel. Delivery of infrastructure was a key focus area with the passenger being the main determinant. The tax issue that ACSA had originally experienced in respect of Cape Town had been resolved and the refund was paid last year. He also stated that ACSA would be investing more into service standards monitoring so that its passengers were safe and would monitor on a quarterly or monthly basis to improve service. ACSA noted that it had a R2 billion bond for long term borrowings issued in March. It wished to increase borrowing to R5 billion to finance infrastructure spend in 2008. There had been considerable investment into assets, which would help ACSA in the long run. The business was able to speedily generate cash.

Ms Hlahla said that ACSA were ready and capable to carry the responsibility for these projects.

Mr S Farrow (DA) reflected on the previous year, and asked what was happening in regard to the reallocation issues around La Mercy airport. He also enquired what was happening on the extension of the runway at Johannesburg, and whether this was really necessary. He wondered why it was not preferable to use or improve taxi facilities instead of having to invest in so much construction. He also wanted to know why there were long queues at airport checkpoints and no assistance to pick up passengers, and also raised issues of parking and baggage. He asked for further clarity on the OR Tambo airport, and the environmental aspects, as also the operational aspects of maintaining assets in the long term.

Ms Hlahla responded to the La Mercy issue by stating that they were the owners and developers of that infrastructure. She stated that they had inherited an ETC contract and were developing everything from runway to terminal building infrastructure. ACSA was currently finalising the last stage of their environmental impact assessment and believed that everything should be on track. ACSA had found that there were a number of issues around public transportation.

Mr Farrow responded that the Committee had not been kept updated and that this report was news to the Committee. He suggested that the Committee should rather receive a concise report from ACSA as to the status quo, including an update of what was happening, plans and implications.

The Chairperson added that the Committee was planning to have a visit to the airport and could look at these issues.

Ms Hlahla noted that ACSA would give them a presentation at the area and take the Members on an area visit, and indicate what the current status was so that they would understand better.

The Chairperson asked about the operational issues and staff deployment.

Mr G Schneeman (ANC) raised concerns mentioned by the IPU officials on baggage handling, which was seen as a major problem, especially on the OR Tambo routes. He noted that OR Tambo would be reaching capacity shortly and asked if consideration had been given to looking at alternative airports in Gauteng for domestic flights to take away the pressure..

Mr S Mshudulu (ANC) asked whether it was possible to have an integrated response that included the Air Traffic Navigation systems and the national carriers, so that the Committee could address joint issues and see whether the solutions were covering all the issues.

The Chairperson agreed that Mr Mshudulu was correct. An integrated understanding was needed as there were potential risks, threats, and causes of frustration.

Mr Mshudulu stated that different people had given different answers to this Committee on the question of land availability.

The Chairperson said that is something the Committee needed to raise with the Department of Transport, which had the responsibility to see that there was effective integration between the spheres of government and public entities.

Ms N Khunou (ANC) hoped that the proposed meeting would happen soon. She noted that at airports the services were poor, and she was not sure if this was due to the renovations or the lack of parking. Baggage handling and theft of luggage was a major issue needing to be looked at, together with the risk that devices could be planted in open bags. In other countries the airport officials would not unpack people’s bags but this was happening in South Africa.
Ms Hlahla said that the issues raised were important. This emphasized the need for ACSA to consider every single aspect of passenger needs from the time they left their vehicles. ACSA occupied only a small part of the total airport infrastructure. It was trying to get service level agreements with the other companies working at the airport. Baggage problems were a result of historical structural agreements, which ACSA had in the past become involved in and they still to wait for the previous systems to close off before ACSA could change the systems. Staff handling the bags would be properly monitored in their work. ACSA would like to have structures in place that would motivate people competing for work so that the people would be able to do their work effectively.

Mr Maseko added that there were many stakeholders and if some did not do things correctly or on time this affected everyone. This made the monitoring more difficult. ACSA wanted to have transparency in the service chain. If the bag arrived late the airport must take responsibility, if the fault lay with ACSA then it must take responsibility, if there was an issue with security then the security provider would have to look at that ACSA could monitor and manage how quickly or efficiently a service provider worked and they would say that it should not take longer than a set period to find parking, or locate a trolley, and so forth. By December ACSA would have the first phase of the project running, and would like people to log on to the Internet and see what as happening at airports and who was the service provider responsible. Baggage theft would be one of the conditions relating directly to issue of licences and those companies responsible for handling people’s bags would be dealt with in the event of failure. He also wanted the members to note that at present the conditions and environment were conducive for opportunistic employees to engage in crime. The salary levels were low. It was up to companies to provide better opportunities for staff, especially in ramp handling, and to ensure that there was not sufficient inducement to steal. In future it was hoped that there would be a two-year contract monitoring period over baggage handlers. The system was operating efficiently at OR Tambo airport and he would like the Committee to be able to see this, and how the stakeholders were working together.

Ms Hlahla responded that an auditor had been hired to do screening, and the systems had been revamped.

Mr M Mogale (ANC) requested more information on the international standards and if the ramp handlers were hired on a contractual basis. He also wanted to know why could ACSA not employ their own staff to monitor, and ensure that there was not underpayment.
Ms Khunou said that it was important to get to the root of the problem and show to the other stakeholders. ACSA already did present to other stakeholders the packages that should be provided and if they did not agree to regulations, there were rules on minimum wages in SA. She agreed that in the event of non-cooperation ACSA could look to hire its own ramp staff.

The Chairperson noted that at the end of the day this was based on goodwill. Clearly government needed to have a relationship, which might not necessarily be entirely based on of goodwill, because they might not be able to order SAA around.

Mr M Swathe (DA) asked if the increase of security staff would not help.

The Chairperson said that additional people would certainly help, instead of expecting the security to do the job.

Mr Farrow stated that ACSA had specific contracts, and the buck stopped with ACSA. ACSA should take ownership of these issues because they were in charge of the airports.

Mr Maseko mentioned that they ACSA would issue licenses and for baggage they had a contractual relationship with each individual airline. Part of the license arrangement allowed that if the licensee did not meet requirements then ACSA would take away the license. In relation to immigration ACSA could only monitor the speed at which immigration is able to work effectively. ACSA has an outsourcing function, and would license another company, which is why they put stringent measures in. They would have to work with the Department of Labour to monitor the work progress.

Ms Hlahla said that ACSA could not provide all the services which was why the private sector had to provide some of the services.

A member mentioned that early last year issues of theft were raised. He asked if there had been any conclusion or anything implemented to help with this. He asked if there were any indications on training scarce skills, or internships to assist South Africa in reaching its national objectives and transformation, and whether ACSA itself had set any targets. He asked how ACSA influenced transportation routes at the airports, so that they did not overdevelop their airports.

Ms Khunou asked about infrastructure and what has been done about Bloemfontein.

Ms Hlahla answered that Bloemfontein was the fastest growing airport. George had a brand-new airport, and ACSA was also improving East London and infrastructure development in Bloemfontein airports. The way in which work had been allocated might seem to indicate that work was not being done. The best achievement was the integration of master plans, with the leadership of the Department of Transport. ACSA was hoping this model would be the approach used at all master plans at airports. It did allow all types of aircrafts and that limited them in terms of the runway.

Ms Hlahla reported that with regard to organised crime limitation, this was an Interpol national security issue, so there has been close participation. ACSA relied on crime intelligence teams at the airports, especially on safety issues.

Ms Hlahla replied that on the question of transformation training to young engineers would be done, and currently ACSA was meeting all of its benchmarks in terms of employment equity.

Mr Farrow needed clarity on the airport extensions, and said he had access to a document that did not confirm what Ms Hlahla was saying. He also sought some further clarity on movement of people.

Ms Hlahla said they needed to communicate with stakeholders, but would inform the Committee on the kind of moves to take should there be a need be for changes.

The chairperson asked if there was a specific plan

Mr Maseko mentioned that there was a theoretical plan as to what capacity ACSA could take. There was still a need for the planners to advise of the additional plans for runways and logistical steps, and not all may have been approved, as the Department of Transport would have to look at various implications. The designs were still to some extent theoretical.

The Chairperson asked for transparency so that Members would be kept informed of what would happen. He wanted to know when any decisions were reached between ACSA and the Department of Transport

Ms Hlahla stated that they would be fully responsible in the manner in which matters were handled. OR Tambo Airport was a major challenge but ACSA was determined to meet these challenges. The master plan gave an indication of how far it had progressed.

The meeting was adjourned. .



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