SAA Restructuring: Department of Public Enterprises briefing.

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Meeting report

LABOUR AND PUBLIC ENTERPRISES SELECT COMMITTEE

LABOUR AND PUBLIC ENTERPRISES SELECT COMMITTEE
11 September 2007
SAA RESTRUCTURING: DEPARTMENT OF PUBLIC ENTERPRISES BRIEFING.

Chairperson:
Ms M Temba (ANC – Mpumalanga)

Documents handed out:
Department of Public Enterprises Presentation

Audio recording of meeting

SUMMARY
The Department of Public Enterprises briefed the Committee on the monitoring of South African Airways (SAA) restructuring. The Department explained that it had adopted the Seabury transformation strategy, which had been
successful in restructuring airlines that were in a similar situation as SAA. 

Members were concerned about SAA’s restructuring process as it would lead to a great loss of skills. Members raised questions about whether there was any trade union involvement in the labour negotiation processes, and whether
or not the labour negotiations would affect the quality of SAA’s service. Members also stated that they were concerned with the overbooking of flights at SAA, and the reduction of the number of 747’s.

MINUTES
Department of Public Enterprises (DPE) Presentation

Mr Andrew Shaw, DPE’s Deputy Director General: Transport, outlined the Seabury transformation strategy, SAA’s profitability bridge, the DPE’s monitoring mechanisms and the key risks and consequences of the restructuring. The global initiatives of the Seabury strategy was to assist with the elimination of the 747’s, the staff reduction at SAA’s headquarters and the improvement of SAA’s operational performance. The strategy would also assist with cost reduction and the removal of duplication of functions. DPE hoped to monitor the process through monthly reporting where issues of performance and the progress of the main restructuring initiatives would be highlighted. The minutes of the board and sub-committee meetings would also be provided to DPE.

The key risks and consequences of the process would include an increase in competition from Emirates Airlines and uncertainties such as the high oil prices.

Discussion

Ms J Terblanche (DA) [North West] asked for clarity with regard to the overbooking of flights at SAA and whether or not the labour negotiations would affect the quality of service. It should also be noted that the lack of service from the SAA staff was of great concern.

Mr Shaw replied that he could not speak on behalf of SAA. It should be noted however that the quality of service needed to be improved, and SAA was working on a number of initiatives. SAA was a company that was faced with many challenges and the issue of overbooking was a worldwide phenomenon that was not unique to SAA alone. The plan was to maximize the amount of passengers moved, and sometimes this would lead to the overbooking of seats. The matter should be taken up with SAA for further clarity.

Ms N Ntwanambi (ANC) [Western Cape] stated that she too was concerned about the overbooking of flights and stated that SAA should have been presenting to the Committee instead of DPE’s Deputy Director General. The Committee would also like to be provided with more information on the monthly reports and the reduction of staff after the negations had taken place. It should also be noted that the Committee would not accept the fact that they could not be given figures on SAA staff reduction. Clarity should also be provided on the reduction of managers, removal of the duplication of functions, the reduction of the 747’s and the returns that were yielded by sponsorships.

Mr Shaw replied that SAA was at a challenging time and it should be noted that when it came to the staff reductions, it was the better skilled staff that left SAA. It should also be noted that SAA was seen to be historically overstaffed for an airline company its size. SAA’s cost base was also generally seen to be 30% higher than its competitors. Part of the Seabury task was to look at the SAA organogram and determine whether there was scope and efficiency, hence the resultant reduction in managers. With regard to the sponsorships, DPE believed that there needed to be a cut back on the sponsorships, and areas in which company could yield the best returns needed to be determined. However, there were certain types of sponsorships which were built into contracts that would be very costly to get rid of.

Mr j Sibiya (ANC) [Limpopo] asked for clarity on what became of decommissioned aircrafts and the DPE initiatives aimed at ensuring accountability. Comment should be provided on SAA’s partner relationships and how they would help in improving its revenue flow. The issue of overbooking was of great concern as it was increasingly becoming a common occurrence.

Mr Shaw replied that in terms of the reduction of the number of 747’s, SAA saw itself as a global carrier which provided intercontinental services. It should be noted that both the airline industry and the aircrafts have adjusted, which has therefore made the 747’s outdated. The high maintenance cost of the 747’s was also a huge factor in the decommissioning of the airline. SAA had also reduced a number of international routes and would be using smaller and more efficient aircrafts such as the Airbus. Part of the challenge in the reduction of the 747’s was the training of pilots, as they would have to be retrained to fly the new aircrafts. With regard to the partnerships it should be noted that SAA was continuously working with various airlines. In terms of accountability, it should be noted that accountability was quite low and could be greatly improved.

The Chairperson stated that the Committee was entitled to the information that was provided in the monthly reports. It should be noted that the staff at SAA were worried about the restructuring process, and DPE should provide clarity on whether there was any trade union involvement. Clarity must also be provided on DPE’s representatives on the board.

Mr Shaw replied that in terms of board representation, DPE did not have any board representation. It merely played an oversight role. It should be noted however that DPE had a much greater relationship with SAA compared to all the other state owned enterprises.  With regard to the reports DPE did not include the reports because it did not want to create a situation where SAA’s commercial operations were exposed.  However, as the restructuring process moved forward, SAA would be at liberty to divulge more information. With regard to the loss of skills during the restructuring process, the SAA staff have a high chance of getting work in the airline industry. DPE however could not comment on the issue of the trade unions, and it would await the final outcome. Even though SAA was currently cutting back on staff, there were a number of key skilled positions that still needed to be filled in order to take the airline forward.

Ms Terblanche stated that the tax payers have always bailed out SAA in the past. DPE should state whether privatization would be a possibility, if the restructuring process were to fail.

Mr Shaw responded that it was true that SAA had been bailed out before; however the restructuring process would be different from the previous attempts. DPE was looking at a process which would be monitored on a regular basis. However when it came to privitisation, one needed to look at the industry and determine who would take on an airline such as SAA under the conditions that it was facing. DPE was focused on making the restructuring process work.

Ms S Chen (DA) [Gauteng] stated that the issue of restructuring was a management problem.

The Chairperson stated that the Committee would soon be embarking on an oversight visit to SAA. DPE should comment on the issue of baggage loss and whether the baggage owners were notified when the bags were found. Clarity should also be provided on how SAA could be saved.

Mr Shaw responded that the baggage issue was to be raised with the Airports Company Authority of South Africa (ACSA) and SAA. It has however been reported that the situation had improved. With regard to taking SAA forward, DPE’s main objective was to focus on the issues that had been raised by the Seabury process and try to find a way forward.  It should be noted that the process had been successful in restructuring airlines that were in a similar situation.  They should be given credit for the involvement in the restructuring processes and their engagement with SAA on key issues.

The meeting was adjourned.

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