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Siza Mzimela -CEO SA Express

March 5, 2019

Ms Siza Mzimela has been enticed back to turn around SA Express (SAX) – which was run into the ground by a succession of disastrous management and crooked procurement activities. After three years as CEO of SAX, Ms Mzimela was promoted to CEO of SAA – where under difficult circumstances she turned a profit.

 

Guy Leitch interviewed her in December in her temporary office in a tatty annexe to SAA headquarters at Airways Park at OR Tambo Airport. Tellingly the walk to the office entrance is through the car park and Ms Mzimela does not drive the biggest and most expensive car – hers is a BMW 520d. The SAX offices themselves are in worse repair than a rural jail in desperate need of a revamp, but no doubt any expenditure will have to wait until the airline actually has money.

 

GL: You left SA Express (SAX) in 2010. What made you come back? Do you honestly believe you can fix it?

SM: I am not so arrogant that I think I can fix it single-handedly. The Minister put together an Intervention Team immediately after the CAA’s grounding of the airline - and had asked me to be on it.  The Team started work mid-May 2018. I joined the Team in June when they realised they needed someone who understood the airline industry. Then the board asked me to take a six-month contract to try to stabilise the airline. This is an interim appointment, not an acting one, and finishes at the end of January.

 

Are you going to continue after January?

At the moment there is a proposal tabled for me to extend until they can appoint a permanent CEO and there has been a proper handover.

Is there a turnaround plan in place?

Yes, we call it the G-POCH plan as it has five pillars: Governance, Profitability, Operational efficiency, Customer value and Human capital.

 

The second leg is profitability. How long will it take you to become profitable?

In April 2019 we will break even.

 

Do you mean break even on the Net Profit bottom line – and not just at an operating level?

Yes, we will have broken even because by then we will be flying enough to generate adequate revenue and we have been cutting costs within our systems.  A major component of our cost cutting will be realised in April next year [2019].

 

Yet SAX has not been genuinely profitable since you left nine years ago – so what’s different? And meanwhile your competitors have taken over much of your market while you were grounded.  How many aircraft [as at 14 December 2018] do you have flying?

We now have ten aircraft out of a total of 17 that we will be returning to flight. By the end of the financial year on 31 March we will have up to 12 aircraft flying. Two were CRJs on short term leases, which were immediately terminated when we were grounded. The rest of our aircraft will be for back-up.

 

Your fleet is aging and must be high maintenance.

The fleet may be old in comparison to world standards, but it is about the same as the Airlink fleet.

 

You have suffered a grounding by the CAA that would almost certainly have killed off a privately owned airline. Do you think the CAA has been reasonable and fair – with you and with CemAir? And why do they always ground an airline at the beginning of a long weekend?

I was surprised at how tough the CAA were. Look, I appreciate the role they have to play as the regulator, and SA Express could have definitely handled things a lot better. But I thought they were a little extreme and that they should have just sat down and found a way to resolve problems, rather than ground us for so long.

 

This current groundings may be the end of CemAir, which would take one of your competitors out of the market - yet SA Express can just keep going back to the taxpayer for endless bailouts.

I disagree. I think CemAir has a greater chance than we did of getting back into the air because my understanding is that they are not as short of money as we were. They have a very profitable charter operation. But we have been financially challenged in every respect and the grounding came at a huge cost for us.  If SA Express had been sufficiently liquid at the time of the grounding, we could have been back in the air far sooner.

 

The media claims you are losing R3 million a day, or almost R100 million each month. You have the pilots, staff and overheads to run a 22 aircraft airline – yet you have half of that flying.

That R3 million is very exaggerated – I suspect they got the figures from calculating the gross costs of the aircraft we were wet-leasing before the grounding. These costs obviously dropped away when we stopped flying those aircraft. One of the other problems that we had was that we were not chartering aircraft that were the right gauge for our market and routes. We were chartering big aircraft for routes that would only justify a 50-seater. The charter operations were costing us R22 million per month.

 

OK – so how much is it really going to cost to turn the airline around?

I can’t tell you how much it will cost at this stage, but what I can tell you is how much we will report in losses at the end of the financial year, and that is roughly R600 million.

 

As part of the Intervention, did you address staff headcount?

It was one of the first things we looked at, especially being a 12 aircraft operation instead of a 22 aircraft operation. To some extent the grounding has been a big help with a headcount reduction as some employees left the organisation. Nonetheless we had to make sure that we didn’t lose key members of staff, so we had to assure them that we were viable and that we would be rightsizing. We would be the first to acknowledge that we were bloated in some areas and we have a shortage of key staff in other areas.

 

Are you actually retrenching, or are you just running voluntary severance programmes?

We are still finalising the numbers, but there were some obvious cuts that we were able to make. For instance we used to have a Durban and George base but we have closed them. In all instances however, due process will be followed according to the Labour Relations Act.

Do you have a clear vision as to what the airline will look like in a years’ time in terms of size and routes?

We are engaged in a process of which the first part is the need to stabilise the operation. So we are focusing on the Johannesburg Base first and making sure that everything is running properly before we move back to Cape Town. Cape Town is on track to be reopened around the 9th of January.

 

Are you happy with the current gauge of your aircraft?

Yes. We have the CRJ-200 50-seater, the CRJ-700 70-seater and the Dash 8-Q400 74-seater. By our next board meeting we will have completed a medium to long term route plan to match aircraft size to routes.

 

A lot of that must depend on South African Airways’ own route and network strategies – which are still being developed. Do you have a good working relationship with SAA for the sake of feeding and de-feeding their routes?

Yes, I think that they are pretty pleased with what we have been able to deliver, especially our good On Time Performance. It was very bad prior to the grounding at around 64% but we are back above 90%.

 

How did you fix it?

I think it was a matter of focussing the operations into one place. What happened in the past is that we spread ourselves too thin and too quickly, with no sense of the need for backup aircraft. We do our own maintenance and we needed to make sure that aircraft availability was appropriate for our feet.

 

You are still a board member of Blue Crane - does that not provide a conflict with your role at SA Express?

No, I have had to divorce myself completely from Fly Blue Crane.

 

Can you candidly tell us how SAX got into its current state?

It was just complete mismanagement. There was a chronic lack of accountability – no one was ensuring that the people were doing what they were supposed to be doing. For me that is simply a failure of leadership. That doesn’t necessarily refer to the immediate past management – and we need to bear in mind that there have been constant changes in the management. If the business is broken, you have to bring in somebody who understands aviation and what it takes to fix it.

 

But at the end of the day is it not just a business and if you do the business stuff right you can get on with fixing the airline later? That is Vuyani Jarana’s approach to SAA.

People must understand that aviation is a highly regulated environment. If the CAA sends an e-mail that says they have a number of concerns, you have to know how to fix it. The problem was that there had been a massive brain and skills drain.

Let me put it to you bluntly: given the abuse and mismanagement, the case for SAA’s continued existence is weak and the case for SA Express’s existence is almost non-existent.

 

Why do you think the case for SA Express is so bad?

Two reasons: Firstly, there are other airlines that are already successfully operating in your space. Secondly, you are a huge drain on taxpayer money that should be used to uplift the poor.

 

I disagree. Even though we were grounded for three months, Airlink was not able to come in and close the gap in terms of seat availability. I believe Airlink was quite happy to have a shortage of seats and thus be able to improve their loads and raise their prices. So how does that serve the growth of the South African economy and especially the small towns?

And we will soon be back to profitability. Furthermore, there are studies such as those by Oxford Economics that show how important airline services are to the economy.

 

Are you saying that SA Express must fulfil a Development Mandate? In my experience, that’s just an excuse to lose money.

 Why should anyone assume that we would fly routes unprofitably just because we are a state-owned entity? When it is Airlink why don’t you make the same assumption?

 

Because a private sector airline will just stop operating unprofitable routes - and leave the town to die.

Yet we have also stopped flying to routes which don’t make money. Tough decisions have had to be made and we will only be flying profitable routes. I challenge you to show me one route that we are flying that is not fundamentally profitable. So how can anyone say that there is no room for SA Express, yet there is room for Airlink? 75% of passengers are business people, so our yields are not low.

 

What about the other development roles that SA Express fulfils, for instance your Cadet scheme? Is that something that you will need to continue with, even though it will affect your bottom line?

We haven’t run the Cadet scheme for the past couple of years, but we do want to reinstate it and as far as I am concerned it should not be a problem because we have other sources of funding, for example the TETAs.

 

What is your cash flow like? Are you fully funded at the moment?

It’s good. We were given R1.2 billion to continue operations.

 

But how much of that had already been spent?

None, as we were given a guarantee of R1.7 billion when we were grounded, and we raised R400 million against that to turn the organisation around. That is all we have used to date.

 

Was that all you could raise from the banks?

That’s all we chose to raise.

 

Are the banks reluctant lenders?

They have become far more difficult. And it does not just apply to airlines. I think it is affecting all SOEs.

 

The banks want to know that you are not bankrupt and are on the route to profitability. Are you able to provide that assurance?

Yes, in our case I believe that we have delivered everything that the banks have requested of us.

 

 

Do you have people in place now who have sorted out the aircraft maintenance issues that the CAA grounded you for?

Yes, we are actually quite proud of some of the appointments we’ve made and we have filled all of the CAA post holder requirements with permanent appointments.

So you have been able to successfully recruit quality people into a struggling airline whose future is in doubt by many?

Yes, what we are looking for in new people is a combination of two things: technical skill and passion. We were looking for people who are passionate about being associated with a turnaround story, and that’s what we have been able to do. It’s not as though we have had to use large increases in salary to attract them. And we have succeeded in identifying one or two people internally who had just not been a given the opportunity to rise to their full potential.

 

SAA has acknowledged that it has a major problem with ‘a culture of malfeasance’. Do you have that as well?

Yes.  We have already dealt with a lot of it, but we can never be sure that it is completely out of the system. We have however been fortunate in that, as a smaller airline, we have been able to move quickly and get rid of some of the bad practices. The grounding helped us in this regard as it gave us the opportunity to terminate some of the bad contracts.

 

Would business rescue have been a help dealing with bad procurement contracts?

The way the board approached it at the time of the grounding was very similar to a business rescue strategy. The Intervention Team and the Crisis Management Committee were able to make some key changes. By the end of August we were beginning to see things getting back to normal.

 

 

 

 

Are you not scared of making profits? Is it not considered to be a rude word for a state owned entity?

We have the ability to make good profits and I expect we will. I cannot see why we should not make profits. Airlink makes good profits.

 

Okay, but if you were making good profits people would resent your high air fares. Passengers hate paying the high costs of feeder airfares to say Bloemfontein when they can fly three times the distance to Cape Town for half the price. Your critics will say that you are getting cheap government money and that you are being favoured for the better routes.

Why does no one ask why Airlink benefits unduly from its SAA codeshare arrangement?

 

If Tito Mboweni wants to sell you-off, would that be a good idea?

That is the prerogative of the shareholder. We are all here to do our best job, but what happens with the ownership is up to the shareholder.

 

So the bottom line is that the airline is on track to be profitable, or at least break-even by April. And that you are probably only going to be with the airline for another couple of months until a permanent replacement has been found. Good luck.

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