, 48 tweets, 21 min read Read on Twitter
There's a growing chorus to shutdown/sell #SAA, but is there another way? Can #SAA be saved? If so, how?

(Why save #SAA is a conversation for another day)

My personal views on how to fix and save #SAA.

A) Steps required to fix #SAA.
B) Preconditions for success.
I am a believer in 3-point plans. It's easier to remember 3 things than it is to remember 10. But I'm going to break my own philosophy (given more time and the obligatory consulting fee, I could reduce this to a 3-point plan).
A) Steps to Fix #SAA over a 36 month period. Thirty-six months is long enough to stabilise and put the airline on the sound footing. The journey back to the top is an altogether longer process.
1. Rationalise the state's portfolio of airline investments: #SAA, SA Express, Mango and the ~3% stake in SA Airlink.
Mango is a decent airline and there's little requiring fixing.
The recently grounded SA Express is a problem child. Either wind it down or parlay it into a larger stake in the better run and profitable SA Airlink.
There's a strong team in place at SA Airlink, making a bigger stake an attractive proposition. SA Express & SA Airlink ply more or less the same developmental and feeder routes.
2. Decide on a competitive strategy. Will #SAA be a leading low-cost airline or a leading customer-experience airline.

Given the long-haul nature of most routes, #SAA will be a full-service airline but there are many flavours of full-service.
This competitive strategy posture has ripple effects on the rest of the turnaround plan: the types of aircraft required, the optimal routes, staff recruitment plus training, performance management, service pricing, customer services and more.
3. The #SAA fleet needs renewal and optimisation, which entails exiting current leases and for newer and more economical planes. Exiting is costly but happens every day in aviation.
What might be an unsuitable aircraft for #SAA, based on its route economics, might be perfect for another airline in some corner of the globe.
There is a range of leases #SAA can explore. These range from the current dry leases - aircraft only, to wet leases - aircraft, crew, maintenance plus insurance, to gold leases - fully equipped and staffed aircraft and all the airline has to do is scheduling and pricing.
Ultimately, the appropriate lease is a matter of strategic objectives and business case.

*** I've deliberately omitted outright aircraft purchases. It's too costly for now, but can be revisited when the airline is stable and profitable.
4. Shift towards a smaller core airline business. This requires taking a hard-nosed look at what is core business and carving out non-core services like catering and a few other units.
There is no need to own things that can be contracted back at under cost and operationally competitive terms.
5. Optimise the route mix based purely on commercial considerations. #SAA should only fly commercially viable routes unless other business considerations dictate otherwise.
If the state wants the airline to service uneconomic routes for geopolitical/socioeconomic reasons, the route losses should be offset by direct payments from the state to bring the routes to financial parity.
6. Better pricing. Ticket pricing is a complicated fuzzy science. It puzzles and annoys passengers in equal measure, but is key to profitable airline operations.
cnbc.com/2018/08/03/how…
7. Maximise benefits from the Voyager Loyalty program. Globally, airlines derive as much as 5-7% of revenues from the loyalty ecosystem. This is pure profit, earned without putting a plane in the sky. The voyager loyalty contribution to SAA is about 1%.
upgradedpoints.com/selling-miles-…
It's not unusual for the market capitalisation of the loyalty program to exceed that of the core airline.

bloomberg.com/news/articles/…
8. Revamp airline back office operations. Everything from finance, HR, Supply Chain, performance management needs to be driven by a commercial mindset aligned to the chosen competitive strategy (remember the low-cost or customer-experience option).
9. Improved customer service. This runs from the prebooking, booking, check-in, predeparture, onboard and post-arrival customer engagement.

I deliberately left this for last.
There's no point driving up customer volumes and expectations when the business cannot optimally service those expectations.
10. Onboard a technical/transformation partner. #SAA has neither the human nor financial capacity and capability to execute the turnaround. The execution must be flawless.

There's no room for trial and error.
The proposed turnaround is a costly exercise, requiring an investment of US$1-2Billion.

The nature of the investment can either be project financing, or straightforward equity injection both inclusive of a management contract. It's a question of balancing risk and reward.
The ideas on fixing #SAA are by no means unique and have been articulated by others before. Indeed, Vuyani Jarana's Long-term Turnaround Strategy (LTTS) which the #SAA board has committed to continuing, seeks to do more or less the same.
Which leads to the second half of this tweet storm: what are the necessary preconditions for the LTTS or any turnaround intervention to succeed?

@MotsohiThabang provided a very comprehensive set of conditions to SCOPA in April 2018.
@MotsohiThabang B) Preconditions for success?
@MotsohiThabang 1. Treasury must address the historical debt and associated interest. The rot happened under their (in)direct supervision and therefore they (ultimately the taxpayer) must carry the can. Obviously assumes the goal is to save the airline.
@MotsohiThabang 2. Exempt #SAA from PFMA at a minimum for the duration of the stabilisation process (36 months). A permanent exemption is a must if the airline is to trade on an even footing.

Imagine a PFMA shackled Telkom trying to out-compete its peers.
@MotsohiThabang 3. There will be job losses, anyone who says otherwise is dishonest. Treasury (I'm not picking on them :) ) needs to provision the once-off rightsizing costs, probably R1-2Billion. More than reducing headcount, #SAA needs to reskill and bring in the right skills for the future.
@MotsohiThabang The expected union protestations can be offset by giving union linked investment companies a stake in the turnaround consortium. This is Mzansi after all.
@MotsohiThabang 4. Business rescue provisions need to apply for the duration of the turnaround intervention. This will give #SAA the latitude to review and reset some of their unfavourable contractual obligations.
@MotsohiThabang 5. A smaller board, not more than 5, chosen with input from the turnaround partner (s/he who pays decides). The board must include an airline operations veteran.

It goes without saying that the CEO must be a turnaround artist, chosen with input from the partner.
@MotsohiThabang Time to ask our Ethiopian cousins to second an operational team to #SAA. The EA executive team each boasts of 20-30 years of airline experience. A collective 420+ years of expertise.
ethiopianairlines.com/corporate/comp…
@MotsohiThabang 6. A cabinet approved, ironclad governance framework to protect the airline and turnaround plan from ministerial interference, now and forever more. Must include full adherence to the provisions of the companies act. The Deputy PP @KevinMalunga put forward a similar suggestion.
@MotsohiThabang @KevinMalunga ***No sane technical/turnaround partner will risk investing US$1-2Billion while leaving themselves open to ministerial whims.
@MotsohiThabang @KevinMalunga The (A) Steps required to fix #SAA and (B) Preconditions for success, are not menu items from which cabinet can pick and choose. Instead, it is an all-or-nothing, take it or leave it, rescue package.
@MotsohiThabang @KevinMalunga Depending on the form of financing, cabinet is handing over #SAA to the technical/turnaround partner on a 20-25 year management contract. Or else handing over #SAA to the new majority partner.
@MotsohiThabang @KevinMalunga Either way, the day the agreements are signed, is the last time cabinet has a say on #SAA. No more free business-class tickets :) for parliamentarians. No more deviating to pick up the president because the presidential jet is sickly. It's all about the Randelas.
@MotsohiThabang @KevinMalunga There's always the conversation around privatisation.

Many will point toward the fact that #SAA is a state-owned enterprise as the basis for its spectacular failure. This is entirely understandable in a South African context.
@MotsohiThabang @KevinMalunga Personally, I believe there's a role for well-run "state-aligned" entities in a developing economy such as SA. Strong legal provisions are needed to protect politicians from themselves.
@MotsohiThabang @KevinMalunga Admittedly, a stronger case for state ownership can be made for Transnet, Eskom, Armscor, Denel than #SAA.
I am convinced everyone felt a tinge of pride when #SAA flew over Loftus during the Presidents inauguration. Moments like these make we want to save #SAA.
@MotsohiThabang @KevinMalunga Is it possible to save a state-owned airline and compete against global and state-subsidised gulf airlines?
Africa's #1 airline, Ethiopian Airlines, was a basket case in the early 80s.

hsf.org.za/publications/h…
@MotsohiThabang @KevinMalunga The Ethiopian government put in place similar conditions to the preconditions stated above. This was underpinned by legal instruments ensuring future governments would not poke fingers into the airline.

businessinsider.co.za/5-things-saa-c…
@MotsohiThabang @KevinMalunga And yes, the Ethiopian government is now looking at privatisation but the hard work of the turnaround was done under state ownership.

borgenproject.org/ethiopia-turns…
Privatisation is being considered from a position of success and strength.
@MotsohiThabang @KevinMalunga Parting question.

Are the political leaders of SA, Africa's most advanced economy, up to the standard of their Ethiopian counterparts, who turnaround Ethiopian Airlines under difficult economic and social conditions (Ethiopia-Somali war, Eritrean war, and civil war)?
@MotsohiThabang @KevinMalunga The End:).

Time to crawl into bed, count sheep, and hope for restful sleep.
@MotsohiThabang There's a precedence for the Minister of Finance granting exemptions from PFMA. gov.za/documents/publ…
In Telkom's case, the argument was premised on the state no longer being a majority shareholder.
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