Case Study

Read the case studies The SAA turnaround story (Louw & Venter, 2019: 499-501) and Quo Vadis SAA? below and answer the questions that follow.

From the previous case study, The SAA turnaround story, we have seen that then CEO Vuyani Jarana was hopeful that the turnaround could be pulled off. However, late 2019 and the Covid-19 pandemic really saw SAA hit the skids as the organisation informed its 5146 employees of a restructuring process which may lead to job losses.

This position was the result of various challenges, including funding and liquidity challenges; the inability to borrow indefinitely without repaying debt; high interest costs on loans; volatile and fluctuating fuel prices; currency volatility; insufficient revenue and cash generation in relation to operating cost; an ageing fleet which is expensive to maintain and is fuel inefficient, making it difficult for SAA to compete in the market place; and aggressive international and regional competition for revenue stimulation and network optimization. In addition, SAAs balance sheet has historically been weak and remains so despite recent substantial capital injections from the government. Our continued losses and reliance on government guarantees to borrow money from lenders, have increased the interest costs which impacts the operating cost of the business.

The scope of the restructuring encompasses all SAA divisions and departments but excludes the subsidiaries SAAT, Mango Airlines and Air Chefs.

Soon after this announcement, it became apparent that South African Airways (SAA) faces a wind-down or liquidation after the business rescue specialists appointed to try to save the state-owned airline, announced that they had run out of funds. SAA has been fighting for its survival since it entered a form of bankruptcy protection in December 2019. Its fortunes deteriorated further when the coronavirus pandemic forced it to suspend all commercial flights. It has already offered severance packages to its workforce after the government said it would not provide more funds for rescue efforts.

Despite the problems of SAA, South Africas state enterprises ministry reiterated this week it wanted a financially viable and competitive airline to emerge from SAAs rescue process. But SAA has not been profitable since 2011 and has received more than 20 billion rand ($1.1 billion) in bailouts in the past three years, a drain on public resources at a time of weak economic growth, so it was unclear how this competitive airline was going to be achieved.

Late in 2020 it was announced that SAA finally has a business rescue plan, but it is going to cost the state about R10 billion for the plan to work. The funds will cover creditors along with voluntary severance packages. Under the terms of the plan, which government and creditors are yet to approve, only a quarter of the airlines more than 4000 staff will be retained. Administrators hope that a leaner, smaller SAA will return the company to profitability. The success of the plan also hinges on a full domestic network starting in January 2021 (due to the lockdown domestic flights are currently limited). It is not yet clear when flights will return to normal. The proposed restructuring plan is the fifth since the beleaguered national carrier went into bankruptcy protection in December 2019. The government says it is still studying the proposed plan but has voiced concern over the effectiveness of the administrators given the amount of time and resources provided to them.

The rescue and future of SAA has, understandably, been an emotional issue for many South Africans

QUESTION:

Based on this case study respond to the following: From a corporate strategic perspective, assess the current dilemma SAA finds itself in and design a winning strategy for survival going forward. Assess the AS IS scenario of the SAA and propose a TO BE winning strategy to the SAA Board and management that will re-instate and maintain SAAs market share and previous innovative ways. [100]