South Africa: Turning around SAA ‘won’t be easy’ – Chairman Qhena

By Xolisa Phillip, in Johannesburg

Posted on Tuesday, 27 April 2021 17:27
A South African Airways (SAA) plane is towed at O.R. Tambo International Airport in Johannesburg
REUTERS/Rogan Ward

Thomas Kgokolo, the new CEO of the struggling state-owned carrier South African Airways (SAA), and his executive team promise to hit the ground running in coming weeks, meeting with important stakeholders in efforts to rebuild confidence in the entity. Chairperson Geoff Qhena spoke to The Africa Report at length about the delicate task at hand as SAA prepares to exit business rescue and resume operations.

But the road ahead for the troubled flagship airline is not going to be easy, says Qhena. The board has appointed Kgokolo interim CEO and other executives to ensure an orderly changeover from business rescue and a safe landing to normalised operations.

SAA’s business rescue practitioners (BRPs) had set 31 March 2021 as the end date for the process. However, the airline remains in business rescue, which is expected to conclude any day now, pending the fulfilment of certain regulatory and administrative requirements.

The carrier was placed under business rescue in early December 2019, a process which has cost millions of rands — and counting.

Qhena is a seasoned professional, having cut his teeth in the state-owned enterprises space: his most recent high-profile position was chief executive of Industrial Development Corporation, a development financier. Qhena, a qualified chartered accountant, vacated that post in 2018.

“It will be disingenuous of us to say it’s going to be easy going forward. It’s not going to be,” says Qhena.

That is why the interim board has roped in Kgokolo and others to steer the operational end of SAA’s move out of business rescue. The board’s mandate is limited to oversight, while operations are reserved for executive management.

Kgokolo is also a chartered account and holds an MBA from the Gordon Institute of Business Science, where he was a lecturer of corporate finance.

“We needed somebody who, we think, has an aptitude to try and bring back morale. He’s coming in at a stage when the remaining employees have gone through a difficult time in the airline, especially after the voluntary severance process,” Qhena said.

In addition, Kgokolo has served on the board of the Air Traffic Navigation Services, is the founder of a management consulting firm and chairperson of the Mineworkers Provident Fund.

Kgokolo and the board of trustees oversee R28bn ($1.9bn) in assets under management.

Captain Sakhile Reiling, Mpho Letlape and Fikile Mhlontlo have been appointed as interim executives for operations, human resources and CFO respectively. Interestingly, Mhlontlo, the interim CFO, was previously finance chief at Denel, the state-owned defence equipment manufacturer which has also been rocked by leadership and financial instability.

“One of the key deliverables we’ve given this executive team [is] to start the process of engaging with the key stakeholders,” said Qhena, adding, “some of these, it will be difficult to do them behind the scenes.”

“They will start, I think, in the weeks to come. So that we can create confidence. We are under no illusions. It’s going to take a lot of hard work. But we believe we’ve got the people who will help us do that,” Qhena said.

A safe pair of hands to boost morale

The interim board views Kgokolo as a safe pair of hands for the mammoth job ahead. Qhena cites the fact that Kgokolo has run his own company, has had exposure to aviation, and is suitably qualified with a background in finance.

“… It was important [to appoint] somebody who would also appreciate [finance] to make sure that conversation with the CFO is easier,” said Qhena.

Most important, “[Kgokolo is] a candidate who, at least in our minds, has a good sense of the political landscape in South Africa,” said Qhena.

In the past, SAA operations have been characterised by run-ins between the airline’s CEOs and CFOs over expenditure and aircraft acquisitions, among other issues. The erstwhile CEOs were not traditional finance professionals and the CFOs were usually chartered accountants. It is unlikely that two chartered accountants, although fulfilling different functions, will diverge much on operational priorities.

Crucially, the interim board expects to draw from Kgokolo’s expertise as a communicator, with regards to the executive team and the broader company.

“We needed somebody who, we think, has an aptitude to try and bring back morale. He’s coming in at a stage when the remaining employees have gone through a difficult time in the airline, especially after the voluntary severance process,” Qhena said.

The BRPs remain in charge until the business rescue process is completed. They do, however, appraise the interim board and the shareholder representative ministry, the department of public enterprises, about developments.

Creditors’ dues

There are important steps that still have to be taken for a new entity to emerge and ensure its financial sustainability. One is setting up a receivership, which will house all of SAA’s debt and enable a restructuring of the airline’s balance sheet.

Creditors have voted for the two BRPs to run the receivership process.

“Creditors who will be paid over an extended period need to be moved into a separate bank account. So they don’t, I’ll use the word ‘contaminate’ very guardedly. You need to have a balance sheet that is restructured, which is SAA. My understanding from the engagement we’ve had with the [BRPs is] they need to finalise one or two administrative issues,” Qhena told The Africa Report.

“You would appreciate that the big issue, other than the receivership, is the issue of the pilots, which I am sure everybody’s watching, [asking] when will that be resolved. I know the [BRPs] are working hard on it,” said Qhena.

Strategic suitors

Then, of course, there is the major issue of attracting a suitable, strategic equity partner.

“It’s not a secret, I am aware Ethiopian Airlines is one of the parties that was engaged,” said Qhena.

However, Qhena is quick to clarify that the department of public enterprises is in charge and better placed to give an update on discussions with potentially strategic equity partners.

“The shareholder would probably be best to give a sense of where it is. We’ve tried to make sure we are all clear who is supposed to do what — otherwise we confuse everybody,” he said.

“The … strategic equity partner is key for a sustainable SAA,” said Qhena.

Towards the end of March, public enterprises minister Pravin Gordhan told a virtual sitting of parliament’s standing committee on public accounts, that discussions on a strategic equity partnership were ongoing, and that SAA had no shortage of suitable suitors.

Sizing up subsidiaries

SAA is the holding company for subsidiaries Mango, AirChefs and SAA Technical (SAAT). Although not in business rescue, the subsidiaries have been affected by the troubles at the parent company.

“The other entities within the SAA umbrella are finding it difficult because of that interdependency. In the weeks to come, you will hear about them as well. We are in a difficult space,” says Qhena.

“You have entities that rely on SAA. SAA is not flying. They are not getting money. Their financial situation is just strange. They need to right-size themselves now that they are in a different world, particularly SAAT and AirChefs. There is restructuring that needs to happen. That’s for AirChefs and SAA Technical,” Qhena said.

Although some airlines are operating, “they are burning cash very badly,” says Qhena.

Understand Africa's tomorrow... today

We believe that Africa is poorly represented, and badly under-estimated. Beyond the vast opportunity manifest in African markets, we highlight people who make a difference; leaders turning the tide, youth driving change, and an indefatigable business community. That is what we believe will change the continent, and that is what we report on. With hard-hitting investigations, innovative analysis and deep dives into countries and sectors, The Africa Report delivers the insight you need.

View subscription options