Home » Africa: South African Airways Technical loses R1 billion ($70.9m) 6 years, with 83% reduction in revenue, after returning Planes to Lessors

Africa: South African Airways Technical loses R1 billion ($70.9m) 6 years, with 83% reduction in revenue, after returning Planes to Lessors

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South African Airways Technical(SAAT) an arm of the national carrier of South Africa has informed employees that the maintenance company has incurred a loss of R1 billion (over $70.9) about 83% reduction in revenue in the last six years of operation.

The company said it will have to reduce its workforce of 2 019 to remain in business noting that about 1203 jobs will be affected.

Despite Parliament’s Standing Committee on Appropriations finalising a special allocation of the R1.6 billion for the troubled SAAT, the company might have a herculean task staying in business having lost most of its clients due to the coronavirus pandemic.

READ: Aviation: South African government shortlist three strategic equity partners for SAA

According to news24.com, due to returns of aircraft by SAAT customers to lessors, the number of aircraft serviced dropped from 86 at the beginning of the coronavirus lockdowns in April 2020 to 34 by March 2021. SAAT has, accordingly seen an 83% reduction in revenue.

Fin24 recently reported that Parliament’s Standing Committee on Appropriations is finalising a special allocation process for SAA’s subsidiaries to get R2.7 billion of the R10.5 billion allocated to the state-owned airline in the medium-term budget policy statement last October. Of the R2.7 billion, R1.6 billion is for SAAT, R819 million for Mango and R218 million for Air Chefs.

In the notice to SAAT employees, dated 28 April and seen by Fin24, interim CEO Terrance Naidoo states that the loss has required continuous funding from SAAT’s shareholder South African Airways (SAA). However, when SAA went into business rescue in December 2019, SAAT “had to stand on its own and generate revenue to sustain its operations”, Naidoo explains.

Furthermore, he says SAAT cannot rely on inter-company loans nor financial bailouts to sustain its operations.

SAAT currently has 2 019 employees and anticipates 1 203 jobs will be cut. SAAT employees have only received partial payment of salaries in recent months.

READ: Aviation: Troubled South African Airways (SAA) appoints Thomas Kgokolo as interim CEO; the fifth CEO in five years

Before the Covid-19 pandemic, 70% of SAAT’s work came from SAA (more than R150 million in revenue). This has dropped to about R9.7 million in revenue per month. SAA has only recently come out of business rescue, and it is as yet unclear when a “new SAA” will take to the skies again.

Due to reduced operations, SAAT’s revenue from Comair (Kulula.com and British Airways) fell from R48.7 million before the pandemic to R16 million and that from Mango fell from R29 million to R10.4 million per month.

The R4.2 million monthly revenue from Air Namibia fell away completely due to that airline being liquidated and foreign operators have reduced their SAAT work by 75%. The monthly revenue from the presidential aircraft has, however, remained the same at R1.3 million.

Labour costs
Naidoo states that SAAT has unsustainably high labour costs compared to its peers – from approximately 44% of revenue six years ago to 73% of revenue in March of 2021. For SAAT to be sustainable, the targeted ratio should be between 25% and 35%.

“The precarious financial situation of SAAT is expected to worsen with the reduced operating activity. This is unsustainable and warrants a thorough review and restructuring of the business. Should this be left unattended, SAAT will surely fail to secure its vision to become financially viable and globally competitive,” states Naidoo.

“The business is in dire financial straits. Our approach to the workforce is solely and genuinely to engage with affected staff on a proposed radical restructure of the business.”

– Terrance Naidoo
He explains how the advent of the Covid-19 pandemic has placed the global, regional and domestic aviation sector under severe financial strain given the associated travel bans and grounding of flights.

“The future impact of these developments remains uncertain with projections that it may take at least three years for the aviation sector to recover financially from the financial impact caused by the pandemic. These challenges have dire ramifications on SAAT’s core business,” says Naidoo.

“SAAT needs fit for purpose organisational structures and associated employee numbers, as well as a reduced terms and conditions of employment and/or associated wage-bill, more especially in face of the reduction in operating activity and revenue.”

The SAAT restructuring process also caters for a “social plan” aimed at providing practical solutions for employees who are likely to be displaced.

According to Phakamile Hlubi-Majola, spokesperson of the National Union of Metal Workers of South Africa (Numsa), the union is meeting with SAAT’s management about the section 189 consultation process.

“We will make presentations and propose alternatives to avert retrenchment,” she said.

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