Business

SA Express: Experts say it is ‘dead in the water’ but new chair insists airline will be profitable in 18 months

2018-12-06 01:30

There are widely differing opinions about the viability of this sputtering airline

By the time the Civil Aviation Authority (CAA) grounded SA Express in May, the company’s governance, and financial and contract management had collapsed completely.

In an exclusive interview with City Press last week, SA Express’ new chairperson Tryphosa Ramano revealed that the airline’s governance, financial management and record-keeping was so bad that when the airline was grounded, it had not flown nine aircraft for some time.

However, the CAA had been unaware of this.

The airline could not fly the nine aircraft because it did not have the money to pay for the maintenance of them, said Ramano, adding that failing to inform aviation authorities about the aircrafts’ grounding was a significant transgression.

“When you ground a plane, you have to notify the CAA and supply them with the reasons. When you decide to fly that aircraft again, you inform them so that they come and test to see if it is fit to fly again,” she said.

Because the airline was broke, Ramano said, early this year bureaucrats decided to ground the nine aircraft and strip them for parts to fit to other aircraft which were in better shape.

“There is nothing wrong with stripping an aircraft for parts, but records have to be kept of what parts have been stripped, and where they have been fitted or stored. When an aircraft is certified, a detailed inventory of parts is compiled.

"When there is an accident you have to be able to trace where each part in an aircraft came from, who manufactured it and how many aircraft it has been fitted into.

"SA Express kept no such records. The organisation had been destroyed completely.”

In October City Press reported that the airline was losing about R1 million every day while paying leases for aircraft which were standing in hangars.

Read: SA Express: Pouring billions into a black hole

Last week Ramano said: “The entire fleet was on the ground but we had to pay staff, building rentals and aircraft leases while the same aircraft were parked in hangars. It was all gross fruitless and wasteful expenditure.”

The airline’s new management, under acting chief executive officer Siza Mzimela, is renegotiating contracts to cut costs.

“One of the companies which supplied us with food used to buy cheap snacks at Pick n Pay and then charge us three times more. We have cancelled that contract and we are saving 40% on food costs. We are now renegotiating fuel contracts.

"We have also renegotiated our aircraft lease agreements and we are now paying R3 million less,” said Ramano.

She insisted that the board and management team will turn the airline into a profitable concern in the next 18 months.

SA Express is also cancelling the bag-wrapping contract.

“We don’t need that service, our customers are business people who travel in and out of small towns and they don’t carry much luggage. The contract simply doesn’t make sense and my conclusion is that there is possible corruption,” she said.

By the end of July, the CAA had reinstated SA Express’ flying and maintenance certificates and the airline resumed operations with two aircraft.

At the end of August, it was flying with eight.

“By the end of December we will return another five aircraft to the air. Sometime in March, we will add another three, bringing the total fleet in the air to 16,” Ramano said.

The airline relaunched some routes, catering for businesspeople travelling between Johannesburg and: Bloemfontein, Kimberley, Richards Bay, Hoedspruit, Lubumbashi (Democratic Republic of Congo) and Walvis Bay (Namibia).

Soon, Ramano said, the airline will launch flights between OR Tambo airport, Durban and Port Elizabeth.

“Next month or in January we will also relaunch our Cape Town base which, unfortunately, had to shut down. The crisis is over. We are now looking at sustaining what we have been doing in the last six months,” said Ramano.

“Some of our flights are now 70% full and we are always on time. We have already transported more than 20 000 passengers since the relaunch.”

But while Ramano insists she is turning SA Express around, organisational strategist Thabang Motsohi, who recently stepped down from advising SAA boss Vuyani Jarana, said, “South African Express is what I might call flagrant wasteful adventurism ... There is no rationale for SA Express.”

Motsohi said the airline was a liability the government should consider shutting down, rather increasing its stake in SA Airlink (in which SAA has a 4% stake) and then using the airline as a feeder to SAA.

“[SA Express] should not have been allowed to breathe again. All you had to do was to manage the exit,” he said.

“When this thing fell down, passengers were stranded. In the airline business when you have fallen like SA Express did, it is not possible to be resuscitated. Who will trust flying with South African Express again when it was grounded for technical reasons? That is a very serious thing.”

However, Ramano said there was no need to close doors.

“We are turning things around and we fully support the government’s idea to merge SA Express with SAA."

Public Enterprises Minister Pravin Gordhan announced the merger during his department’s budget speech in Parliament early this year.

BRACE FOR MORE BAILOUTS

But an aviation expert who has worked at both SAA and SA Express for many years said South Africans should prepare themselves for announcements of more bailouts for both airlines during the budget speech in February.

Last month Finance Minister Tito Mboweni announced a R1.2 billion bailout for SA Express, but the source said that such money was not enough to take the airline out of the woods.

The expert said the airline has a lot of value and that it was possible to save it, but only if government was willing to pump more cash into the business.

“The fact that SA Express is operating with almost half of the fleet, but with a full staff complement is a problem. Secondly, they have to pay leases that are in respect of aircraft that are not serviceable.

"Without a cash injection to get those aircraft back in the sky and grow the business, so that fixed costs are covered, SA Express is dead in the water,” he said.

Of Mboweni’s bailout, he said: “R1.2 billion will not take you far.”

“Given that SA Express has not performed well in the past – and not because there is no business, not because of the lack of passenger demand, but because of mismanagement and the corruption that happened over the years – government should really think hard about the future of the airline,” he said.

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December 9 2018