SAA on collision course with trade unions in a fight for survival

SAA appears to be on a collision course with trade unions as it contemplates retrenchments – perhaps as much as 9% to 10% of its 10 000-strong labour force (including subsidiaries) – in a fight for financial survival.

Trade unions were notified on Tuesday that retrenchments are being contemplated. The National Union of Metalworkers of South Africa (Numsa) and the South African Cabin Crew Association (Sacca) say they learned of the restructuring and retrenchment plans through the media. They have called for the SAA board to be scrapped, saying it is unfit to run the airline, and plan the “mother of all strikes” in response.

SAA refutes claims that labour was notified of the restructuring and retrenchments via the media. At a press briefing at SAA’s head office near OR Tambo Airport on Tuesday, the airline’s interim CFO Deon Fredericks said a Section 189 notice in terms of the Labour Relations Act was issued to recognised trade unions on Monday. This is a prerequisite whenever retrenchments are contemplated.

Threats

A joint statement by Numsa and Sacca says demands for a wage increase of 8% have been rejected by the airline, while Air Chefs staff and airline pilots received wage increases of between 5.9% and 7%. “This is why we are questioning the timing of this announcement. It is a veiled threat to get workers to drop their demands for wage increases and for the removal of the SAA board. They want to strike fear into the hearts of our members. We condemn the management with the contempt they deserve,” says the joint statement by the trade unions.

Acting Human Resources General Manager Martin Kemp explains that Air Chefs was subject to the catering bargaining council, while pilots were able to enforce a 2010 agreement on salary increases after this went to arbitration. The airline was obliged to honour these agreements.

Says Fredericks: “It is our hope that our unions will grasp the full extent of the financial situation we find ourselves in and engage with us in finding a constructive way going forward.”

He adds there is no finality on the number of workers to be retrenched. A figure of 944 has been mentioned which, depending on the seniority and type of worker, could yield savings of R700 million a year. The final figure on retrenchments will only be known once consultations with the unions have run their course.

Last year the airline saved R600 million through more efficient procurement and cutting out agents and middle men.

The airline says it has contingency plans in the event of a labour strike, but adds there is little it can do if there is a complete shutdown of operations.

Labour unions have threatened a total shutdown of the airline, which could sink it outright.

SAA is under pressure from lenders to show progress in its financial turnaround. In June it was announced that SAA needed an additional R4 billion to survive the current financial year. Government has committed to repaying the airline’s R9.2 billion guaranteed debt over the next three years. SAA has run up cumulative losses of more than R28 billion over the last 13 years, and government is keen to find an equity partner to reduce the airline’s drain on the fiscus. Fredericks says reaches have been made to potential partners, but that there is little concrete interest until the airline is financially stabilised.

The airline’s restructuring plans include subsidiaries Mango Airlines, Air Chefs and SAA’s technical divisions.

Cutting costs

Fredericks said ongoing negative publicity about the airline is costing it dearly in terms of sales. Previously, SAA would make promises to lenders, now it is able to show turnaround results: such as the R600 million savings on procurement and technical improvements that reduced aircraft repair times from 63 to 35 days. “This is based on a pilot, but it shows what can be achieved if extended across the airline,” said Fredericks.

Labour costs accounts for 24% of turnover, and fuel 27%. There is little the airline can do to reduce fuel costs, which is why it is forced to look at reducing staff numbers. Management has identified non-core assets that could be sold to realise funds. The airline has also made progress in improving route profitability and identifying new routes under Chief Commercial Officer Philip Saunders.

“If this was a growth market, we would be having a different discussion,” said Fredericks. Average fares dropped 12% in US dollar terms, while passenger volumes were up just 2% over the last year. Another area of focus is fleet optimisation around Airbus A350s, which are renowned for fuel efficiency and low maintenance costs.

There are questions about the airline’s political capital to drive change, given that so many senior appointments are acting rather than permanent – a policy that appears to leave the door open for an equity partner to appoint a management team of its choosing.

“SAA has created an enabling environment of engagement with all its internal stakeholders, especially labour unions. We understand that this is a difficult time for all employees,” says Fredericks.

“SAA’s primary goal is to transform into a financially sustainable airline, with a renewed focus on driving customer centricity, commercialising the airline, route network profitability, strengthening commercial and aviation skills and a series of strategic initiatives that will refocus the organisation in driving a profit and loss ethos with a strong focus on cost management revenue and cost.”