Face to face with SA Express CEO Siza Mzimela

GL: You left SAX in 2010. What made you come back? Do you honestly believe you can fix it?

SM: The Minister (Public Enterprises Minister Pravin Gordhan) put together an intervention team immediately after the CAA’s grounding of the airline — and asked me to be on it. The team started work mid-May 2018. I joined the team in June when they realised they needed someone who understood the airline industry. Then the board asked me to take a six-month contract to try to stabilise the airline. This is an interim appointment, not an acting one, and finishes at the end of January. At the moment there is a proposal tabled for me to extend until they can appoint a permanent CEO and there has been a proper handover.

How long will it take you to become profitable?

In April 2019 we will break even.

Do you mean break even on the net profit bottom line — and not just at an operating level?

Yes, we will have broken even because by then we will be flying enough to generate adequate revenue and we have been cutting costs within our systems. A major component of our cost-cutting will be realised in April 2019.

Yet SAX has not been genuinely profitable since you left nine years ago — so what’s different? How many aircraft do you have flying?

By the end of the financial year on 31 March, we will have up to 12 aircraft flying. Two were on short-term leases, which were immediately terminated when we were grounded. The rest of our aircraft will be for back-up.

There are claims you are losing R3-million a day, or almost R100-million each month. You have the pilots, staff and overheads to run a 22 aircraft airline — yet you have half of that flying.

That R3-million is very exaggerated — I suspect they got the figures from calculating the gross costs of the aircraft we were wet-leasing before the grounding. These costs obviously dropped away when we stopped flying those aircraft. One of the other problems that we had was that we were not chartering aircraft that were the right gauge for our market and routes. We were chartering big aircraft for routes that would only justify a 50-seater. The charter operations were costing us R22-million a month.

You suffered a grounding by the CAA that would almost certainly have killed off a privately owned airline — as may happen to CemAir. Do you think the CAA has been reasonable and fair with you and with CemAir? And why do they always ground an airline at the beginning of a long weekend?

I was surprised at how tough the CAA were. Look, I appreciate the role they have to play as the regulator, and SA Express could have definitely handled things a lot better. But I thought they were a little extreme and that they should have just sat down and found a way to resolve problems, rather than ground us for so long.

This current grounding may be the end of CemAir, which would take one of your competitors out of the market — yet SAX can just keep going back to the taxpayer for endless bailouts.

I disagree. I think CemAir has a greater chance than we did of getting back into the air because my understanding is that they are not as short of money as we were. They had a very profitable charter operation. But we have been financially challenged in every respect and the grounding came at a huge cost for us. If SAX had been sufficiently liquid at the time of the grounding we could have been back in the air far sooner.

OK — so how much is it really going to cost to turn the airline around?

I can’t tell you how much it will cost at this stage, but what I can tell you is how much we will report in losses at the end of the financial year, and that is roughly R600-million.

As part of the intervention, did you address staff headcount?

It was one of the first things we looked at, especially being a 12-aircraft operation instead of a 22-aircraft operation. To some extent, the grounding has been a big help with a headcount reduction as some employees left. Nonetheless, we had to make sure that we didn’t lose key members of staff, so we had to assure them that we were viable and that we would be rightsizing. We would be the first to acknowledge that we were bloated in some areas and we have a shortage of key staff in other areas.

A lot of your recovery must depend on South African Airways, whose routes you ‘feed and de-feed’.

I think that SAA are pretty pleased with what we have been able to deliver, especially our good On-Time Performance. It was very bad prior to the grounding at around 64%, but we are back above 90%.

Can you candidly tell us how SAX got into its current state?

It was just complete mismanagement. There was a chronic lack of accountability — no one was ensuring that the people were doing what they were supposed to be doing. For me, that is simply a failure of leadership. If the business is broken, you have to bring in somebody who understands aviation and what it takes to fix it.

But at the end of the day is it not just a business and if you do the business stuff right you can get on with fixing the airline later? That is Vuyani Jarana’s approach to SAA.

People must understand that aviation is a highly regulated environment. If the CAA sends an email that says they have a number of concerns, you have to know how to fix it. The problem was that there had been a massive brain and skills drain.

Let me put it to you bluntly: The case for SAX’s existence is almost non-existent. For two reasons: First, there are other airlines that are already successfully operating in your space. Second, you are a huge drain on taxpayer money that should be used to uplift the poor.

I disagree. Even though we were grounded for three months, Airlink was not able to come in and close the gap in terms of seat availability. I believe Airlink was quite happy to have a shortage of seats and thus be able to improve their loads and raise their prices. So how does that serve the growth of the South African economy and especially the small towns?

And we will soon be back to profitability. Furthermore, there are studies that show how important regional airline services are to the economy.

Are you saying that SAX must fulfil a Development Mandate? In my experience, that’s just an excuse to lose money.

Why should anyone assume that we would fly routes unprofitably just because we are a state-owned entity? When it is Airlink why don’t you make the same assumption?

Because a private sector airline will just stop operating unprofitable routes — and leave a town to die.

Yet we have also stopped flying to routes which don’t make money. Tough decisions have had to be made and we will only be flying profitable routes. I challenge you to show me one route that we are flying that is not fundamentally profitable. So how can anyone say that there is no room for SA Express, yet there is room for Airlink? Seventy-five percent of passengers are business people, so our yields are not low.

What is your cash flow like? Are you fully funded at the moment?

It’s good. We were given R1.2-billion by the government to continue operations.

But how much of that had already been spent?

None, as we were given a guarantee of R1.7-billion when we were grounded, and we raised R400-million against that to turn the organisation around. That is all we have used to date.

Was that all you could raise from the banks?

That’s all we chose to raise.

Are the banks reluctant lenders?

They have become far more difficult. And it does not just apply to airlines. I think it is affecting all SOEs.

The banks want to know that you are not bankrupt and are on the route to profitability. Are you able to provide that assurance?

Yes, in our case I believe that we have delivered everything that the banks have requested of us.

SAA has acknowledged that it has a major problem with ‘a culture of malfeasance’. Do you have that as well?

Yes. We have already dealt with a lot of it, but we can never be sure that it is completely out of the system. We have, however, been fortunate in that, as a smaller airline, we have been able to move quickly and get rid of some of the bad practices. The grounding helped us in this regard as it gave us the opportunity to terminate some of the bad contracts.

If Tito Mboweni wants to sell you off, would that be a good idea?

That is the prerogative of the shareholder. We are all here to do our best job, but what happens with the ownership is up to the shareholder.

So the bottom line is that the airline is on track to be profitable or at least break-even by April 2019. And that you are probably only going to be with the airline for another couple of months until a permanent replacement has been found. DM