CEO of SAA says spending on consultants is crucial to turnaround strategy
Following widespread outcry in the media and amongst the general public around the recent expenditure levels at South African Ariways – including a R25 million contract with Deutsche Bank for restructuring – the public sector entity’s new CEO has argued that skills are essential to save the firm, and they “don’t come cheap.”
South Africa’s public enterprise sector appears to be navigating a period of turmoil. Power company Eskom has had to make staff and bonus cuts after sustained losses, while Transnet has had to restructure at the board level. One entity that has been acting in contradiction to its financial situation in recent times is South African Airways (SAA).
The firm is no doubt in trouble, having registered losses of nearly R6 billion last year and cut revenues by nearly R4 billion by cutting routes. The airline is also carrying over R9 billion in debt. Over the last year alone, the entity has borrowed a cumulative amount of R20 billion from the government as a bailout, the most recent of which is a R5 billion package.
The money being fed into the firm is reportedly being deployed as it comes in, primarily to pay off suppliers that are still owed money. Other funds are being lost to inefficiencies – a prime example being the continued employment of 50 staff members, including pilots, whose services are no longer required under the new reduced route systems.
SAA’s strategy to rein in the situation has been rather counter-intuitive, involving the employment of senior executives at exorbitant pay rates, sparking public outcry in the process. New appointments include a new general manager for risk and compliance, a new restructuring office, a new officer for regulatory policy, and a number of others that comprise a total of 13 new executive positions, each with a salary of between R2 million and R6 million per year.
This free spending from public coffers has not gone down well in the media, but SAA’s CEO Vuyani Jarana has now explained why it is a necessity, albeit an unpleasant one. Jarana was appointed in November last year, with annual compensation of R6.7 million, and has since laid down a comprehensive strategy to execute a turnaround at SAA.
The utmost priority on Jarana’s list is the addition of skills at the top level of the organisation. He compares SAA with international counterparts such as Singapore Airlines and Emirates, highlighting the significant gap in capabilities in the top tiers. The inclusion of top quality from the domestic and international markets is key to success in the long term, but requires substantial investment in the short term.
Jarana is appointing senior executives from prominent consulting firms for two purposes. The first is to control the current situation over the next six months, which involves navigating heavy public scrutiny and producing quick and measurable results. The second is to improve the overall skill level for the future, without which he feels the firm will continue to face losses.
“You will not succeed in turning around SAA without the skills. We benchmark salaries here at SAA globally and locally, at the same time keep in mind that these people are executives, they have been working on other projects in other companies and if you are going to entice them to come and work for SAA they will not come for nothing, ” he said.
He also vouches for the people he has appointed, and describes them as deeply committed to their tasks. As an example, he cites the executives appointed in the procurement segment, who have devised a strategy to cut over R7 billion in fuel costs after just two months in office.
Adamant in his stance, Jarana maintains that SAA will continue to borrow funds from the government, specifically R12.5 billion going forward, in accordance with a previously established strategy. Funds are being deployed in three directions, namely capital costs, investment, and debt alleviation.
