If I had a nickel for every time South African Airways needed a turnaround… well, I’d still have less than a dollar, but the point is that this is not an uncommon occurrence. South African has been a mess for pretty much as long as I can remember, and once again it finds itself in dire straits. But don’t worry, it’ll never go out of business. Not as long as the government is still running. Besides, there’s always the patron saint of failed airlines, Etihad, to bail the airline out. Or so South African hopes.
South African has been around forever, or at least since the 1930s. But the airline’s modern history didn’t really begin until the late 1990s. In 1998, Coleman Andrews took over as CEO and things have been on a downhill slide ever since. Andrews came in and worked his magic. He bought 737-800s to renew the domestic fleet, sold off 20% of the airline to Swissair (which I like to call “Etihad of the 1990s” for its strategy of buying questionable stakes in questionable airlines), and did some restructuring with the help of old friends at consulting firms like Bain. Three years later, many thought he had turned the airline around but that wasn’t the case. The airline posted profits, but those were due to aircraft sales and not to a profitable operation. He walked away with millions in severance, and the consulting firms were fat and happy as well.
His successor Andre Viljoen came in for a 3 year stint as well. He decided the 737 order wasn’t right, so he ordered A319s and A320s instead. In the end, the airline kept some of both. He also signed the deal to bring South African into Star Alliance. When Swissair failed, the government bought back the stake in the airline. The government, and really anyone and everyone in the general public, continued to meddle. Viljoen left in 2004.
Next up was Khaya Ngqula. With the airline still losing money, Ngqula offered his turnaround plan in 2007. The idea was to spin off subsidiaries, reverse some stupid fleet decisions, and fire a bunch of people since the airline was overstaffed. Sounds good, right? He grounded the 747s, canned 30 percent of the managers at the airline, and did save a bunch of money. Good on you. But then things got weird. He quickly took the 747s back out of retirement to fly them on routes within Africa. Then he quickly fell out of favor.
Ngqula apparently treated the airline as his personal playground. He enriched his friends with retention bonuses, and sponsored golfers and tennis events so he could travel with his friends. He also awarded jet fuel contracts to companies in which he had an interest. After he departed in 2009, the company went back to him and tried to get him to repay $4 million.
After Ngqula left, Chris Smyth came in on a temporary basis until they could find someone permanent. He claimed that the previous turnaround plan had saved the company 2.5 billion rand… but the airline was still losing money. He was replaced in 2010 by Siza Mzimela. Mzimela finally retired the 747s for good, but she couldn’t make the airline profitable. She quit in 2012 after all kinds of drama between the board, the government, and everyone else on Earth, it seems.
When she left in October 2012, Vuyisile Kona took over as acting CEO. I’m not really sure what happened there, but just a couple months later, in February, he was suspended.
Nico Bezuidenhout took over as acting CEO (is this now the acting, acting CEO?) until April 2013 when Monwabisi Kalawe was appointed CEO. This is where things get even more insane.
South African was operating underneath the Department of Public Enterprises. The Public Enterprises Minister Lynne Brown, removed six directors on the board of the airline who supported Kalawe. With them gone, the board chair, Dudu Myeni, suspended Kalawe without giving any reasons.
Still following?
Brown got angry and demanded to know why Kalawe had been suspended. Apparently Myeni sent reasons to Brown, but I haven’t seen any of that in a public forum. Kalawe remained mysteriously suspended while the airline continued to bleed out. Nico Bezuidenhout came back in as acting CEO while all this drama unfolded. Then last week, the powder keg ignited.
The President of South Africa Jacob Zuma moved South African Airways from underneath the Department of Public Enterprises over to the Treasury. Why? Well, the given rationale was that the airline’s trouble are mostly financial, so the Treasury should oversee it. Uh huh. The real reason is more likely because Dudu Myeni is good friends with President Zuma. And she wanted out from having to deal with Lynne Brown over at Public Enterprises. Now, under the Treasury, she is free from interference from those who disagree with her. Last Friday, the board unsurprisingly decided that it would not reverse the suspension of Monwabisi Kalawe. He’s out.
So, uh, now what? Well the airline is in terrible trouble now. It is effectively insolvent and will shut down without help in the next few months since the government says it doesn’t want to help anymore. (Yeah, right. You know it will if it has to.) But wait, what’s that? It’s the international signal for stranded airlines…
Current acting CEO Nico Bezuidenhout has effectively said that Etihad has an open invitation to invest in the airline and the two are warming up to each other. South African is starting a flight to Abu Dhabi, and Etihad will codeshare on it. There’s also a frequent flier partnership between the two.
I’m guessing it’s more likely that Bezuidenhout is begging Etihad to fork over the cash here. Of course, for Etihad to do that, it’s going to want to see some reforms. Behold, the 90 day plan. It’s a 6 point plan to make the airline good enough so that, I presume, Etihad will be interested. The plan is so full of corporate-speak that I figured it best to translate it loosely into English.
- Find short term cash, cut costs quickly, and drop money-losing routes
- Find long term cash
- Fix the corruption and management
- Get out of bad contracts the airline entered into
- Reorganize the company
- Improve communication
And that’s where we stand today. The airline is desperately trying to be just not bad enough so that Etihad is interested. I’d say Etihad would be insane to consider this, but considering Etihad’s track record, I know better.
23 comments on “A Brief and Confusing History of the Mess That Is South African Airways, An Airline That Wants Etihad’s Help to Survive”
Jeez-this saga has more plot twists than an episode of Dallas! Best result-South African folds, the debt is wiped out, and like a Phoenix, a new carrier arises called what else South African! What will more likely happen-Ethihad will wave it’s magic wand, and behold, all will be well. Question for you Cranky-has South African displaced Alitalia as worst airline ever?
No, not yet. But this does sounds terrible, right? Who knows, I may have
even missed a CEO or two. I’ve flirted with replacing Alitalia before, but
it always comes back home.
Spammer – please go away
Considering South Africa is at the bottom of the world, there isn’t much connecting traffic via JNB so it’s mostly O&D travel. SA is hoping it can form a sort of EK/QF relationship with EY and all will be better, but you still have to have a need for people to go to/from South Africa for any deal to work since South Africa is not exactly Australia which has much more of a traffic demand.
Actually, air connectivity is so bad in Africa that there is a ton of
connectivity that runs through there. Much of southern Africa, in fact.
Though as the gulf carriers add more and more cities, that becomes tougher.
I’m curious if perhaps there is space in Africa for an O&D-less/lite hub?
Sort of like how the southeast of the US prices like O&D even though its connecting..
I just don’t think there’s enough traffic. Africa has some really good
high dollar traffic and then not much else. Part of the reason that
happens is because the airlines don’t try to chase the lower end stuff.
But when an airline does try, like FastJet, it runs into all kind of
terrible government interference and protectionism that makes it really
tough.
Hrm.. Maybe David Neelman needs to arrange to find citizenship somewhere in Africa once he has Azul up and going well.
Well, but Brazil was so unique because it is one huge country. Most of the
African countries don’t have a lot of internal needs; it crosses borders.
And that’s where things get really ugly.
True.. But if anyone can help forge an Open Africa sky’s agreement from the business side its probably Neelman.
Those country border things are pesky.
Have biz class travel booked on SA over the holidays so I’m hoping they last at least a bit longer! I knew there were problems but wasn’t aware of how bad. Given all that it’s pretty amazing that they have a decent (and quite consistent) product and are reasonably reliable operationally.
I’d be amazed if the government actually let them fail. Sounds like a lot
of tough talk to me to try to get something to change. And really, to try
to get Etihad to take the burden.
The SA Government owns and runs the airline. They are pretty useless.
Don’t worry, I am a South African citizen and taxpayer and we regularly have to bail out SAA so yes, the airline will continue flying for as long as the taxpayer can bail out SAA Boardroom incompetence. SAA is run by politically appointed board members and staff with little or no real experience. Qualified and experienced whites are not employed because of their colour. This is truly a 100% Black initiative. I refuse to fly SAA. I say chaos in the boardroom means chaos in the aircraft service workshops. For the future, I recommend any main European airline to Johannesburg or Emirates that service Johannesburg, Durban and Cape Town. Domestically fly Kulula.com, voted one of the world’s top 10 low cost airlines, British Airways or SAFAIR. Mango is an SAA spinoff but unless you are a little person, you will not fit in their seats. SAA is a joke in South Africa – it’s up to you if you dare to board!
This needs to be said.
The language you use to express your views is racist.
SAA’s board may be made up of politically easy choices and people who shouldn’t be running an airline. That doesn’t make it “100% black”. White people such as Frank Lorenzo can be just as incompetent at overseeing and leading an airline.
South Africa has a quite corrupt gov’t so I’m not so surprised. I’ve heard the country is beautiful so if I ever go I’ll just take DL. Thank you.
Fully agree!
Having lived in Cape Town for a short time, I have seen corruption in many different branches of the govt. It has to be hard to run a successful airline in a country of such political unrest. How will SAA’s downfall effect Mango, their low cost subsidiary? Would be a shame if the people of SA didn’t have a national airline.
Well they seem to think Mango is important. The current acting CEO came
from Mango.
Brett, it’s amazing how global traveler doesn’t look at everything.
https://ca.finance.yahoo.com/news/global-traveler-magazine-names-south-180000235.html
Well that’s just about onboard experience, and if you’re thinking about
other airlines in Africa, South African has to be toward the top of that
list.
Comment: If I remember, AA was advising SAA in the late 1990s and they had an informal partnership; then Delta stepped in (which got them to Atlanta) and eventually Lufthansa stepped in and SAA was hooked up with Star Alliance (maybe that was connected through Swissair?). Sounds like they’ve had a good 20 years of turmoil!
Please fax to 1 847 272-8558 as the e-mail version was to big for my screen’