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THE AIRLINE

When Monwabisi Kalawe took on the role of CEO atSouth African Airways (SAA) last June the fifthperson to hold the title in as many years he knew he

was in for a rough ride.South Africas heavily loss-making, state-owned flag-carrier

has been castigated by local and international press for itsapparent inability to stamp out management corruption andoperational inefficiency. The announcement of a long-termturnaround strategy last year did not quell the protests, becomingthe ninth such programme to be unveiled since the turn of thecentury.

Sure enough, it did not take long for the negative headlines tocome flooding in. In May 2014, less than one year into Kalawestenure, Business Day claimed that he was being investigated overfour separate allegations of serious misconduct.

Worryingly, the report was alleged to have been leaked by noneother than Dudu Myeni, SAAs acting chairperson. That stoked

Despite contending with a volatile boardroom and an

irreverent local media, Monwabisi Kalawe, the new

boss of South African Airways, sees a bright future for

the troubled flag-carrier. Martin Riversfinds out why.

fears that the boardroom had fallen prey to the same bitter in-fighting that broke out in 2012, when chairperson CherylCarolus and six other board members resigned en masse.

Yet, despite the challenging climate, Kalawe betrayed no hintof anxiety as we met at the IATA AGM in Doha. To the contrary,his demeanour was self-assured and relaxed throughout.

I am so proud of what we have achieved since I joined theairline, he began. What I learned from my previous jobs is toallow your staff to speak their mind. And they do this. Our peopleknow that they can say anything freely.

It was inevitable that when all these people joined the boardat once [after the 2012 resignations], there will be conflict. Wehave seen that. But am I worried? Not at all. We are past theworst.

Indeed, SAA wasted no time in rubbishing the report byBusinessDay, issuing a statement within hours that decried the inaccurateinformation it contained and affirming that the board stands

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firmly behind its CEO. As for Myeni,Kalawe said it is too early to pre-judgewhether she was the source of the claims.Newly appointed public enterprisesminister Lynn Brown will conduct aninvestigation, he insisted, and thechairperson should be given the benefit ofthe doubt until the findings are clear.

With his reputation intact and a strongmandate to continue the turnaround plan,Kalawe is turning his attention to the nutsand bolts of SAAs creaking businessmodel.

Overhauling the wide-body fleetremains the most potent weapon for

stemming the losses. Although SAAimproved its operating result by 21% lastyear, that still entailed sinking 991 millionrand ($116 million) into the red. The flag-carriers controversial nonstop service toBeijing was responsible for a huge chunkof that loss, haemorrhaging about 300million rand during the year.

Phasing out SAAs 18 fuel-guzzlingAirbus A340s is, therefore, critical. Thefour-engine jets will be replaced bybetween 20 and 25 newer models,Kalawe said, with leases being favouredover acquisitions due the airlinesprecarious financial situation.

Upgrading to more fuel-efficient wide-bodies is not a new plan interimpredecessor Nico Bezuidenhout hadpromised the same measure last year butthe government scrapped SAAs previousrequest for proposal (RFP) after objectingto the lack of localisation measures.

In South Africa, high-valuetransactions by the government, or itsparastatals, must abide by the nationalindustrial participation (NIP)programme. NIP ensures that localenterprise has the opportunity to benefitfrom such transactions, Kalaweexplained, and the commitments outlined

in the previous tender did not sufficientlyaddress these obligations. SAAsupcoming RFP will be re-specified inaccordance with NIP.

In an effort to fend off furtheraccusations of inappropriate behaviour,the board also selected an independenttransaction advisor on May 20 to overseethe process.

The deadline that the government hasgiven us to conclude the RFP process andselect the manufacturer or lessor isOctober 2014, Kalawe confirmed. Thenumber, I would estimate it to be anythingbetween 20 and 25. Our ambition is for

the first two or three to start coming in2017, 2018.SAAs Beijing route, meanwhile,

remains a touchy subject. Former PublicEnterprises Minister Malusi Gigaba lastyear cautioned against shedding loss-making but strategically significantroutes, and Kalawe appears to share thatviewpoint.

Asked if he would consider shifting to acodeshare service operated by newpartner Etihad Airways over Abu Dhabi,Kalawe said this was an option but notthe preferred approach. Instead, theChinese Government has agreed tochange SAAs landing slot from 21:30 to17:30, facilitating domestic connections.Frequencies will also rise from three tofour times weekly, while seatingcapacity on each flight has fallen byswitching from an A340-600 to anA340-300.

The combination of betterlanding slots, higher frequenciesand a different aircraft gauge weredone to make the route viable,Kalawe explained. Our government

has said to us they want a connectionbetween South Africa and Beijing, so asmanagement well do the best that we canto reduce the losses or get to breakeven.

As an end-of-line carrier, some of SAAslong-haul services may ultimately neverbecome profitable. If that proves to be thecase, the airline will request a fiscaltransfer mechanism that ring-fencesstrategic routes for government subsidies.

Although not an ideal solution, Kalawedefended the measure by highlighting arecent Oxford Economics studycommissioned by the government. Itfound that SAAs total direct and indirect

economic contribution to South Africastands at about 21.6 billion rand per year,underscoring the need to preservestrategic links like Beijing.

On the narrow-body front, SAAs long-standing order for 20 A320s is finallybearing fruit. Sale-and-leaseback dealshave been signed for the first 10 units,with four arriving last year and the othersix due by 2015.

Our next step then is to find fundingfor the remaining 10, and those deliveriesshould start around June/July 2015,Kalawe added. Our deadline [to arrangefinancing] is December 2014. By the endof 2017, all 20 will be delivered to SAA.

Overhauling the narrow-body fleet hasa deeper significance for the Group. SAAexisting short-haul passenger fleetcomprises six A320s, 11 A319s and 11737-800s. As the new A320s arrive, theflag-carrier will gradually hand over its

737-800s to low-cost subsidiaryMango. That will allow the no-frillsbrand to substantially grow its nine-unit fleet, expanding in the domesticmarket as well as looking beyondSouth Africas borders.

Mango is a well-run business,Kalawe said. Nico [Bezuidenhout]

CONTINUED FROM PAGE 75

I have to look

internally to fix my

business before I can

have the luxury of trying

to look outside.MONWABISI

KALAWE

While SAA has replaced its 4-engined regional jets (such as thisAvro RJ85) with modern Airbus narrowbodies, buying inefficient 4-engined Airbus A340s has caused it to struggle for years so it isdesperate to get modern twin-engined replacements.

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and his team have done, and continue todo, good work. Our turnaround plan sayswe must increase the capacity of Mango inSouth Africa, because the domesticmarket is starting to become very pricesensitive.

Although Mangos only existinginternational route is from Johannesburgto Zanzibar, Tanzania, Kalawe saidsouthern and west African destinationsare on the radar.

We are hand-picking various countriesthat we think are suitable for the Mangoproduct, he affirmed. There are somepeople who are talking to us and saying they

like the low-cost model, so please come andassess Mango for their countries. Thoseconversations are in the initial stages.

Moreover, as well as potentiallyexporting Mangos brand to west Africafor the first time, SAA is moving forwardwith ambitious plans to establish asubsidiary in that corner of the continent.

The west African hub project was oneof the four alleged scandals exposed byBusiness Day. Kalawe was accused ofnegotiating a takeover of bankruptSenegal Airlines without the boardsapproval. It is a claim he vociferouslydenies, pointing out that studies into threewest African locations Nigeria, Senegaland Ghana were sanctioned by theboard when he joined SAA last June.

As part of our long-term turnaroundstrategy, it has been agreed that we need toset up a hub somewhere in west Africa,he noted. Nigeria fell off the tableimmediately, because our experts believedits infrastructure wasnt suitable forsetting up a hub.

Senegal was next in-line forconsideration. A visit by Senegaleseofficials late last year prompted an in-depth review of cooperation between thetwo countries, including not just SAA but

also logistics firm Transnet andutilities firm Eskom. So our due-diligence experts went across andlooked at Air Senegal, Kalawerecalled. It stood out that theywere heavily indebted and had someissues with their leases So therecommendation was that its notcommercially viable for SAA to considertaking up equity in the business.

Asked why Senegals finance ministry hadsuggested that talks advanced much further,he smiled and said: If youre a seller, youwant to excite the public! But I can assureyou that SAA never made an offer.

With Nigeria and Senegal ruled out,Ghana is now the favoured location for awest African hub. A delegation from SAAwas en route to Accra asAfrican

Aerospacewas going to press, and effortsto find a local partner were being fast-tracked thanks to an agreement signedbetween Airports Company South Africaand the Ghana Airports CompanyLimited.

Pending the necessary approvals,Kalawe is hopeful that the subsidiarycould get off the ground within two years.He even said that partnering with Asky,the Togo-based affiliate of EthiopianAirlines, would be one of the options,although rivalry between the two flag-carriers makes this a challengingproposition.

Elsewhere, SAAs partnership withAbu Dhabi-based Etihad offers hugeopportunities for synergies at the level ofprocurement and training. Describing thegood chemistry between the two sides,Kalawe noted parallels between Etihadslocal training initiatives and SAAs effortsto foster socio-economic development

among South Africas disadvantagedblack citizenry.

Etihad has been very successfulwith their Emirati development

programme, he said. SAA has aresponsibility to develop black

opportunities in South Africa, so maybewe can exchange notes in those areas.

Although such partnerships offerpotential cost savings, the overridingpriority for SAA remains optimising itsfleet and securing the next tranche ofgovernment funding.

Initial estimates that the turnaroundplan could deliver profitability by 2017

or 2018 may have been optimistic, withseveral fundamental assumptionsproving misplaced. These includedstability of the rand down 20% last year and the presumed withdrawal of theBeijing route. Nonetheless, talks betweenSAAs finance department, the publicenterprises ministry and the nationaltreasury are progressing well, andanother capital injection is expectedsoon.Asked about efforts by numerous start-ups to break the domestic duopolyenjoyed by SAA and Comair, Kalaweresponded in a characteristically laissezfaire manner.

I have to look internally to fix mybusiness before I can have the luxury oftrying to look outside, he insisted.There will always be people withambitions to go into this industry. Our excolleagues [Siza Mzimela, TheunisPotgieter and Jerome Simelane] havestarted Fly Blue Crane. Whether they aregoing to survive or not, only the marketwill tell.

And if they survive, someone else isgoing to want to start another airline. Itsa very sexy, attractive industry to manypeople!

THE AIRLINE

We are

hand-picking various

countries that we thinkare suitable for the

Mango product.MONWABISI

KALAWE

SAA shifted its Boeing 737s to low-cost subsidiary Mangowhen it started receiving Airbus A320-family aircraft.