There is no plan to turnaround SAA, only to retrench workers - NUMSA & SACCA

Setting the record straight on dishonesty of DPE on withdrawing from LCF

NUMSA and SACCA set the record straight on the dishonesty of DPE for withdrawing from the Labour Consultative forum (LCF)

28 June 2020

The National Union of Metalworkers of South Africa (NUMSA) and the South African Cabin Crew Association (SACCA) are not surprised by the decision of the Department of Public Enterprises (DPE) to collapse the Leadership Consultative Forum (LCF) as stated in their statement which they sent out today.

In fact, such a decision confirms what we have articulated in the recent past that DPE led by Minister Pravin Gordhan, has been manipulative and dishonest in its engagement. NUMSA, SACCA and the SAA Pilots Association SAAPA have called them out on their shenanigans of thinking that they can outsmart the entire country by pulling the wool over the eyes of everyone, and pretending they are serious about building a new airline with a turnaround strategy, when in reality they are actually destroying the airline. If anything, what will be left of SAA will not be a vibrant and successful airline but a shadow of the airline as we know it. To be blunt what Minister Gordhan and the current Business Rescue Practitioners will leave the county with, is what can only be defined as Cape Town Airways.

On the grounds that we refused such an agenda, their response is to collapse the LCF.  This is done on the back of them knowing full well that the BRPs have not consulted Labour in the development of the recently announced BR plan. The essence of the collapse of the LCF by the DPE is its way of legitimizing that labour should not be consulted in the development of a turnaround plan for SAA as demanded by the Companies Act. The statement issued by DPE is unfortunately full of distortion and misinformation. What has really collapsed the LCF engagement with DPE are the positions advanced by the DPE that are tantamount to the destruction of SAA and its future. We must emphasize this fact including highlighting how peculiar it is for a shareholder to withdraw from its responsibilities to save the airline. It is clear that the only inference we can draw from this is that DPE realizes that we have exposed their intentions to manage unions within the LCF, and that it has not engaged in good faith.

It is important to state publicly that NUMSA and SACCA reject Minister Gordhan’s cheap propaganda to hide behind CoVID-19 as the basis of not wanting to capitalize the business plan. This includes our rejection, of his self-generated shock and surprise, that NUMSA, SACCA and SAAPA, move for the adjournment of the creditor meeting as he has been fully aware about the poor plan that was publicized by the BRPs, which is not only flawed but is also an attack on workers who have been suffering for a long time since the airline was grounded.

DPE’s propaganda is that we are responsible for job losses, when it is in fact the DPE which is pushing for mass retrenchments. DPE and others are very tight lipped as to who is waiting in the shadows to invest in SAA and presumably, this is why SAA is being pruned of thousands of employees. This is unlawful and we cannot allow these job losses when there is a perfectly viable plan to save SAA and jobs but DPE is not interested and insists on reducing SAA to a shadow of its former glory. Whose interests are actually being served here? Who stands to gain from DPE’s reckless approach to SAA and what is behind DPE’s decision to undermine the LCF?

Below we unpack the weaknesses of the Business Rescue Plan and debunk the lies that have been articulated by DPE on their explanation for their withdrawal from the LCF:

One of the major differences between us and DPE was that we insisted that the turnaround plan we were putting together must include, as a key priority, that SAA must resume its operations and take to the skies like the rest of its competitors in July 2020. DPE and Minister Gordhan refused to commit to such a proposal based on all sorts of flimsy excuses. They accused the BRPs of being the party that is refusing this proposal; and also claimed that they do not have the required sum of R8 hundred million to ensure that SAA can resume flying. Their position of insisting that SAA only flies again in January 2021 was tantamount to the liquidation of SAA as its market would be taken over by other airlines.

1.     Resuming flights immediately when all other airlines start to fly will enable SAA to retain its lucrative routes such as the Cape Town, Durban and Eastern Cape route in the domestic market and, allow it to keep its dominance in regional markets. Failing to do so, leaves SAA’s market vulnerable to global competitors and local private Airlines like Airlink, Flysafair and Comair. This will allow new entrants and existing competitors to take up SAA’s market share, especially in lucrative routes such as Cape Town and end its dominance on regional markets.

2.     The BRP/DPE plan of resuming operations with Mango is intended to put the nail in the coffin for SAA. Mango is geared for the low-cost market whose competitors are Flysafair and Kulula. This plan will allow other full-service carriers to capitalize on the absence of SAA and ensure the permanent demise of SAA as a full-service carrier. Who is fooling, who?

3.     The NUMSA/SACCA plan was based on the hybrid model of small/medium planes in domestic and regional markets. This will ensure that SAA is able to respond adequately to fluctuations in demand with suitable aircraft gauges. This will also ensure a cost-effective operation and SAA will be able to fend-off the price war in domestic and regional markets. In fact, SAA’s regional and domestic markets have achieved positive operating profits for the last decade. We saw this as an area of priority to ensure SAA survives the post-covid-19 recovery period.

4.     In contrast, the BRP/DPE plan is not viable, operating only a few flights to Cape Town and Durban, instead of reinstating all strategic routes that they recklessly cancelled. This poor plan will allow competitors to take SAA’s market share. For example, stopping the East London route completely and flying once a day to PE, will result in the market for international tourists to East London and mid-morning to PE, to be taken up by the competition. Starting late in regional markets will allow SA Airlink to scale up with the absence of both SAA and SAA Express and dominate the market. By the time SAA resumes operations in 2021, it will be too late. This is why Airlink was pushing to liquidate SAA, a move which NUMSA and SACCA defended in court. SAA’s competitors are given a free pass to eat up SAA’s market share, with the blessing of DPE.

Maintenance and fuel costs:

The NUMSA/SACCA plan deals decisively with maintenance, fuel, lease costs and finance costs that have strangled SAA’s profitability for many years ultimately to its demise. In effect, when the process of BRPs started, we presented to the BRPs and DPE a comprehensive turnaround plan that showed SAA can be turned around by just focusing on maintenance costs, fuel, lease and finance costs. This plan was ignored by both DPE and BRPs.

In contrast, the BRP/DPE plan has only one item which is labour. The plan is based on the retrenchment of most of the entire workforce of SAA. The failure of DPE and BRPs to tackle these other glaring cost items, and to focus instead only labour costs remains puzzling as it is conspicuously silent on maintenance, fuel, lease and finance costs. (The areas that were flagged by forensic reports as corruption hotspots). NUMSA and SACCA’s plan demonstrates how focusing on labour only will not turn around the Airline nor will it create a viable airline without addressing other operational costs, like corruption in procurement contracts, high maintenance costs, fuel and unfavorable lease costs.

Labour costs

NUMSA and SACCA have consistently raised the fact that the global trends point out that it is not strategic to adopt a short-term approach, which will bite you in the long term. For example, airlines that have become successful and globally competitively aggressive, are those that did not jump to outsourcing of critical strategic services, and were also airlines that owned their aircrafts, instead of leasing them. Also airlines who do not sell their strategic assets, in order to rent those same assets at a later stage. 

1.     The NUMSA/SACCA plan recommended a reduced labour head count of 3200 from a total of 4700. This reduced labour head count is based on Labour having accepted that as part of the restructuring exercise we should reduce the labour cost to the benchmark of 15% of labour costs to revenue of the industry. Of the 1700 affected employees, who may be retrenched about 1000 are over 50 years old and can be offered early retirement. The remainder could be offered VSPs that can be coupled with a social a plan with the aim to upskill and minimize the impact of job losses. Lastly, a small number of employees will start operations while the other employees would be in the temporary structure waiting for a phased recruitment back to the airline as the market recovers. We proposed that those who are waiting for the airline to ramp up, be placed on the Training Lay Off scheme which will allow them to receive training, whilst their salaries are still being paid. (The lay-off scheme allows workers to be paid up to 75% of the salary, whilst on training and to prepare them to rejoin the airline.) 

2.     In contrast, the BRP/DPE have insisted that they are only willing to retain 1000 workers at SAA. This is despite DPE in the past having advanced 2900 workers to be retained. To our surprise just days before the announcement of the BRP plan, DPE made it very clear that they were no longer going to retain 2900 workers. We note the absolute lie in the statement issued in the statement, claiming their withdrawal from the LCF is that they are committed to a phase in approach to retain 2900 workers. This is the dangerous double speak we have been confronted with from the DPE in the LCF. It is the very same DPE through its minister that has gone to SCOPA, when it was seemingly publicly fighting with the BRPs, and announced that the liquidation of SAA is not on the table, only to advise Seabury the U.S. consulting company, that it must design a plan for a new airline on the back of a plan to liquidate SAA. As unions we were left feeling betrayed and we went back to Minister Gordhan, because we were asking ourselves how does DPE hope to extricate itself from legacy cost issues, such as in indebtedness to creditors if liquidation was to proceed? The response from the minister was that we must trust him, and liquidation was not on and option. 

3.     The   other source of tension was our rejection as labour of the attempt by the minister to impose Mango into the SAA Business Rescue process despite the fact that Mango and other SAA subsidiaries were not included in business rescue. DPE was explicit that SAA subsidiaries, (including Mango) were never part of the Business Rescue Process. In fact, this inclusion of Mango meant that more workers from SAA would be retrenched. Our position was that we needed a separate process to deal with Mango and the rest of the other subsidiaries.

There is no plan to turnaround SAA, only a plan to retrench workers

It comes as no surprise to us that we find ourselves where we are, given that we had always highlighted the incompetence and lack of expertise of the BRPs in dealing with an airline business like SAA. It is our view that their actions and decision should be scrutinized before they can be adopted following numerous examples of poor decisions taken by them, that will eventually end up in the liquidation of SAA.  There is no turnaround strategy in the BRP/DPE plan, only a strategy to retrench workers. In fact, despite the public being promised that there is a commitment to ensure a viable turnaround at SAA we see absolutely no light at the end of the tunnel except what that we will end up with the liquidation of a national airline. It is against this background that we are calling on the ANC leadership, the President of the country and all other political parties to intervene in the current crisis caused by the DPE, which has the potential to completely destroy our national carrier. It is our submission that the retrenchment of so many workers as announced by DPE, on the eve of the meeting of creditors, and their intention to retrench three thousand seven hundred workers must not be accepted, as it is tantamount to an unacceptable job loss blood bath. 

We have presented a viable plan. For example, our plan takes stock of the challenges in the international market. The plan is also based on codeshare, a strategy that allows SAA to service its international customers without having to operate its own planes and later on as the market picks up after CoVID-19, consider economical joint ventures. The labour costs are reduced to 15% of revenue from 22% pre-COVID-19. Maintenance, fuel and lease costs will be reduced to align with industry standards. Finance costs will also be reduced through adequate recapitalization of the airline to align with industry standards.

We reject DPE’s attempt to agitate against us and its attempt to blackmail NUMSA, SACCA and SAAPA for exercising our democratic right in the creditors meeting by moving a motion that the meeting must be adjourned to the 14th of July. If we had not taken such a decision the DPE/BRP plan was likely to have been rejected, and as such four thousand seven hundred workers would have been left with no jobs, because the airline would be facing liquidation. 69 per cent of the creditors voted in favour of an adjournment which can only mean they also had a problem with the plan as presented - this is an indictment against both the BRPs and the DPE for the defective plan which they are attempting to impose on us unfairly. Alternatively, in the unlikely event that they had voted for the plan, they would have voted for an airline of only 1000 workers, running on a flimsy plan which was designed to fail in the long term. We had no other option, except to propose an adjournment, and postpone the vote in order to amend the plan, as both these possibilities, would have been disastrous for both the airline and workers.

What is to be done?

We therefore make the following clarion call on all political parties and the governing ANC as the majority party to ensure the following:

1.     Minister Gordhan must be stopped in his plans to retrench 3700 workers as these totally unacceptable actions cannot be carried out by a democratically elected government. In fact, in difficult economically depressed conditions such as what we are facing, government must be the employer of the last resort. In the same vein, we are calling for government to put together the necessary stimulus package for the aviation sector. As it is the case globally, all countries put together these packages to save their national carriers, the tourism and aviation sector, and in order to save jobs.

2.     The future of SAA is dependent on government moving with speed to ensure that SAA takes to the skies almost immediately like all the other airlines. We must also call on Minister Pravin Gordhan to be transparent and disclose to all social partners, all expressions of interest that want to have an equity stake in SAA. This is very important to assess the value proposition to deal with immediate challenges confronting SAA. It is also crucial to create the necessary balance in the development of a viable plan for SAA and for job retention.

3.     Minister Gordhan is busy peddling dangerous propaganda. It is clear that DPE is playing a very dangerous game by playing with the sentiment and frustration of workers, and desperately trying to drive a wedge between workers and the unions by presenting itself as the Ministry as acting more in the interest of workers, than the unions. We know this for what it is, it is classic, cheap union bashing and we reject it with the contempt it deserves.

4.     It is our take that Minister Pravin Gordhan must do the honorable thing and take full responsibility for the mess of the department under his leadership. He must revert back to the negotiations and make the necessary offer in settling a fair VSP targeting workers who are closer to retirement, and that as unions we remain prepared to move from our position and make necessary compromises in ensuring that we have an economically viable plan, and of course government must make its own contribution. We must agree on the number of workers to be retained. We also accept the principle of a phased in approach in the initial stages. However, we remain firm that SAA must take to the sky in 2020.

5.     We are calling on the government to prevail over DPE led by Minister Gordhan to inject the necessary capital that will bolster the confidence of all creditors and all social partners. As well ending what has become an attitude of mind of DPE to permanently frustrate and to risk the future of the airline and job security workers.

How we wish this militant brutal stance, which has suddenly been adopted by Minister Gordhan and his department against poor workers, had been a stance that they had taken as government against corruption and maladministration. Instead under his leadership across all SOEs, erroneous contracts exist and they continue to bleed these entities. By the way this is the same situation in Eskom. 

It is Minister Gordhan and the SAA board, who decided to go for voluntary business rescue so that they can appoint the BRPs of their choice. It is under him and during their watch that the BRPs squandered approximately R5 billion without producing a single plan and invoicing for no less than 30 million rand for a few months. The very same BRPs have cancelled routes, grounding the airline – a most reckless and costly decision, but they did nothing about ticket contracts costing SAA not less than 3 billion rand. This is not just a scandal, but it is criminal! Collectively or individually neither the DPE nor the BRPs even bothered to cancel contracts for leased planes when the airline has been grounded. Instead of imposing a logical force majeure, their deliberate inaction has cost the airline a further 30 billion in the last 3 months.

It is our submission that such action is unforgivable as it is fraudulent and reckless. The fundamental question to Minister Gordhan is, why should workers’ pay for this crisis with their jobs? If anybody thinks that we are busy playing, they must think again. NUMSA, SACCA and the pilots to date, despite coming from different angles or backgrounds in our efforts of saving SAA as a national asset, have not failed to persuade each other, and we remain prepared to be persuaded. We are putting the record straight in the interest of our country’s airline and job security of our members and all workers at SAA.

Lastly, NUMSA, SACCA and SAAPA, might be left with no option but to address SCOPA, and all political parties as we have written to the ANC calling for their intervention as a majority party. We remain firm in our search for a solution that will save our nations airline and ensure a restructured viable restructured airline. It is our take that there is no need to personalize issues, if Minister Gordhan is ready to genuinely engage with us as unions, with an intention to find permanent solutions we are prepared to meet with him.

Issued by NUMSA and SACCA, 28 June 2020