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SAA Overview. Presentation to Public Enterprises Portfolio Committee SAA CEO and President; Dr Khaya Ngqula. 22 June 2005. Agenda. SAA Business Overview The Bambanani Turnaround Programme SAA Restructuring Exit Plan from Transnet Star Alliance. Agenda. SAA Business Overview
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SAA Overview Presentation to Public Enterprises Portfolio Committee SAA CEO and President; Dr Khaya Ngqula 22 June 2005
Agenda • SAA Business Overview • The Bambanani Turnaround Programme • SAA Restructuring • Exit Plan from Transnet • Star Alliance
Agenda • SAA Business Overview • The Bambanani Turnaround Programme • SAA Restructuring • Exit Plan from Transnet • Star Alliance
SAA Business Overview (1/4) • Declining yields with the emergence of LCC in Domestic market and strong competition in some European routes • Drop in market share especially in domestic market • Negative Return on Invested capital • Impact of fuel prices and exchange rates in our international markets • SAA overall has demonstrated poor operating and financial performance in the past three years • The findings by external consultants also indicated that our headcount per flight is not in line with that of other airlines. To continue surviving as an airline we had to do something different
2,150 -4, 035 -12,719 -13,003 SAA Business Overview(2/4) Cumulative Net Profit Before Tax for the last three years NPT ( Rm ) FY02/03 FY03/04 FY04/05 EST FY01/02 4,000 2,000 0 -2,000 -4,000 -6,000 -8,000 -10,000 -12,000
349 365 -870 -6,066 -8,087 SAA Business Overview(3/4) Operating Profit for the last five years Profit ( Rm ) FY2003 FY2002 FY2001 FY2004 1H FY2005 1,500 1,000 500 0 -2,000 -4,000 -6,000 -8,000 -10,000
SAA Business Overview (4/4) SAA has therefore launched the Bambanani programme, to improve operating and financial performance, and take advantage of market growth, and this include the; • Profit Improvement Programme – focused on unit cost reduction • Sales & Marketing plan – aiming to boost share of premium customers • Customer Service Delivery programme – provide consistent, high quality service throughout the travel experience • Profit focus on all decisions – all strategic decisions based on their impact on contributions (as opposed to market share or revenues alone)
Agenda • SAA Overview • The Bambanani Turnaround Programme • SAA Restructuring • Exit Plan from Transnet • Star Alliance
SAA’s turnaround strategy focuses on the three pillars, which refer to our key stakeholders ( People, Customers, and Shareholders ) Patronage SAA’s Turnaround Strategy People Profit
The Bambanani Turnaround Programme • Launched customer service programme for 11000 employees worldwide • Risk Management established • Internal audit • Compliance • Financial Risk • Business Risk People
The Bambanani Turnaround Programme • Re-aligning positions to eliminate duplication throughout the airline. • Appointed a new Leadership team that will help drive the turnaround strategy. People
The Bambananani Turnaround Programme • Looking into our product to ensure consistency in all markets. • MOU signed with JET Airways and India for seamless travel experience. Patronage
The Bambananani Turnaround Programme • Reviewing service standards at all touch points in line with that of leading airlines. • The process to join STAR is on track to give our customers exposure to Star Alliance Frequent Flyer Programmes. Patronage
The Bambanani Turnaround Programme • Cost diagnostics with Mckinsey • Launched New Routes all effective July05 • Washington DC • Livingstone • Zanzibar Profit
The Bambanani Turnaround Programme • Move existing international routes to dailies • Zurich/Paris/Sao Paulo/Mumbai • CPT – FRA • Application for additional frequencies • Accra, Lagos, Luanda • Feasibility study on China route • Reestablishment of JHB Bangkok route in October05 Profit
Agenda • SAA Overview • The Bambanani Turnaround Programme • SAA Restructuring • Exit Plan from Transnet • Star Alliance
Problems with old organization Improvements in new organization Improvements in the new organization Problems with old organization • From 10 to 7 direct reports to CEO • Clearly defined and delineated roles and responsibilities among ExCo • Organization significantly streamlined based on benchmarking • Dedicated COO to bundle and focus on core airline operations • Management of subsidiaries integrated into core business (e.g., technical) • KPI-based performance contracts designed and tied to strategic objectives of SAA • Too many direct reports to the CEO • Unclear roles & responsibilities among management team and unclear accountabilities (e.g., fleet planning) • Inefficient structure, e.g., duplication of tasks across organization • Limited focus on core airline business operations • No integrated management of investments and subsidiaries • No alignment of structure along strategy and no link with performance management
Deputy CEO VP : Comms & Gov Liaison VP: Western Cape Business Dev VP : CSSE EVP Operations and Customer Service EVP Human Resources and Transformation EVP SAA Technical EVP Subsidiaries EVP and CFO EVP Commercial VP:Human Resource VP: Cargo VP:Subsidiaries VP : Legal VP: Operations VP:Marketing VP : Treasury VP: Customer Service VP : Finance VP:Global Sales CIO VP:Global Pax Services & OCC VP Alliance, Network & Revenue Management VP : Fleet SAA Structure Prior to Restructuring Company Secretary Board CEO NB : CSSE - Corporate Safety, Security and Environment
New Management Structure (1/7 ) CEO Level Structure Company Secretary Board CEO GM Communication/ Customer Service GM Business Development General Counsel GM Human Resources COO CRO CFO Changes made in the old structure This structure focuses on effective Governance
New Management Structure (2/7 ) COO Level Structure Head Safety, Security Environment COO Head Technical Operation Head Network, Planning Distribution Head Passenger Services General Sales Manager GM Cargo Head Marketing CIO This structure focuses on efficient operations
New Management Structure (3/7 ) • Our new structure is built upon our guiding principles of Profit, Patronage and People, as • We have created full transparency on roles and responsibilities • We have established clear accountabilities and avoiding duplication of activities/responsibilities • We endeavour to achieve higher efficiency, effectiveness and quality in our work through realigning our functions to our strategy
New Management Structure (4/7 ) • Both our customers and people will benefit from the new organization, as • We have consolidated all customer service functions in a dedicated unit to provide consistent excellence in service delivery • We have broken-down functional silos and re-enforce cross-functional processes with clear interfaces and governance bodies to establish process stability for our people
New Management Structure (5/7) • Excellent performance to drive SAA-growth will be measured and rewarded, as • We are developing our new performance management contracts around Key Performance Indicators, which are linked to driving Profits, Patronage and People initiatives • We will be rewarding our staff for excellence in performance and establish a fact-based system of measuring performance
New Management Structure (6/7) • To increase efficiency and effectiveness we streamline our management levels, as • We have reduced management levels from 7 to 3 to simplify the organization • Get employees close to management and get management closer to customers • We are basing the recognition of individuals more on their roles and responsibilities rather than on their titles
In reinforcing our workforce and realigning our management, we applied the following principles; New Management Structure (7/7) • A Focus on People • A Focus on strengthening Risk Management • An Aggressive Focus on Customer Service throughout the organisation • A culture of excellence with profit and cost control
Total Approved : 67 Total Cost : R42 m As part of the Restructuring process, SAA had to introduce Severance Packages ( VSP’s ) for management staff Approved Severance Packages for Management
Agenda • SAA Overview • The Bambanani Turnaround Programme • SAA Restructuring • Exit Plan from Transnet • Star Alliance
Progress to date • Positive competition advisory opinion obtained • Draft SAA Bill drafted • Legal and tax due diligence completed • Pension fund related obligations largely quantified (subject to finalisation by fund actuaries) • Financial modeling and preliminary reports of impact of transfer on SAA and Transnet have been completed
Complete business case analysis for SAA as stand alone SOE • Public Enterprises • Finalise the financial evaluation reports on Transnet and SAA • Deutsche Bank • Consideration of due diligence reports, business case and financial models and implications for proposed transaction • SAA/Transnet/Public Enterprises/National Treasury • Negotiations in relation to:what is to be transferred consideration payable • Transnet/SAA/Public Enterprises Next steps Action items Responsibility
Finalise SAA Bill and supporting documentation • SHG/Public Enterprises • Draft PFMA Amendment • SHG/Public Enterprises/National Treasury • Engage with Transnet and SAA lenders required consents/waivers • Transnet/SAA/SHG/DB • Commence legislative process (targeting August 2005) • Public Enterprises Next steps continued Action items Responsibility
Agenda • SAA Overview • The Bambanani Turnaround Programme • SAA Restructuring • Exit Plan from Transnet • Star Alliance
Washington DC New York Atlanta Hong Kong Bombay Mauritius Perth Sao Paulo Europe : 5 Destinations Africa : 19 Destinations SAA Current Network
Star enables SAA to leverage a global network; revenue benefit is driven by the connecting potential Star generates Key: Star SAA Proposed SAA
Key Milestones …before joining we still need to • Sign the joining documents or the MOU • The MOU has already been signed in December 2004 • Competition Implications • SAA’s request for an advisory opinion from the Competition Commission • Becoming bound by the various agreements that define the alliance • Agreeing to comply with certain minimum requirements provided in those agreements
Key Milestones continued… • IT Requirements • The decision to migrate to a new reservation system has implications on migration • Pay the joining fee