31 March 2013

An example of how an A350 order could change an airline; South African Airways. Resignation of the board and departure of key executives.

A huge South African Airways tender, worth at least USD1.08 billion, appears to be at the heart of the destructive battle to control the airline's board and executive.


And questions have been raised about how an extraordinary meeting held in Johannesburg at the Saxonwold compound of the Gupta family – involving the airline's acting chief executive as well as the special adviser to Minister of Public Enterprises Malusi Gigaba – fed into that battle.


SAA's management has been wracked by instability since September 2012, when the majority of the board, led by former chair Cheryl Carolus, resigned over a breakdown in its relationship with Gigaba. Chief executive Siza Mzimela and some of her key lieutenants followed in early October.
SAA plans to nominate the third CEO in six months



The Mail & Guardian revealed that SAA's fleet committee selected the new Airbus A350 over Boeing's long-haul offering in a recommendation to the SAA board in late August – and that the outgoing board gave a nod to the choice.

SAA insiders say it is this decision that appears to have precipitated events that blocked the Airbus bid – and have left SAA's top structure in disarray.

"The previous board accepted the recommendation from the fleet committee," said one well-placed source. "That's when events started melting down – after the shareholder [the minister] was advised of SAA's view on the bids. There was a sense that the minister's office was quite shocked the process had progressed so far."

If the minister was surprised, he should not have been. The new fuel-efficient long-haul fleet was central to a detailed turnaround plan that Carolus's board had prepared.

High fuel costs are punishing SAA, especially in relation to the older generation Airbus A340-600s it has on an expensive long lease.
 


Securing the right aircraft quickly was key to the turnaround strategy.

According to an aviation source, the delay created by SAA's board upheaval means SAA has lost the production slot offered by Airbus during its bid. Now any new decision about the bids may be influenced by the consideration that delivery by Airbus could be up to a year later than initially planned.

Said an SAA manager: "If you look at what's happened, you have to ask yourself if we would have had such big problems if the ministry had concurred with the choice of Airbus."
 

SAA had issued requests for proposals (RFPs) to both Airbus and Boeing in Jun-2012 for new widebody aircraft, to replace older aircraft and grow the long-haul fleet from 24 to 31, allowing the carrier to respond to competitors and meet demand. SAA did not publicly disclose details of its aircraft requirements at the time.



The minister's version

Department of public enterprises spokesperson Mayihlome Tshwete said the "reality" was that the Carolus board "only met 30% of its key performance indicators, the most important of those being financial management". He said the department had not seen a "detailed turnaround" plan.


Tshwete confirmed that the fleet committee had made a recommendation to the board to procure from Airbus, but denied that the minister was aware of this preference.


"The department was concerned that there was no long-term strategy that had been shared with it that informed the fleet renewal program," he said.


"This is the reason that the program is being revised: to be aligned with the long-term strategy that is being developed."


But the ministry's explanation why the procurement process was placed on hold is called into question by allegations of a disturbing pattern of interference in procurement matters – and by the events surrounding the arrival and sudden departure of acting chief executive Vuyisile Kona.





Based on the article “R10bn contract behind the dogfight at SAA” published in The Mail&Guardian


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