SOUTH AFRICAN AIRWAYS (SAA) ON TURNAROUND STRATEGY AND PERFORMANCE

The South African Airways (SAA) briefed the Committee on its Long-Term Turnaround Strategy (LTTS), which was implemented in April 2013 in order to address the challenges that SAA had been experiencing. The implementation of the LTTS had slowed down in 2014 but picked up more recently. There had been challenges in the implementation, particularly the delay in cancellation of routes and new fleet and lack of equity injection. The 90-day plan put more focus on the implementation of commercial and financial interventions, and SAA managed to achieve the cost reduction measures and the network remediation in Beijing, Mumbai and Abu Dhabi. The LTTS had been refined with a focus on reviewing assumptions, such as those relating to the fuel prices, and on making adjustments for current internal and competitive realities. Certain areas needed to be addressed and adjusted in the LTTS. These included an adjustment of the financial plan, based on the revised exchange rate and fuel price assumptions, the equity injection was no longer assumed, the headcount rationalisation was included, and there would be more focus on implementation and performance management, and the reviewing of the Fleet and Network Plan. The Board suggested that the focus on cost reduction must be seen in the context that the airline unit costs had been permanently under pressure. SAA had been driving a cost compression programme since 2013 and had achieved R2.2 billion savings to date, and would be continuing to try to reduce by 13% for the next three years. Some of the main areas had been renegotiation of lease agreements to cut costs, current lease extensions, a people cost reduction prioritised on headcount rationalisation, savings on procurement and maintenance contracts, and improvements in using aircraft.

Considering this report, Parliament has requested your services as a procurement and supply chain management specialist to submit a report addressing some of the issues facing SAA and providing recommendations. The scope of the report should address the following questions.

Answer ALL the questions in this section.

Question 1

1.1 As part of the turnaround strategy, discuss the key procurement issues that should be prioritised by SAA in order to achieve its intended objectives of cost compression.

1.2	Elucidate how can SAA become environmentally sustainable in conducting their operations.	(25 marks)
1.3	From a procurement context, identify and discuss the key challenges that SAA is exposed to and provide recommendations on how these should be addressed.	(25 marks)
1.4	Advise the directors of SAA on the concept of total cost of ownership TCO and how it can be successful applied.	(25 marks)