SAA's plan to save R2 billion

South African Airways (SAA) is renegotiating favourable terms on existing contracts with its suppliers while sourcing better terms on new procurement spend, including for fuel and ground handling, which would cumulatively save it nearly R2 billion.

This as the cash-strapped national carrier locked horns with labour unions at the Council for Conciliation, Mediation, and Arbitration (CCMA) on Saturday following a crippling strike over wage dispute and planned job cuts. The unions have accused SAA of purging more than 900 workers to save R700 million instead of the lion’s share of its R25 billion annual procurement spend is wasted on grossly inflated, irregularly negotiated contracts.

But SAA spokesperson, Tlali Tlali, said the airline had been reviewing some contracts for quite a while now, adding that this formed part of what it was doing on an ongoing basis. Tlali said some of the existing contracts did not enable SAA to extract maximum value and benefit. "We are, therefore, re-negotiating to have much more favourable terms for SAA to get more value for money. A contract with one of the Global Distribution Systems has already been successfully re-negotiated and the savings are forthcoming," Tlali said.

"There are few others that are being re-negotiated and are awaiting approvals. All these contracts that are being renegotiated have a contract value of just under R1bn." In 2015, EY tabled a forensic report on SAA procurement investigation, showing that potentially 60 percent of the total procurement could be subject to weak business controls. The report showed that 28 out of a total 48 contracts across SAA, Air Chefs, Mango and SAA Technical, were improperly negotiated, poorly contracted or weakly managed.

These are the contracts that organised labour is pushing to be renegotiated or scrapped as no one has ever been held accountable for their irregularities. For instance, the National Union of Metalworkers of SA (Numsa) said last week that SAA Technical saved R11m after it intervened on an inflated contract for warehousing with KWE, which cost the airline R22m a year. SAA has incurred cumulative losses of R28bn in the past 13 years and has not reported a profit in 11 years.

Tlali said that SAA also had a category of contracts, which it had strategically chosen not to re-negotiate. "In relation to those, we are following a sourcing process – Request for Proposal (RFP) tender process. These have a contract value of approximately R800m over 12 months," he said. "The fuel contracts falls within this category. The fuel RFP has been published and we are busy with evaluations and negotiations for international and domestic fuel supply – we spend approximately R7bn on fuel supply out of the R25bn procurement budget."

SAA interim chief operations officer, Deon Fredericks, said earlier this week that the airline spent 24 percent of its turnover on fuel costs alone. Tlali said an RFP for ground handling had closed for international and regional operations, and significant savings were being realised for international and regional markets. He said SAA spent R3.6 billion on B-BBEE compliant companies for the period 1July – 30 September.

"In the domestic sector, we could not go to the market and we are now looking at re-negotiating revised terms with the current licensed suppliers, especially after Acsa has extended the current licenses for the ground handlers until 2021," Tlali said.

Meanwhile, SAA extended the cancellation of all domestic and regional flights for Monday, but continued to operate all international flights departing from OR Tambo International Airport.