SAA Overview Presentation to Public Enterprises Portfolio Committee

SAA Overview Presentation to Public Enterprises Portfolio Committee SAA CEO and President; Dr Khaya Ngqula 22 June 2005

SAA Overview Agenda • SAA Business Overview • The Bambanani Turnaround Programme • SAA Restructuring • Exit Plan from Transnet • Star Alliance Bringing the world to Africa, and taking Africa to the world 2

SAA Overview Agenda • SAA Business Overview • The Bambanani Turnaround Programme • SAA Restructuring • Exit Plan from Transnet • Star Alliance Bringing the world to Africa, and taking Africa to the world 3

SAA Overview 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 Bringing the world to Africa, and taking Africa to the world 4

SAA Overview SAA Business Overview(2/4) Cumulative Net Profit Before Tax for the last three years NPT ( Rm ) 4, 000 FY 02/03 FY 03/04 FY 04/05 EST -12, 719 FY 01/02 -13, 003 2, 150 2, 000 0 -2, 000 -4, 000 -6, 000 -4, 035 -8, 000 -10, 000 -12, 000 Bringing the world to Africa, and taking Africa to the world 5

SAA Overview SAA Business Overview(3/4) Operating Profit for the last five years Profit ( Rm ) FY 2001 FY 2002 FY 2003 FY 2004 1 H FY 2005 1, 500 1, 000 500 365 349 0 -2, 000 -870 -4, 000 -6, 000 -8, 000 -10, 000 -6, 066 -8, 087 Bringing the world to Africa, and taking Africa to the world 6

SAA Overview 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) Bringing the world to Africa, and taking Africa to the world 7

SAA Overview Agenda • SAA Overview • The Bambanani Turnaround Programme • SAA Restructuring • Exit Plan from Transnet • Star Alliance Bringing the world to Africa, and taking Africa to the world 8

SAA Overview 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 Bringing the world to Africa, and taking Africa to the world Profit 9

SAA Overview The Bambanani Turnaround Programme People • Launched customer service programme for 11000 employees worldwide • Risk Management established m Internal audit m Compliance m Financial Risk m Business Risk Bringing the world to Africa, and taking Africa to the world 10

SAA Overview The Bambanani Turnaround Programme People • Re-aligning positions to eliminate duplication throughout the airline. • Appointed a new Leadership team that will help drive the turnaround strategy. Bringing the world to Africa, and taking Africa to the world 11

SAA Overview The Bambananani Turnaround Programme • Patronage Looking into our product to ensure consistency in all markets. • MOU signed with JET Airways and India for seamless travel experience. Bringing the world to Africa, and taking Africa to the world 12

SAA Overview The Bambananani Turnaround Programme • Reviewing service standards at all touch points in line with that of leading airlines. Patronage • The process to join STAR is on track to give our customers exposure to Star Alliance Frequent Flyer Programmes. Bringing the world to Africa, and taking Africa to the world 13

SAA Overview The Bambanani Turnaround Programme • Cost diagnostics with Mckinsey Profit • Launched New Routes all effective July 05 o Washington DC o Livingstone o Zanzibar Bringing the world to Africa, and taking Africa to the world 14

SAA Overview The Bambanani Turnaround Programme • Move existing international routes to dailies Profit o Zurich/Paris/Sao Paulo/Mumbai o CPT – FRA • Application for additional frequencies Accra, Lagos, Luanda • Feasibility study on China route • Reestablishment of JHB Bangkok route in October 05 Bringing the world to Africa, and taking Africa to the world 15

SAA Overview Agenda • SAA Overview • The Bambanani Turnaround Programme • SAA Restructuring • Exit Plan from Transnet • Star Alliance Bringing the world to Africa, and taking Africa to the world 16

SAA Overview Problems with old organization – Too many direct reports to the CEO – Unclear roles & responsibilities among management team and unclear accountabilities (e. g. , fleet planning) Problems with in organization Improvements oldthe new organization Improvements in new organization – From 10 to 7 direct reports to CEO – Clearly defined and delineated roles and responsibilities among Ex. Co – Inefficient structure, e. g. , duplication – Organization significantly streamlined – Limited focus on core airline business – Dedicated COO to bundle and focus on – No integrated management of – Management of subsidiaries integrated – No alignment of structure along – KPI-based performance contracts of tasks across organization operations investments and subsidiaries strategy and no link with performance management based on benchmarking core airline operations into core business (e. g. , technical) designed and tied to strategic objectives of SAA Bringing the world to Africa, and taking Africa to the world 17

SAA Overview SAA Structure Prior to Restructuring Company Secretary Board CEO Deputy CEO VP: Western Cape Business Dev EVP Human Resources and Transformation VP: Human Resource EVP Operations and Customer Service VP: Operations EVP Subsidiaries EVP Commercial VP: Subsidiaries VP: Cargo VP : CSSE EVP and CFO VP: Global Pax Services & OCC Bringing the world to Africa, and taking NB : CSSE - Corporate Safety, Security and Environment EVP SAA Technical VP : Legal VP: Marketing VP: Customer Service VP : Comms & Gov Liaison VP : Treasury VP: Global Sales VP : Finance VP Alliance, Network & Revenue Africa to Management CIO VP : Fleet the world 18

SAA Overview New Management Structure (1/7 ) CEO Level Structure Company Secretary Board CEO CFO COO CRO General Counsel GM Communication/ Customer Service GM Business Development GM Human Resources Changes made in the old structure This structure focuses on effective Governance Bringing the world to Africa, and taking Africa to the world 19

SAA Overview New Management Structure (2/7 ) COO Level Structure Head Safety, Security Environment Head Network, Planning Distribution General Sales Manager COO Head Marketing Head Passenger Services Head Technical Operation GM Cargo CIO This structure focuses on efficient operations Bringing the world to Africa, and taking Africa to the world 20

SAA Overview 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 Bringing the world to Africa, and taking Africa to the world 21

SAA Overview 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 Bringing the world to Africa, and taking Africa to the world 22

SAA Overview 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 Bringing the world to Africa, and taking Africa to the world 23

SAA Overview 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 Bringing the world to Africa, and taking Africa to the world 24

SAA Overview New Management Structure (7/7) In reinforcing our workforce and realigning our management, we applied the following principles; • 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 Bringing the world to Africa, and taking Africa to the world 25

SAA Overview As part of the Restructuring process, SAA had to introduce Severance Packages ( VSP’s ) for management staff Approved Severance Packages for Management Total Approved : 67 Total Cost : R 42 m Bringing the world to Africa, and taking Africa to the world 26

SAA Overview Agenda • SAA Overview • The Bambanani Turnaround Programme • SAA Restructuring • Exit Plan from Transnet • Star Alliance Bringing the world to Africa, and taking Africa to the world 27

SAA Overview 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 Bringing the world to Africa, and taking Africa to the world 28

SAA Overview Next steps Action items Responsibility Complete business case analysis for SAA as stand alone SOE Finalise the financial evaluation reports on Transnet and SAA Public Enterprises Consideration of due diligence reports, business case and financial models and implications for proposed transaction Negotiations in relation to: what is to be transferred consideration payable SAA/Transnet/Public Enterprises/National Treasury Deutsche Bank Transnet/SAA/Public Enterprises Bringing the world to Africa, and taking Africa to the world 29

SAA Overview Next steps continued 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 Bringing the world to Africa, and taking Africa to the world 30

SAA Overview Agenda • SAA Overview • The Bambanani Turnaround Programme • SAA Restructuring • Exit Plan from Transnet • Star Alliance Bringing the world to Africa, and taking Africa to the world 31

SAA Overview Washington DC New York Atlanta Bombay Hong Kong Mauritius Perth Sao Paulo Europe : 5 Destinations Africa : 19 Destinations SAA Current Network Bringing the world to Africa, and taking Africa to the world 32

SAA Overview Star enables SAA to leverage a global network; revenue benefit is driven by the connecting potential Star generates Key: Star SAA Proposed SAA Bringing the world to Africa, and taking Africa to the world 33

SAA Overview 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 Bringing the world to Africa, and taking Africa to the world 34

SAA Overview Key Milestones continued… • IT Requirements –The decision to migrate to a new reservation system has implications on migration • Pay the joining fee Bringing the world to Africa, and taking Africa to the world 35

SAA Overview Thank You Bringing the world to Africa, and taking Africa to the world 36