5.3 Challenges facing SAA The global economic climate had an adverse effect on the aviation industry, which included the following: . Low GDP growth meant static passenger and cargo demands . Economy traffic had still not fully recovered from the global financial crisis . Further downward pressure on average fares . Oil prices steadily moved above USD 100 per barrel . Rapidly increasing competition from Middle Eastern airlines . SAA had not grown its business or fleet for a long period. 5.4 Committee's observations . The Committee commended SAA for the success with its turnaround of SAA Technical and for launching the pilot programme. . Clarity was sought on the number of aircraft that SAA owned, what its relationship was with pilots and where SAA sourced its pilots. . Concern was raised at the prevalence of baggage pilferage. What was being done to curb it? . Would Santaco have any adverse impact on the Mango routes? What kind of support did SAA give to Mango and was Mango sustainable? . How was Mango performing on the Durban to Cape Town route and did it not lose out to competitors? . What legacy issues were still outstanding, including Com-Air, and what were the challenges facing the board? . Would the entity be able to clear its debt completely? What did SAA do with the profits and did it have problems with hedging? . Did the entity enjoy any support from embassies for marketing? . Did SAA explore international routes such as Cape Town to Rio de Janeiro? . Concern was raised about securing the air service licence as reported in the annual report. A progress report was sought on the KPMG report. . How did the remuneration of SAA staff compare with other airlines? . How visible and accessible was the leadership of SAA, and how would that improve going forward? 5.5 Responses In response, the Committee was informed that: . SAA's management had worked very hard to improve staff morale. The CEO and the Chairperson of the board had visited all units to build good relationships with staff. . There was a service level agreement with Airports Company South Africa to tackle the problem of baggage pilferage. . SAA had managed to recover millions of rand through the Asset Forfeiture Unit from those implicated in corruption cases. Criminal and civil cases were underway. . Mango was 100% SAA owned, but was managed independently. The entity was profitable and sustainable. SAA negotiated and purchased fuel on behalf of Mango. . Santaco was not a threat to Mango as it did not operate on the same routes as Mango. . There was a joint forum with Armscor, SA Airforce, SA Express and Denel to respond to the new growth path and produce scarce technical skills. . There was co-operation between state-owned companies (SOCs) in terms of using facilities for training for the industry. . The SAA board had subcommittees that were functional. One of the subcommittees dealt specifically with compliance. . SAA leased 44 aircraft and owned seven aircraft for which it was still paying. It had a net asset value of R2.9 billion. . Baggage pilferage had a negative effect on the financial performance of the entity. Baggage pilferage had declined by 59% on domestic flights but had increased on regional flights at OR Tambo. A campaign called Project Zero, involving ACSA, law enforcement agencies and employees, was launched to deal with baggage pilferage. . Profits of the entity were used to strengthen the balance sheet and repay debts. . Since the release of the annual report, SAA had since secured the air service licence. . Each board member chaired a subcommittee and spent at least one day a week at the SAA office. . SAA paid better salaries with benefits compared to other airlines and regarded itself as the best paying airline in the industry. . The only civil claim outstanding was the Com-Air litigation case. . The R85 million irregular expenditure reported was due to a lack of timeous conclusion of valid contracts and did not relate to misconduct. Furthermore, the fruitless and wasteful expenditure of R2 million was due to late payments.