South African Airways (SAA) moved into the black last year thanks to cost-cutting. Now come ambitious plans to exploit its extensive engineering legacy.


The airline achieved an improvement of almost R700 million ($102 million) for the year ending March 2000. Chief executive Coleman Andrews says that the airline, in which SAir Group has a 20% stake, is reaping the benefits of extensive cost-cutting. A total of 1,300 jobs were shed during the year and there has been a stronger focus on revenues.

But Andrews warned that it would be difficult to match that performance this year, given a market in the doldrums and higher oil prices. He says the airline would remain true to its strategy of keeping five key bilateral alliances with international airlines for the time being, but he did not rule out joining a major alliance in the future.

Meanwhile, the airline aims to unlock value by revamping its vast, but costly to operate, engineering division, which could generate millions of dollars in foreign income and attract a foreign equity partner in a few years. The centre was designed to cope with sanctions during the apartheid era and is almost self-sufficient.

Kevin Wilson, chief executive of SAA Technical, says: "We have inherited a huge complex that produced top-quality work, but is extremely costly to run." The jet engine shop is capable of full overhauls of a variety of engines, but costs are 35% higher than if the work was outsourced, mainly because of a lack of economies of scale.

Wilson says European partners had been found to overhaul four of SAA's seven engine types. Of the 250 technicians in the jet shop, 200 would be retrained to carry out heavy maintenance, with the rest attending to minor repairs. "Heavy maintenance, like D checks, can take up to 50,000h at about $50 an hour. We have all the infrastructure in place and enough work lined up, outside of our SAA obligations, to keep us busy for some years."

For the past 18 months, SAA has been doing D checks on Lufthansa's long-haul fleet. Boeing, as part of its deal to supply SAA with 21 737-800s, will also give the facility 1 million hours of work over the next seven years. Part-owner Swissair has committed to 15 D checks by 2005.

However, the facility seeks new customers who would find South Africa attractive because of the declining rand/dollar exchange rate.

SAA aircraft accounted for 85% of the technical division's income, but Wilson hopes that within five years, it will make up only 60%. To accommodate the expected extra work, SAA Technical plans to triple its single Boeing 747 maintenance line over the next three years and add an Airbus A340 line.

Group financial results 1999/2000

Revenue $ million


Op result $ million

Operating margin

Net profit ($ million)













Source: Airline Business