31 May 2001

South Africa: The Amazing Coleman Andrews Story

Johannesburg — Coleman Andrews had been at the helm of South Africa Airways for little more than a year when rumours of his departure surfaced.

So strong had they become by end-1999 that Andrews felt obliged to assure the airline's 10 000 employees in a memo that "I will be in my position, working every day of my contract until it expires (in June 2003)".

His spin-doctors continued to repeat this line for more than a year; indeed, until just days before an abrupt news conference last February 23 at SAA's headquarters, next to Johannesburg International Airport.

A beaming, seemingly relaxed Andrews told journalists and top SAA executives packed into the boardroom that he was stepping down as head of the airline to make way for chief financial officer Andre Viljoen. The reason, he said, was to ensure a smooth transition in the run-up to SAA's scheduled listing next year.

Eulogies were the order of the day. A media pack bulging with Andrews's achievements was distributed. Bheki Sibiya, SAA chairman at the time, and Moritz Suter, SAirGroup's board representative at SAA, were effusive in their praise of the departing CEO and his track record since he took over the airline in June 1998.

The performance was vintage Coleman Andrews. The self-confident 46- year-old native of the US state of Virginia calmly brushed aside rumours that he had been ousted after a titanic- and, at times, ugly - battle with Transnet and government. But the real story behind Andrews's departure was hidden - and remained so, until now.

It is a story of big egos, boardrooms and political intrigue - and one of the richest golden handshakes in SA corporate history.

Few of those involved are prepared to talk openly. But it is clear that, for all Andrews's braggadocio, his spell at SAA was far more turbulent than outsiders have so far been told.

Besides criticism of his big pay packet and golden parachute, serious doubts have been raised in government and transport circles about the sustainability of SAA's turnaround. Questions have also been raised about Andrews's aggressive way of doing business, SAA's corporate governance standards, his track record before he arrived in SA, and much more.

Some government officials are clearly not enamoured with Andrews, and the same goes for several top Transnet officials. He is variously described as "not being good with people" and "brilliant but very arrogant". One person who worked with him during most of his stay in SA says the American rubbed a lot of people up the wrong way, but also observes that "you can't be a real good turnaround guy and a nice guy at the same time".

Face to face, Andrews comes across as charming and capable.

One airline industry executive believes SA in general, and SAA in particular, were not ready for Coleman Andrews: "He was a consummate corporate politician. He arrived with his public relations machine and turned SAA upside down."

Andrews's flamboyant style may have irritated some of those he dealt with, yet most could probably have lived with it. What Andrews could not survive was the avalanche of challenges that hit him over the last 14 months of his tenure at SAA.

Some were not of his own making, such as the turmoil at the Zurich- based SAirGroup, which bought 20% of SAA in November 1999, and the exodus of a host of top SAirGroup officials. Those who left included CE Philippe Bruggisser, one of Andrews's most powerful allies.

Closer to home, Andrews found himself embroiled in political manoeuvrings between cabinet ministers, government officials and former Transnet MD Saki Macozoma. "I came to SA to help fix a very sick company, not to get involved in SA or African National Congress (ANC) politics," says Andrews.

Andrews arrived in Johannesburg in June 1998 with the reputation of a miracle man. "When the shareholders of (US airline) World Airways realised they were within a month of bankruptcy, they sent for Andrews," said an SAA profile of Andrews, written shortly after his appointment.

In retrospect, signs of trouble were brewing almost as soon as he arrived, taking up temporary residence in a suite at Johannesburg's swish Hyatt Hotel. Just a day after his SAA appointment was announced, Worldcorp - US holding company of World Airways - pleaded with its creditors not to force it into bankruptcy after it failed to make a 2,3m interest payment.

Andrews, known in the US as the aristocratic-sounding T Coleman Andrews the Third, did not start out life as an aviation man. Fresh out of California's prestigious Stanford Business School, he teamed up with former classmate Mitt Romney to form Bain Capital, a venture capital firm.

Before joining Worldcorp, Andrews had political ambitions. By 1997 he was considered a shoo-in for the Republican nomination for lieutenant-governor of Virginia, but he pulled out six weeks before the June primary to attend to family responsibilities.

A year later, Andrews surfaced in SA.

Transnet, and more specifically Macozoma, found Andrews after an exhaustive international search for fresh blood to restore the ailing SAA to profitability.

The airline was bleeding red ink to the tune of about R250m a year and was on track to lose R500m in the year Andrews took over. Its market share was being eroded by more nimble rivals such as Comair and Sun Air on the domestic front, and an array of carriers on international routes. Complaints about SAA's patchy service were endemic, and its fleet was ageing.

Andrews moved swiftly. Within three months of taking the controls, he unveiled a "strategy for winning".

The key objectives were to improve customer service sharply, reduce costs, boost revenue, upgrade the fleet, forge new alliances and a profitable network, and freshen the first- and business-class products.

Andrews insists he achieved all this, and more. He says his crowning accomplishment was his leading role in SAA's partial privatisation in 1999.

Andrews took over a loss-making airline valued by Transnet at R1,5bn. Less than a year later, it was valued at R7bn, by virtue of the R1,4bn the Swiss-based SAirGroup paid for its 20%. By March 2000 losses had been turned into a R350m profit.

This turnaround may seem impressive, but there is concern about its sustainability.

The criticism levelled against Andrews's turnaround strategy is that it has been achieved mainly through short-term gains such as the sale of assets, rather than through sustainable operational improvements. There are also concerns about Andrews's close relationship with US consulting group Bain & Company, parent of Bain Capital, the venture capital group he set up before moving into aviation.

Allegations have surfaced that Andrews relied too heavily on Bain executives, creating a leadership vacuum at SAA. The cost of the consultants employed by SAA, notably Bain and McKinsey Incorporated, was significant, estimated at more than R300m in the year ended March 2001.

On the surface, these criticisms ring true. SAA has been selling off its Airbus fleet and recently offloaded a number of Boeings which are being leased back. SAA has also sold its huge spares stockpile, and outsourced parts of its engine maintenance division and its information technology capabilities. "SAA has sold off the cash cows and asset- stripped, which reflected on the balance sheet favourably," says one official. "But there are con-cerns about its longer-term profitability."

Macozo-ma argues that Bain's contribution was analytical and not managerial, with SAA management augmented with expatriates. "Coleman did rely too much, in my view, on Bain, but it was his call and his risk. In hindsight, Bain did well for him," he says.

Bain & Co SA insists it never took over the management at SAA. Dean Donovan, Bain's managing partner in SA who worked with Andrews, says Bain would not move into an organisation and simply assume control.

Some industry officials are supportive of Andrews's strategy. Glenn van Heerden, chairman of SA's Air Traffic, Navigation and Associated Services, says aspects of it make good sense. "Airlines all around the world are selling off aircraft and leasing them back. One does not want an aircraft on the books any more; it is an outdated concept," he says.

But the critics contend that Andrews has put more emphasis on selling off the family silver than putting more bums on seats, improving service and thereby boosting operational performance. At the very least, they argue that income from the sale of assets should have been accounted for separately so that any operational gains the carrier had made were evident.

Macozoma says the numbers are dramatic and may be the result of picking "low-hanging fruit" in some instances. He says, however, that short-term gains are treated as nonrecurring income and are easy to distinguish from operating income. "SAA should be consolidating the gains instead of wasting time on Coleman-bashing. All the innuendo will become a self-fulfilling prophecy if they throw overboard what he has built," he says.

Andrews, who describes the SAA balance sheet as "a wreck" when he took over, says SAA "sold old furniture which was no longer useful to the family". While asset disposals may have been the key reason for turning around the balance sheet, he says, there have been significant operating gains, achieved in a time when fuel costs were rising sharply.

"We have grown SAA's market. We have increased passenger counts in each of the years by 10% to 14% since I took over."

Travellers give mixed reviews of SAA's service and on-time record. For some there has been an improvement, particularly domestically, with more flights to key destinations, efficient service and improved punctuality.

For others, an SAA flight remains a nightmare of overbooking, dodgy food and late flights. Participants at the world motorcycle Grand Prix competition held recently in Welkom were left stranded after SAA overbooked its flights. Big customers like Anglo American and Sasol are also stepping up the pressure for improved service.

The legacy of Andrews's tenure will probably not be apparent for some time. However, the airline's new CEO, Viljoen, has already hinted that the airline may not be as prosperous as recent statements about its newfound profitability suggest.

SAA is still paying off the full R4,3bn bill for its new Boeing 737 regional fleet. It has reduced its losses on international routes but still has some way to go. And then there are the challenges of bedding down a new top management team and gaining domestic market share, among others.

Concerns about the real facts behind SAA's financial turnaround may have been an important factor in Andrews's demise, but they pale in comparison with the political song and dance surrounding the man.

It started when Sun Air stopped operating in August 1999 amid initial claims that SAA had bought 75% of the carrier. Evidence at the subsequent inquiry suggested that SAA had flooded the market with capacity, thereby driving down prices. There was also a suggestion from the liquidators that SAA misled government on a complex deal to save Sun Air, an allegation which SAA has denied.

The liquidators recently sued SAA, Andrews, Viljoen and SAA executive vice-president of operations Johan van Jaarsveld for almost R100m that the liquidators say could have been salvaged from the sale of Sun Air's assets. Ken Moses, a spokesman for Westrust, one of Sun Air's liquidators, says SAA had no right to take control of Sun Air.

Behind the scenes, the Sun Air episode brought Andrews into direct conflict with Public Enterprises Minister Jeff Radebe and his team. The friction was compounded when an anonymous group of black SAA managers sent a report to Mafika Mkwanazi, deputy MD of Transnet at the time, and to the public enterprises department. The report urged Mkwanazi to institute a forensic audit of SAA's affairs. It made a host of allegations, including inconsistent managerial practices, a lack of transformation, racism, tokenism and nepotism.

Little more than a month after Sun Air's collapse and the report from black management had been received, a new upheaval hit the national carrier. This time, the issue was the purchase of the Boeing regional fleet.

SAA ruffled feathers by asking Bain to advise on the fleet upgrade at great cost to the airline. There were complaints to government that the bidding process was ill-defined, and questions were raised on the involvement in the process of airline leasing company GATX Flightlease, in which SAirGroup had a 50% stake.

Some analysts also queried the decision to opt for Boeing, citing concerns about its offset agreement and what they claimed was the outdated technology of the Boeing 737-800.

A source close to the negotiations says it was estimated that more than R100m a year could be saved by replacing the regional fleet. This would be done by disposing of the bigger A300s and downsizing to a smaller aircraft. Both Boeing and Airbus offer smaller models.

"The timing was important as SAA's market share was being eroded. The proposals were both good. One of the key factors which dictated against the Airbus proposal was that it could not source sufficient aircraft in time," says the source.

Andrews says the fleet decision was backed by a unanimous vote of support from SAA's board of directors.

When government voiced its concerns about the process, it was told in no uncertain terms by SAir's Bruggisser to butt out. This raised questions in Pretoria as to why SAirGroup was so keen on Boeing - and helped fuel suspicion of Andrews.

Perhaps, as SAA suggests, it was the better deal. But one cannot ignore that 10 of the 21 new Boeings are being leased from GATX Flightlease, which advised during the negotiations.

Tom Chalmers of World Air News, an aviation magazine, said at the time that Flightlease had spare 737-800s it had been unable to place. He speculated that SAirGroup used its equity deal with SAA to offload the Boeings.

Macozoma says Airbus spent more time in Pretoria talking to government, especially the public enterprises ministry, instead of paying attention to SAA's requirements. "The board agreed to use the advice of Flightlease since SAirGroup is our partner. They happened to have the (737-800s) available (at a) competitive price," he says.

The ground under Andrews gave way further in the wake of what has become known as the Veer.com saga. An anonymous letter sent to President Thabo Mbeki and top cabinet ministers alleged that in April last year the SAA board authorised an amount of 30m to establish Veer.com as an e-commerce tour operator featuring Africa in New York. Reserve Bank approval was needed to set up the company.

Lawyers representing SAA claimed in a submission to the Bank that Public Enterprises Minister Jeff Radebe had endorsed the deal. The minister has denied that he was ever approached.

The Sun Air debacle, the report from SAA's black management team, the Boeing decision and the Veer.com affair did nothing to endear Andrews to government, but there may have been more reasons for the chill he was feeling from Pretoria.

Political ri-valries appear to have played a role in his fall from grace, with one insider suggesting that Andrews has taken the fall for bad blood between Radebe and his team, and Macozoma.

Until Radebe took over from Stella Sigcau as public enterprises minister, Macozoma had run Transnet with a relatively free hand. This changed when Radebe, with a mandate from Mbeki to champion the restructuring programme, moved to narrow Macozoma's role at the utility.

The resultant tension is believed to have contributed to Macozoma's decision to leave Transnet two months before his contract expired.

Macozoma, widely regarded as one of SA's most astute and ambitious black businessmen, not only brought Andrews into SAA, but shielded him from political interference throughout the Sun Air and fleet replacement controversies.

The ace up Macozoma's sleeve was the big improvements in SAA's financial performance under Andrews's stewardship. It certainly did not hurt Macozoma's case that SAirGroup was prepared to pay a big premium for its 20% stake in SAA due, in part, to the confidence that Bruggisser had in Andrews. The three of them - Andrews the conservative American business strategist, Bruggisser the former military man, and Macozoma the canny struggle-activist turned businessman -- made an unlikely but strong triumvirate.

One source calls it "an unholy alliance", particularly after Bruggisser wrote to Mbeki urging him to name Macozoma chairman of SAA, perhaps hoping to strengthen his and Andrews's position further. Macozoma says that he, Andrews and SAA enjoyed good relations with government up to the highest level. "This is why we could make so much progress in spite of the hostility of our own (public enterprises) ministry."

The relationship with Macozoma has a crucial bearing on what is perhaps the biggest source of friction between Andrews and his detractors in government and Transnet. It has proven extraordinarily difficult to uncover the details of Andrews's remuneration, despite the fact that he was employed by a state-controlled enterprise.

Officials now at the public enterprises ministry say they were not party to the employment contract - which was negotiated when Sigcau was minister.

Transnet says it cannot disclose details due to confidentiality clauses and Andrews declines to talk about anything other than his work at SAA.

Reliable sources, however, indicate that Andrews's total package - including salary, share options and bonuses - was in the region of a whopping R200m.

This included an annual salary of between 1m and 1,2m, several times higher than the 277 000 the Washington Post says Andrews earned in his last year as chairman of Worldcorp.

His annual bonus was based on SAA's operating performance and is understood to have amounted to about 125% of his annual salary.

Over the two years and eight months of his tenure at SAA, this would have amounted to a payment of more than R70m.

Andrews also received 18-million shares when he joined SAA, which he is believed to have redeemed at a cost of R2,50 each, costing Transnet R45m.

The wild card is his severance pay, which has been described as "generous" and could have been as much as R60m.

In addition, he was entitled to numerous allowances.

When the Transnet board realised just how much it would have to pay Andrews when he left SAA, it apparently balked.

Changes to the conditions of the contract were on the cards. This resulted in protracted negotiations which left more bad blood between key Transnet officials and Andrews.

The first public signs of trouble for the Macozoma-Andrews association appeared in December last year.

At this time, Transnet announced that Macozoma would hand over the running of the parastatal to Mkwanazi at the start of this year.

Coincidentally, within weeks of Macozoma's departure, Bruggisser was gone from SAirGroup as the organisation headed for a record loss.

The turbulence at SAirGroup caused headaches for Radebe and his team.

An announcement came from Zurich in late January that SAirGroup would not take up its option to buy an additional 10% of SAA, sending Radebe, Mkwanazi and other top officials to Switzerland where the Swiss group agreed to extend its right to take up the option to the end of this year.

What did all this activity mean for SAA and Andrews?

It seems that Andrews's fate was sealed at the Zurich meeting. Mkwanazi says that there was concern among Bruggisser's successors in Europe about a leadership change ahead of SAA's listing, and about whether a strong black leadership team had been put in place to drive SAA forward in the future.

These concerns may have firmed the resolve of the decision-makers in Transnet to end Andrews's contract early. However, sources close to the process say that Andrews was already on his way out of SAA when his protector, Macozoma, decided last year to leave Transnet.

Transnet's board was annoyed about the size of his remuneration, and government was raising questions around the process followed with key decisions such as Boeing and Veer.com.

With Macozoma and Bruggisser, his two strongest allies, gone and government looking at SAA with an increasingly jaundiced eye, Andrews clearly saw the writing on the wall.

Copyright © 2001 Business Day. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.

AllAfrica publishes around 2,000 reports a day from more than 130 news organizations and over 200 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.