Why this game of TAAG is a real challenge!
Four years after retiring, industry veteran Peter Hill is back in the driving seat of another flag-carrier – TAAG Angola – embarking on his biggest challenge to date at a parastatal beset by corruption and economic vulnerability. He talks to Martin Rivers.
In December 2011, shortly before he stepped down as chief executive of Oman Air, I asked Peter Hill if he was hanging up his coat for the last time in the aviation business.
“I think so,” sighed the industry veteran, who started his career at BOAC before spearheading the Gulf aviation boom as a founding member of Dubai’s Emirates Airline, and latterly steering the flag-carriers of Sri Lanka and Oman. “Fifty years in the business is long enough for anybody.”
But, within six months of retiring, Hill began receiving phone calls about “small projects” here and there and his willingness to take the commissions caught the attention of friend and former colleague Sir Tim Clark, president of Emirates.
“I did what I thought was going to be a six-week spell for Emirates up in Japan. It ended up being eight months,” Hill recalled with a smile.
“I suppose that gave me the feeling that I should be back in this again. I’m missing it too much. So I got two or three other offers. And then Tim said to me, ‘Well, what about TAAG? You know about the project that’s been going on for the last 15 months or so – we’re now ready to do it. Are you interested?’”
At first glance, Emirates’ 10-year management deal with TAAG Angola seems worryingly reminiscent of its ill-fated tie-up with SriLankan Airlines.
Hill led that partnership, parachuting into Colombo in 1999 under a 10-year management contract aimed at reforming the parastatal’s legacy ways. Emirates cemented its relationship by acquiring a 44% stake in SriLankan. Yet, despite orchestrating a successful turnaround, Dubai’s flag-carrier unceremoniously pulled out of the alliance in 2008 following a spectacular fall-out with Sri Lanka’s president.
Hill had refused the premier’s demand to bump 35 passengers off a flight from London, prompting the immediate termination of his work permit and forcing Emirates to conclude that political interference would never be quelled at its equity partner.
Could Emirates’ new partnership with TAAG – historically one of Africa’s most corrupt and inefficient state-owned flag-carriers – be doomed to repeat history?
“It’s very different. There’s absolutely no financial involvement. It’s a straightforward management contract,” Hill said
“The management team are also the board of directors. I am the CEO and the chairman of the company. We have non-executive directors from the government of Angola, but we have a majority presence on the board, and we have a clear mandate from the government. As long as we adhere to that, then we’re basically given a very free hand to manage the business – which is very unlike SriLankan. Very unlike it.”
He admits corruption has been an endemic problem at the flag-carrier. “Investment in the airline hasn’t always been, perhaps, in the best interests of the airline,” he said tactfully, before rattling off a long list of dodgy dealings for IT systems, spare-parts inventories and bogus salaries. “Wrong parts, wrong equipment, wrong decisions. And prices paid, well, there’s no point looking back – it’s all money spent – but whether that was spent in the right areas, one wonders.”
Though candid about the moral decay at the company, Hill is adamant that strong leadership – particularly by a foreign team with no local allegiances – can breathe new life into TAAG.
“You have to have a reference point, don’t you? If the direction from the top isn’t forthcoming, and if there’s no leadership culture that shows people how it can be done profitably, and the right way, and inspires people to do it correctly – if you haven’t got any of that, you can’t expect any of that to happen,” he enthused.
“We’re trying to say to people, ‘The right way is the honest way. The right way is the upfront way. The right way is not hiding anything.’”
Unfortunately for Hill, an even bigger hurdle on the road to profitability is beyond management’s control.
When Emirates and TAAG unveiled their partnership in September 2014, oil prices were still at the heady heights of $100 per barrel. There was “plenty of money sloshing around” the government, which generates 70% of its revenue from energy and was “willing to invest heavily in the airline”. By January 2016, however, oil prices had crashed to $30 per barrel; the government had run out of foreign currency; business traffic had evaporated; and Emirates’ “grandiose plans” were in tatters.
“We found an airline that was suffering from mounting losses and declining traffic – big time – and a very depressed market getting worse,” Hill said. “That’s really what we’ve been struggling with since we got there.”
Acknowledging that the new strategy marks a “complete U-turn”, he recalled how expansion plans were torn up and the focus immediately shifted to “revenue protection” – a malleable concept encompassing fifth and sixth-freedom traffic growth; improved connecting schedules; reduced frequencies; and an all-out assault on wastefulness.
“What we’ve been able to do in the last eight months is bring in huge cost savings to the business,” he stressed. “Money not spent is money we don’t have to earn, because it’s damn hard to earn money at the moment.”
Headcount reductions, though politically sensitive, are playing a part. About 10% of the workforce, or 400-500 people, have retired since Hill joined the company. He is hopeful of prodding a similar number to leave by the end of the year, albeit while treading carefully in a country with deeply entrenched socialist attitudes.
“The last thing we want to do is start making huge swingeing reductions in staff. But we can make sure, for example, that people retire when they need to retire,” he said. “And there were quite a few people on the books, by the way, that weren’t coming to work! All that sort of stuff has been cleaned up.”
An early success for Hill’s team was convincing the government to lift visa restrictions for transit through Luanda. Together with new flight schedules, the approach has opened the door to stronger connecting flows from central Africa to southern Africa, and even across the Atlantic to TAAG’s two Brazilian destinations.
Portuguese flights are another bulwark. Demand remains high for travel between Angola and its former colonial power, resulting in average load factors of 75-80% on the 14 weekly TAAG-operated flights to Lisbon and Porto.
Are the Portuguese routes profitable? “Oh, very much so,” Hill shot back. And Beijing? “Different story,” he shrugged, after a long pause.
TAAG’s Chinese route has symbolic significance to the Angolan Government, which leant heavily on Beijing for reconstruction in the aftermath of its 27-year civil war. With just two weekly frequencies, however, its appeal to passengers is limited. “If we want to be serious [about China] we’ve got to be there three, four, five times a week,” Hill said.
Elsewhere, the blossoming partnership with Dubai’s flag-carrier has clear potential to grow.
TAAG has already stopped serving Dubai and will place its code on Emirates’ inbound service as soon as the two reservation systems can be synchronised. It will then look for onward codeshares at both ends of the trunk route, including transatlantic services.
On the fleet side, TAAG is poised to receive the last of three Boeing 777-300ERs in June. That will give it a 13-strong fleet, comprising eight wide-bodies (five 777-300ERs and three 777-200ERs) plus five narrow-body 737-700s.
“Would we have taken them [the 777-300ERs] if we had a choice? Probably not,” Hill admitted. “But they were already in production.”
A solution could come from selling the 777-200ERs and replacing them with smaller 787s. “The 777 is a great aeroplane, but you’ve got to fill it,” Hill complained. He put the probability of switching to Dreamliners at about 30%. A preferred option is reconfiguring the 777-200ERs with an updated but simplified two-class layout, in turn boosting their appeal to wet-lease customers who can keep them “gainfully employed”.
Though the headwinds are daunting, Hill is determined to press forward and transform TAAG into major player in African aviation.
“I’m not downhearted. I’m not depressed at all. I’m very buoyant,” he said with the kind of optimism that might seem rash in a younger, less experienced executive. “We have to do all this with no money. That’s the trick.
“But, you know, we’re quietly confident.”