Surinam Airways is a troubled airline, NO aircraft, $80+ million in debt and now IATA Performance Review 2019 exposes an airline in disarray for years
Tomas Chlumecky (aka Aviation Doctor)
Helping Aviation Businesses Today, for a Better Tomorrow
January 17, 2022
IATA Airline Performance Review of Surinam Airways, December 2019
In short a report card on the internal functions within SLM, and it's NOT good!
Tomas's Comment:
Lots of airlines are in trouble in this Covid-19 crisis, especially for those airlines that were in trouble before Covid-19, many face bankruptcy in 2022.
Airlines that could not make a profit during the good booming years of 2014-2018 were always going to be in big financial trouble in the Covid crisis, and SLM is one of them.
Those that did not self-analyze themselves and faced the challenges within their organizations were doomed to bankruptcy or massive disorder, like Alitalia, Norwegian, Air Asia X, FlyBE, SAA etc.
Correctly assessing the current status and designing an appropriate roadmap is crucial for an airline's survival.
The focus has to be around:
I have worked with troubled companies from airlines, aircraft OEM's, business jet operators, MRO's for a long time and know how important it is to divide patients depending on the severity of their problems.
The key ingredients are leadership, crisis stabilization, stakeholder support, strategic focus, organizational change, critical process improvements and financial restructuring.
Those that are proactive will fix things before it breaks, streamline the organization, set a clear new vision and mission, build resilience prepare for disruptions, simplify and redesign processes and pursue new sources of growth.
A good well-run airline will quickly get a handle on capital discipline, revenue discipline, cost discipline and organization discipline.
SLM can be fixed, but without a sense of urgency and a real business plan in place for recovery, I am afraid its days are numbered, and bankruptcy and liquidation awaits it, just as Guyana Airways, Air Jamaica, Insel Air before it.
LIAT (Antigua) is being fixed right now, and soon it will be debt-free and attractive for investors, and its future is bright with a future beyond the 10 x ATR's it once had, to more ATR's than before and one-day EJets to be added.
-------------------------------
I recently was able to get my hands on a 70 page December 2019 IATA Airline Performance Review on Surinam Airways (SLM), and the 30-page Preliminary Briefing of November 22, 2019.
** Which I may make public to all, as the Surinamese people and the employees of SLM deserve to know what IATA thought of the airline's internal workings!
Many will not like what the Report findings are and I wonder how many have seen this within the Surinamese Government and within SLM, as it was released before current President of the Republic of Suriname, Chan Santokhi took the reigns of power in July 2020.
These IATA Airline Performance Reviews are something that airline request regularly to get a professional opinion on how well their airline is performing to international standards in Commercial, Network, Cargo and Finance, with recommendations on what to fix.
Well, not only does Surinam Airways today have NO aircraft and has debt between $US 80-$103 million, and financial and in some cases legal troubles with 4 aircraft lessors, Boeing, Aircastle, DAE and most recently AELF, having in 2021 returned a B777-200ER early and with a poor engine to Boeing, having their B737-700's repossessed well before their lease expiry dates of 2024 and 2026, but now we get a picture of a very dysfunctional airline within, not by me the Aviation Doctor but by IATA (The International Air Transport Association) a trade association of the world's airlines founded in 1945.?
Who else can they upset? these lessors will be seeking their money owned and with $80 to $103 million debt.
It is clear the accounting at SLM is a mess from the IATA Report, and a full accounting audit by a foreign accounting firm can the Surinamese people know where all the money has gone! like the $US 15 million Pension Fund which I understand is depleted, and the hopes and dreams of SLM employees having a good comfortable life in retirement are up in the air, again no discussions on that or the debt of the airline.
I will highlight points that I think are of importance, and let you the readers think what you want, as I know the Surinamese will not like this but should know what SLM is like on the inside, and some will surely attack me again.
For SLM employees this is not a reflection on you, everything revolves around poor management, people in positions that were not qualified, people who cannot make positive things happen, people who have no understanding of business and how to grow the business and improve profitability, to no leadership, no mission, no direction other than the poor old status quo!
I will be attacked again for being a messenger of bad news, again denial of reality is why Suriname is today $ 4 billion in debt to the IMF and $500 million to China, facing problems and dealing with them is painful in Suriname.
I have seen the symptoms of the decline of SLM for 4 years and I have been warning SLM that they were heading off a cliff, which they did, in 2021, and yet it has t so much potential which I outlined in my Presentation "Fixing and Gowing" Surinam Airways 12 months ago when they had 3 jets, now none. NO interest to fix and grow SLM!
So while CEO de Haan looks for an aircraft, the hard reality is that within SLM there needs to be big changes across the board, top to bottom without fixing that, even if they get new aircraft, it will be a case of doing the same things over and over again expecting different results, which means continue financial losses! makes NO sense.
Getting an airplane or two will NOT fix SLM.
You cannot pretend all is well at SLM as some do with all that has happened and the debt, and the government is the only one who can fix the debt, and then when one day maybe SLM is fixed on the inside an investor just might be interested in investing, BUT not "AS IS", in this current state bankruptcy and liquidation is very real.
FIX the airline, FIX the debt, or there is NO future for SLM.
Denial does not make problems go away! a good leader leads from the front and tackles the problems one by one, a bad leader ignores the problems, or pretends as CEO de Haan that "all is good", "part of the restructuring plan", even having no aircraft as good because SLM could evaluate aircraft for a better future? Jesus!
Whitewashing has to STOP and time to FIX SLM on the inside as well, no more excuses, a corporate turnaround usually requires 90 days to analyze the symptoms and causes of decline and another 90 days to put a recovery/rejuvenation plan in place.
SLM should be fixed by now! But the news just gets worse and worse.
IATA identified serious problems within SLM in regard to finances, there is a mess and there may be a cover-up of massive corruption, it needs an internal audit before anyone fixes the debt, from ACMI, maintenance, aircraft leases, spare parts purchases, etc. IATA was diplomatic, but reading between the lines one can see where they are pointing to.
-----------------------
Read and weep!
PAGE 6 - High-Level SWOT Analysis
WEAKNESSES:
? Lack of Planning in each and every area
? Lack of consolidated IT infrastructure
? No in-house capability to efficiently research and analyze markets, identify new market opportunities, poor reporting, lack of financial control
? Ineffective Organization, no strategic/analytical focus, no targets (accountability), insufficient competitor knowledge
? Low level of knowledge to execute functions
? High reliance on offline agency sales channels
? Single widebody operation based on outstation
? Inefficient maintenance organization
------
STRENGTHS
? Enthusiastic staff with good potential and analytical skills needing updated job descriptions
? Highly knowledgeable small cargo team, although very much overworked
That is it for strengths? NOT GOOD
PAGE 7 - Cross-Company Observations | Organization & Governance
? Organization not in line with IBP
? Several company departments should be re-organized.
? Too many staff, not assigned to positions efficiently, 20% of staff are doing 80% of the work.
? Operating costs per employee appear low, but are distorted by the high number of employees
? Job descriptions are not in line with industry best practices and/or outdated.
? Level of knowledge of how to successfully manage various parts of the airline need to be improved
? Inter/intra-departmental communication is fairly poor, meeting habits need to be improved
?PAGE 9 -Cross-Company Observations | Business & Operations Processes
? Commercial strategies and oversight pertaining to pricing and revenue management, distribution, sales and marketing need to show marked improvement; no focus on analysis and strategy development
? Most of the processes are executed manually
? No corporate IT strategy or plan
? Lack or incapability of systems are a big issue, most of them are not integrated to each other and are acquired by individual departments for specific purposes.
? Limited management information to support decision making; there is no Market Intelligence System supported by a GDS or a Price Intelligence Airfare Data Analytics System to gain insight about market trends, competition and agency performance as well as possible route opportunities
? Reporting in all areas must be significantly improved in order for management to measure what they manage.
? No regular cross-functional meetings.
? No effective contract management.
?PAGE 11 -Flight Operations
? Systems
? Some systems have been introduced in Flight operations but they are not integrated.
? Staff are poorly trained and the systems may not be suitable for the airline
? Organization
? The organization structure is not industry standard.
? There is no Flight safety Officer and the OCC is not functioning as an OCC
? People
? 20% of staff are doing 80% of the work. No yearly appraisals
? There is confusion over job descriptions and responsibilities.
? Lack of people management.
? Lack of training in all departments
?PAGE 14 - Fleet, Maintenance & Engineering
? Systems
? Stand-alone maintenance information systems only used to a minimum extent.
Maintenance & Engineering
? IOSA suspension BIG!
? Mainly due to findings in Maintenance & Engineering
? Corrective actions taken, however too late (IOSA Suspension)
? Need consolidated IT infrastructure which is fully utilized by all M&E staff.
? Organization
? Too complex organization with high staff level for airline operating a small fleet of aircraft.
? In order to successfully manage current and future fleet management processes the organization
should be adjusted with an asset management function.
? Lack of necessary in-house engineering skills to secure continued airworthiness of aircraft, thus subcontracting of such services.
? People
? Lack of necessary knowledge to ensure continued airworthiness of fleet which leads to
subcontracting of key engineering functions.
? Level of knowledge how to successfully manage complex aircraft transactions needs to be
improved by training and advising people. External support required for future aircraft acquisitions.
Surinam Airways – Airline Performance Review 16 December 2019
3. Operations | Fleet, Maintenance & Engineering
? Processes
? No fleet planning, aircraft delivery and redelivery processes in place.
? Complex and ineffective processes due to org structure, lack of skills and outsourcing requirements.
? Operating a single widebody aircraft based on an outstation which is inefficient and expensive.
PAGE 19 - Commercial
? Processes
? The distribution environment is unbalanced – over reliance on more costly agent channel.
? The fully allocated cost of distribution by channel has never been mapped.
? High reliance on offline (bricks and mortar) agency sales channels.
? No comprehensive strategies to increase direct online sales.
? No GSA performance targets except for Aruba.
? Little understanding if commission programs are competitive.
? SLM seems to lack a few key agreements, for example with a leisure chain, TMC and another OTA.
? Metasearch sites have no re-distribution restrictions.?
?PAGE 20 - Network Planning
? Systems
? No means to quantitatively assess market demand
? No means for on-going route profitability analysis and no tools for demand forecasting
? Organization
? Commercial primarily reacting to current operations, rather than driving business
? No dedicated network planning team
? People
? Strategy and Commercial leaders provide insight into Surinamese local and diaspora traffic patterns;
however, no analytical resources available to validate hypotheses
? Reliance on 3rd party consultants to examine network development opportunities
? Processes
? Lack of market data and no internal capacity to validate future planning scenarios
? There is no ‘timely’ data for route cost analysis; therefore, no assessment of route/flight profitability is done
PAGE 26 -Finance
? Systems
? Some reasonable systems in place (i.e. PRA).
? There have been start-up issues with the new ERP that largely could have been avoided.
? Additional ERP modules could be switch on – eProcurement and Cash Management.
? Evaluate new PSS, subject to early cancellation penalties.
? Organization
? Finance in need of reorganization and re-centralization similar to a lot of areas within the airline
? Crisis mentality due to the lack of a planning culture, frequent management changes and a decentralized structure.
? Missing key positions like Treasurer (cash and risk management).
? Financials (Q1 FY 2019/2020
? Weakness across most revenue and cost line items, losses are accelerating, and liquidity is weak.
? Need Improved control and reporting to enhance management oversight.
Surinam Airways – Airline Performance Review 16 December 2019
4. Other Departments | Finance
? People
? Key staff need targets and job descriptions to align responsibility and accountability as well as risks/rewards for performance
? New staff need mentoring, and their skills should be harnessed.
? Staff want to see investments in automation and training to support their jobs, which will boost
productivity. Additional training is definitely needed.
? Processes
? Financial reporting quality and timeliness is poor, impeding management oversight and control.
? Processes and policies support an organization that is decentralized – should be re-centralized.
? Planning processes – budgeting and forecasting – are weak.
? Purchasing and payments/invoicing are not digitized.
? No treasury or risk management policies.
? Finance provides little evaluation support for route profitability or major purchases
------
Financial control from senior management is significantly impeded by major challenges:
? Lack of vision and business intelligence to make effective decisions and to control results
? Systemic issues exist across the organization in Systems, Organization, People and Processes
? Specific issues include:
? Lack of industry standard financial reporting
? Decentralized finance organization, including procurement, needs restructuring
? Insufficient revenue and costs details
? Legacy staff may lack knowledge, training and motivation; Board lacks understanding of outside aviation world
? Weak financial control and oversight, including:
? Inadequate budgeting process, with a Board that is reluctant to approve fiscal plans
? No month-end reporting
? No cash strategies – no management of payment terms, insufficient cost details, and poor liquidity control
? Out-stations are likely leaking cash, and management lacks access to their bank accounts
? No e-Procurement is impeding capabilities of new ERP system
? Uncertainty regarding capabilities of the revenue accounting system and procedures
Finance
? Lack of control propagated by missing key positions, but some HR move coming up include:
? Hiring of a Controller to support a strong, centralized financial evaluations function
? Hiring of a Treasurer (function never existing within SLM) to improve liquidity and cash management
? Potential move away from direct hires at some out-stations, to be replaced by GSAs
? Next week, IATA expert will seek to clarify other items, including:
? Forecasting process (update expected results vs. budget)
? Budget setting process
? Level of detail and knowledge of General Ledger
? Examine into-plane fuel agreements
? Clarification of new Controller and Treasurer functions
? General competencies across the organization
? Approaches, if any, to risk management (i.e. Forex SRD/USD, XXX/SRD; aircraft fuel, interest rates)
? Understanding and training in finance, accounting, use of existing systems, use of Excel spreadsheets
? SLM is facing its last real chance to make a lasting change – the Shareholder does not
have unlimited patience in the face of the airline’s negative cash flows and annual recurring losses
?Maintenance & Engineering
? IOSA suspension
? Mainly due to findings in Maintenance & Engineering
? Corrective actions taken, however too late (IOSA Suspension)
? Maintenance costs unknown
? Without knowledge of detailed Mx Costs key management tool missing to lower costs / increase efficiency
? Communication M&E with Commercial
? No institutionalized meetings, risk of last-minute schedule adjustments
? High staff level: 56 FTEs for 3 (2) aircraft
? Considerable more FTEs than bench-mark airlines with similar maintenance scope (see next slide)
Finance
? Financial control from senior management is significantly impeded by major challenges:
? Lack of vision and business intelligence to make effective decisions and to control results
? Systemic issues exist across the organization in Systems, Organization, People and Processes
? Specific issues include:
? Lack of industry standard financial reporting
? Decentralized finance organization, including procurement, needs restructuring
? Insufficient revenue and costs details
? Legacy staff may lack knowledge, training and motivation; Board lacks understanding of outside aviation world
? Weak financial control and oversight, including:
? Inadequate budgeting process, with a Board that is reluctant to approve fiscal plans
? No month-end reporting
? No cash strategies – no management of payment terms, insufficient cost details, and poor liquidity control
? Out-stations are likely leaking cash, and management lacks access to their bank accounts
? No e-Procurement is impeding capabilities of new ERP system
? Uncertainty regarding capabilities of the revenue accounting system and procedures
? A complex organization considering a fleet of only 3 aircraft, now 0.