Business

Minister and ex-board members butt heads over SAA

Lynley Donnelly

Statements by Public Enterprises Minister Malusi Gigaba at its annual general meeting this week have revealed a national airline beset by trouble.

Malusi Gigaba said the airline's former board, under chairperson Cheryl Carolus, failed to produce a long-term strategy to deal with many of these issues. (Madelene Cronjé, M&G)

Apart from operating losses of R1.3-billion, fuel costs soaring to R2.2-billion and the steady deterioration of the airline's liquidity, Gigaba was at pains to point out what he deemed to be "weak internal controls" at the national carrier.

Gigaba said the airline's former board, under chairperson Cheryl Carolus, failed to produce a long-term strategy to deal with many of these issues. Despite an adverse global aviation environment, the failure of SAA to perform in line with comparable airlines placed "undue pressure on the shareholder … to have to justify why we are maintaining a national carrier; why the government is involved in the business of airlines at all," he said.

But this week Carolus gave details of the strategy put forward by the former board during the past three years and in its 2012-2013 corporate plan to address the systemic performance problems at the airline. These included proposals to merge SAA with regional carrier SA Express.

On Monday after the meeting, Gigaba referred to issues highlighted by the parastatal's auditors, including the restatement of the company's financials and increases in irregular and fruitless and wasteful expenditure from the previous financial year.

"In the year under review, the restatement relates to maintenance reserves and Voyager income, a situation which has persisted for the past three years," Gigaba said in a press statement.

Integrity of the numbers
Although it was an acceptable accounting practice, he said, he was "concerned that it cast aspersions on the integrity of the numbers year on year".

"For example, last year's financial statements showed the equity balance at R2.9-billion at March 31 2011 and yet, after the change in the accounting policy and restatement, the equity at March 31 2012 was reduced to R475-million."

Irregular expenditure rose from R85-million to R128-million and fruitless and wasteful expenditure rose to R4-million, up from R2-million in 2011, R3-million of which was owing to baggage claims.

The changes in the accounting policies and the concomitant restatement of corresponding figures, among other things, resulted in the airline's debt-to-equity position deteriorating "to such an extent that it cast doubt on SAA's status as a going concern", Gigaba said.

The R5-billion in guarantees secured to keep the airline afloat is unlikely to be enough, particularly to begin overhauling its fleet. The new board and management will have to convince the treasury and Gigaba's ministry of a workable long-term strategy for the airline before it gets any more aid.  

Gigaba highlighted the failure of SAA to meet most of the key performance targets outlined in its shareholder compact, achieving only 13 of 29, or 44%. This reflects poorly on the board under Carolus, most of whose members cited a lack of  shareholder support as a reason for resigning.

Corporate strategy
Carolus said this week that the former board was proud of its achievements at SAA, which were built "on the basis of a well-developed corporate strategy that the department of public enterprises approved".

"We firmly believe that the strategy developed by the management team, together with the board and approved by the department, over the previous three years has started to become operational," said Carolus.  It included the increase of passenger revenues by more than 15% on the year before and increases in passenger loads by 80% on many routes, she said.

The company had also begun a cost compression programme, targeting savings of R1.3-billion, of which it had achieved R619-million for the year to September 2012. "This represents considerable improvement in the underlying cost base and operational efficiency of the airline. Included in this were a zero percent increase for management and a nominal increase for pilots."

SAA had also opened up several new routes into Africa, including flights to cities such as Cotonou in Benin, Kigali in Rwanda, Abidjan in Côte d'Ivoire and Brazzaville in the Republic of Congo, as well as a direct route to Beijing.

She said SAA's strategy had "consistently put forward the case for the amalgamation of SAA with SA Express Airways in order to harmonise the state's aviation assets".

In the airline's 2012-2013 corporate plan, it outlined seven major initiatives to address "systemic competitive or structural issues", Carolus said.

They included the capitalisation of SAA, compressing the group's non-fuel unit costs, resolving inefficiencies in the current SAA, SA Express and Airlink operating model by integrating SA Express and potentially Airlink with SAA, exploring co-operation and consolidation opportunities with Southern African Development Community member state airlines and establishing an operational hub in West Africa, connected to its existing regional network.

Other initiatives included promoting large-scale transformation through the SAA Flight Academy, an environment programme, the development of a fleet plan and a consolidated domestic operation focusing on core markets and key routes to improve profitability.

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