Technical issues in South African Airways’ 2014-15 and 2015-16 financial results had led to “significant” changes to them Deputy Finance Minister Mcebisi Jonas said on Tuesday recession.
The deputy minister led a team of Treasury officials and SAA executives to brief Parliament’s standing committee on finance on the troubled airline’s performance in the last two years.
Acting chief financial officer Phumeza Nhantsi said the change in the financial results was due to the application of accounting standards as well as an adjustment of the estimated provision for the outcome of litigation post balance sheet concerning SAA’s alleged anticompetitive practices.
SAA chairwoman Dudu Myeni was late for the meeting, prompting a complaint by committee chairman Yunus Carrim that this was “not acceptable”, but Jonas said this was because she had a medical problem.
Deputy chairwoman Tryphosa Ramana was present as well as the acting CEO and acting chief financial officer.
SAA was not able to finalise its financial statements until it received a going-concern guarantee from the government. A R4.7bn guarantee was granted by Finance Minister Pravin Gordhan about two weeks ago.
Jonas stressed that it was vital that Treasury provided SAA with a going-concern guarantee as failure to do so would have created systemic risks for all state-owned enterprises (SOEs) and the fiscus as a whole.
At the same time it could not do so until a new board had been put in place and a set of preconditions imposed regarding sound governance, improved operational efficiencies, and returning the airline to sustainability and profitability.
According to the financial statements presented to the committee, SAA’s revenue has been stagnant at R30bn for the past three years, mainly due to competition from low-cost carriers.
In 2015-16, however, operating costs fell to R30bn from R32.5bn in 2014-15.
The operating loss improved from R5bn in 2014-15 to R538m in 2015-16, and the total loss from R5.6bn in 2014-15 to R1.5bn in 2015-16. It was R2.6bn in 2013-14.
Finance costs have nearly doubled over the past year.
The R1.9bn impairment in 2014-15 had a significant impact on the bottom line in that year. The depreciation of the rand had a significant impact on the financial results.
The balance sheet remains very weak and showed a deterioration in SAA’s financial position in 2015-16 in terms of total current liabilities, which stood at R18bn at end-March 2016 compared with the previous R15.6bn.
Long-term loans rose from R3.7bn in 2014-15 to R6.5bn in 2015-16. Total noncurrent liabilities increased from R6.7bn to R9.7bn in 2015-16.
The committee heard that additional savings of R181m were achieved in the first quarter of 2016-17. This adds to the R3.3bn saved between 2012 and 2015.
Revenue for the first quarter was 10% lower than budget but higher than the first quarter of 2014-15.
Jonas said Treasury and the Cabinet were still committed to bringing in a private equity partner for SAA but doing so now when it was financially weak would be a disaster. SAA’s financial position had to improve, it had to have a solid strategy in place and it had to reestablish its solvency before such a step could be taken.
The deputy minister agreed that top executive management had to be stabilised and said the board had been instructed to proceed with this with urgency. Governance was key, and a matter of concern to financial institutions.
The finance committee decided that at least one member of the SAA board should have aviation experience.
Jonas pleaded that the new board be given a chance and said he believed the airline was poised for greater things.
Ramano also pleaded for the new board to be given time to do its work.