The board and management of South African Airways (SAA) are taking urgent steps to address issues raised by the auditor general (AG) in its 2016/2017 audit report released last week, and said they remain optimistic about the state-owned airline’s future.
The AG’s report forms part of SAA’s integrated report along with the financial results for the financial year 2016/2017, due to be announced later this month. The airline has incurred a net loss of R5.569bn and expects its financial situation for the financial year 2017/2018 to be not much different.
“The board of SAA has noted and accepted the auditor general’s report. The majority of the airline’s operations are sound, and we are building on this to ensure we break the loss-making cycle and transform the airline into a viable and sustainable entity,” CEO Vuyani Jarana said in a statement on Tuesday.
“The board has developed and approved a clear strategy and five-year plan to turn the airline around, and we are working closely with the board and the shareholder to ensure we succeed.”
He pointed out that SAA has had many previous turnaround strategies, which have not been implemented.
“This time it is different: we believe the vision outlined by the board is absolutely correct and are committed to ensuring it is put into practice,” said Jarana.
“We need a clean break with the past and a new approach to the future, and that is precisely what we are doing. We are acting with urgency to ensure the viability and sustainability of this crucial national asset.”
SAA ‘broke and unfixable’ – Free Market Foundation
In reaction to the AG’s qualified audit on SAA, the Free Market Foundation (FMF) said it “sounds SAA’s death knell” and casts doubt on the airline’s ability to continue as a going concern.
SAA’s apparent losses (R5.6bn) and negative equity position (R17.8bn) should surprise no one, as they were predictable and were even signalled by Jarana at a parliamentary hearing to the standing committee on finance in November last year, according to the FMF.
“SAA cannot survive without massive additional government funding, which is not available without further depriving the poor,” the organisation claimed.
“The highly competitive aviation market will not give SAA time to effect a speculative ‘5-year turnaround’.”
Talk of privatisation and finding an equity investor to inject cash is “nonsense”, in the view of the FMF.
“No private enterprise in their right mind is going to touch SAA. There is nothing worth buying and the AG’s report confirms that,” said the FMF.
“It is too late for business rescue, privatisation, selling SAA assets or turnaround plans. SAA is broke and unfixable.
“The only realistic options left are liquidation or winding down in a planned and predictable process so that all vested interests know what will happen in the future, how they will be affected and what plans are in place to optimise the process and minimise pain.”
SAA turnaround needs government’s buy-in
The five-year plan and strategy require support and funding by its shareholder, namely the South African government. The board and the shareholder are currently evaluating the appropriate terms for such support, according to Jarana.
He said the immediate focus of the strategy is on liquidity management, balance sheet restructuring and cost management as well as revenue optimisation, intended to stem the losses and drive profitability.
Key steps already taken include improving governance by strengthening the board and its structures; injecting R10bn capital into SAA to improve its balance sheet; addressing the leadership vacuum by filling key executive vacancies; bringing in a depth of aviation skills by hiring a chief restructuring officer; and implementing key market-facing initiatives aimed at stopping ongoing losses.
In addition to this, network optimisation has been implemented on the domestic, regional and international route network to improve yields.
“These network changes are necessary as SAA’s route network remains under intense scrutiny with clear defined minimum profit margin targets at route and network level,” he said.