Troubled SAA has burnt through billions

2015-11-29 15:00
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Johannesburg - Financial statements that South African Airways (SAA) was hoping to keep secret until early next year show just how dire the situation at the troubled national carrier was earlier this year.

SAA’s financial statements for the year ending March 31 2015 are only expected to be released in January, but an extract of the financials given to City Press on Friday appears to show that the company’s losses for the year reached a staggering R4.7 billion.

This is almost double the previous year’s losses of R2.5 billion.

Extracts from the long-delayed financial statements show that while revenue flatlined in 2014/15, costs rose by R956 million to R31.6 billion.

On Friday, SAA spokesperson Tlali Tlali told City Press: “SAA has not released its annual financial statements. These will be released during the annual general meeting at the date determined by the shareholder. Your information enjoys no official status.”

Among the biggest culprits for this increase were maintenance costs, which increased by R819 million to R3.4 billion, employee-benefit expenses (a R430 million increase), and leasing costs (a R292 million increase).

Had it not been for cost savings of R891 million on fuel and energy costs – thanks in part to a drop in oil prices and the maximising of unprofitable routes – the financial situation would have looked even worse.

The major damage, however, comes from SAA’s rising impairments, which jumped from R1.4 billion to R1.9 billion in the year.

Although the extracts of the financial documents in City Press’ possession are incomplete, the previous year’s impairment of R1.4 billion related to SAA’s acquisition of six costly Airbus A320s, which were assets that resulted in SAA having to declare a loss on its books as soon as the planes were delivered.

At the same time, SAA was retiring its old redundant fleet, further adding to the impairment.

SAA took delivery of another four of these Airbus aircraft in the 2014/15 financial year, which most likely contributed to the massive impairments.

In November last year, SAA implemented a drastic 90-day turnaround plan under the leadership of then acting CEO Nico Bezuidenhout.

Due to SAA’s strategy of releasing its financial results almost a full year late, there was little public information describing just how bad the financial situation had become.

However, in April, Bezuidenhout revealed that the turnaround strategy had made major improvements to the airline’s financial position, resulting in cost savings of R1.25 billion.

This included savings of R262 million thanks to renegotiated lease agreements, and savings of R440 million through network changes.

Bezuidenhout stood down as acting CEO in July and returned to his position as CEO of budget airline Mango.

Little more than a week ago, SAA and Treasury gave an update on the airline’s troubles in Parliament.

The loss for the six months from April 1 to September 30 added up to R656 million, it was revealed.

This represents a major improvement when compared with the annual financial statements in City Press’ possession, which showed the R4.7 billion loss for the previous financial year.

The 2009 Airbus acquisition deal, which has contributed to SAA’s massive impairments, has also been at the centre of the airline’s ongoing fallout with Treasury after chairperson Dudu Myeni allegedly tried to change the terms of the deal approved by Finance Minister Nhlanhla Nene.

Treasury’s deal allowed SAA to cancel the purchase of the next 10 Airbus A320s, and replace them with a more cost-effective leasing option, potentially saving the airline R1.6 billion.

Myeni’s decision to push for a new deal has the potential to dramatically worsen SAA’s financial situation.

In the early hours of Tuesday morning, SAA interdicted City Press, Business Day and Moneyweb after the publications reported on the contents of an internal memo written earlier this month to the SAA board by former acting CEO Thuli Mpshe relating to Myeni’s Airbus-deal decision.

The memo, which was prepared by the head of legal, risk and compliance at SAA, Ursula Fikelepi, contained “privileged” and “highly confidential” information of a “very sensitive nature”, according to SAA.

The information could have “the potential of causing real and serious reputational and financial damage to [SAA] and the government”, added Fikelepi in an affidavit.

City Press and the other publications will be contesting the finalisation of the order in court this week.


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