Publications
Partners
SAA’s failure to table its 2015 financial results on time may scare off potential minority equity partners, an industry expert has warned.
Joachim Vermooten, a transport economist and aviation expert, said even if the mooted SAA and SAA Express merger succeeded, SAA’s financial woes could be enough to scare off investors.
Vermooten has laughed off SAA’s recent forecast that it may report a R177 million profit before interest and tax in two years’ time.
The figures were presented to Parliament’s oversight committee two weeks ago, where SAA predicted a R720 million improvement in its financial affairs.
Vermooten said that without audited financial statements for 2015, there was no way to tell where SAA’s finances were headed.
“The 2017/18 figures that SAA has bandied about are not the bottom line.
“It is a profit prior to a lot of expenses, so just to add back expenses, eventually you’re going to come to profit, but what people are looking for is the bottom line – the net loss.
“Frankly, these forecasts are a way for SAA to get past its predicament of not getting its accounts out a year ago, and that is not good enough,” Vermooten said.
“It should be held to account because it has just been too long. How can you not know where you were a year ago and yet you claim to know where you’re going to be in two years’ time?”
SAA spokesperson Tlali Tlali said the national carrier was expected to release its results at some point this month. Through Treasury, it last month asked Parliament for another postponement.
The national carrier has asked government for a R5 billion guarantee to complete its audited financial results.
SAA, which has received R14.4 billion in government guarantees so far, first postponed the release of the financial results in September.
Vermooten said investors would see the delay as a sign of trouble and the forecasts issued by SAA were not worth the paper they were written on without the actual financial results.
“The market is very volatile, and there are consistent changes in cost drivers and demand drivers,” Vermooten said.
“SAA’s high increase in revenue forecast is very difficult in competitive conditions because SAA doesn’t operate as a monopoly, so you can’t adjust things and expect the market to work with them, it needs to be a market participant and react according to market forces,” he said.
Merging SAA and SAA Express might also lead to the merged entity posting higher losses, said Vermooten.
“Both airlines have lossmaking business models – there’s nothing there now that will actually make the other work. In fact, these are two completely different types of businesses.
“You might find that the losses become larger if you put two lossmaking operations together. I’m not that optimistic, because neither one has a business model that could actually turn the other around,” said Vermooten.
The SA Transport and Allied Workers’ Union (Satawu) said it also wanted to be consulted by Treasury and the department of public enterprises regarding the merger, and said it did not believe that a minority equity partner would solve SAA’s woes.
Satawu general secretary Zenzo Mahlangu said: “Our concern is job security. A merger has to be informed by hard facts so that we know what we need to fix. At the moment, we don’t know what they are fixing.
“The problem with an equity partner is that there’s this idea that it will inject money that will then take SAA to profitable levels. We don’t think profits are actually going to come because there’s an injection of capital,” he said.
The union was also worried about the possibility that a minority partner could attempt to retrench staff if the new entity remained unprofitable.
“An equity partner might end up forcing the reduction of labour or do something to cut costs. That’s the first thing they normally do when they are not making a profit,” Mahlangu said.
“Why would an equity partner in its minority want to buy into an airline that is not making any profit?
“It means somewhere somehow they can see SAA can be turned around. Why can’t they turn around SAA as management?
“That is what concerns us,” said Mahlangu, adding they want to be consulted about an equity stake.
City Press sent questions to various airlines about whether they would consider becoming SAA’s equity partners, but only Ethiopian Airlines, one of Africa’s largest, responded, saying it would not comment on the matter.
