The findings of the report came with the news that SAA made a loss of R648m in the first six months of the current financial year and is seeking an additional state guarantee of R4bn-R5bn for it to continue as a going concern. This is in addition to the R6.5bn guarantee granted last year. Total state guarantees for the national carrier currently amount to R14.5bn.
Chairwoman of SAA's audit and risk committee, Yakhe Kwinana said during SAA's briefing to a joint meeting of Parliament's standing committee on finance and its public enterprises portfolio committee that only R4bn would be needed as a guarantee if the Treasury approved its plan to convert its Airbus operating leasing contract into a financing lease using local finance. This structure would save R2.6bn in the costs of hedging to cover foreign currency fluctuations, she said.
Finance Minister Nhlanhla Nene is considering SAA's application to renegotiate the terms of the contract while the Treasury's fiscal and liability committee is looking into its application for another guarantee that it needs so it can finalise its 2014-15 financial statements on a going concern basis.
The Treasury has extended SAA's air traffic liability guarantee of R495m to the end of September next year. The airline has issued a request for proposals to raise R15bn in additional longer-term debt to consolidate its debt and raise additional working capital.
Deputy Finance Minister Mcebisi Jonas told MPs that SAA's new approach to the Airbus lease transaction changed a critical element in the Treasury's calculation of the support SAA would require as a going concern. SAA would have to prove that the new approach would not worsen SAA's financial position and pose additional risks. He said replacing SAA's interim board with a permanent one was part of the Cabinet process.
SAA's briefing to Parliament took place amid controversy over the renegotiation of the lease deal, continuing management instability, the departure of top executives and disagreement with pilots over pay.
The committees have demanded a copy of the EY report. EY began its investigation in September.
Kwinana said it had found there were no proper contracts for some of the services rendered to SAA. Blame for the airline's unprofitable procurement practices have been laid at the door of the recently resigned chief financial officer Wolf Meyer who has rejected the accusations vehemently. He said the allegations were part of a witch-hunt against him because he insisted on following strict procurement practices, which prevented "connected" people getting their hands on contracts.
He said the EY report did contain audit findings - not widespread financial irregularities - that he could not be held responsible for. Meyer said there had been repeated attempts to besmirch him during his four-and-a-half years at SAA, but that he was leaving the organisation with his head held high. "All of it (the allegations) is untrue," he said.
In an interview Kwinana said SAA officials responsible for financial management had failed to detect the fraudulent diversion of ticket-sales money in Brazil into non-SAA bank accounts. This was uncovered in September. They had also allowed SAA to commence unprofitable flights to Abu Dhabi when specialists had warned that they would not be profitable. Losses of R30m a month on the route currently total R270m and SAA was now applying to the Treasury to stop the flights.
She said that a lot of SAA's problems revolved around financial and procurement matters. These are the responsibility of the chief financial officer.
Dealing with SAA's plan for the Airbus contract, Kwinana said the depreciation of the rand meant it would be about $140m cheaper in the long run if the five wide-bodied Airbus 330s were bought locally now and leased to SAA than it would be to pay for them over 20 years.
New acting CEO Musa Zwane explained that government guarantees were required because the balance sheet did not provide sufficient security for funders and they therefore, charged more for their loans. The total finance costs had increased almost 400% in the past five years. This year's cost of funding is estimated at R1bn.
The Treasury has required that SAA develop a plan to ensure that its cash resources meet its cash requirements at all times including where unexpected events affect the cash flow position negatively.
Officials from the Treasury reported to the committees that in the first six months of the current financial year revenue was 13.4% below budget due to poor performance on passenger revenues on the international and regional routes. Operating costs were 6.9% below budget due to lower oil prices offset by the weaker exchange rate, lower budgeted block hours and the labour restructuring.
SAA has projected that it will become profitable after five years. Democratic Alliance spokeswoman Natasha Mazzone called on the Treasury to reject SAA's application for another bailout, which she said was "ludicrous given the financial constraints" SA faced.
Source: Business Day
For more than two decades, I-Net Bridge has been one of South Africa’s preferred electronic providers of innovative solutions, data of the highest calibre, reliable platforms and excellent supporting systems. Our products include workstations, web applications and data feeds packaged with in-depth news and powerful analytical tools empowering clients to make meaningful decisions.
We pride ourselves on our wide variety of in-house skills, encompassing multiple platforms and applications. These skills enable us to not only function as a first class facility, but also design, implement and support all our client needs at a level that confirms I-Net Bridge a leader in its field.
Go to: http://www.inet.co.za
