Outstanding financial statements crucial for SAA funding

Parliament’s standing committee on public accounts (Scopa) will shortly after the opening of parliament next month attend to the failure of South African Airways (SAA) to finalise and publish its audited financial statements for the financial year ended 31 March 2024.

According to the chair of Scopa, Rise Mzansi’s Songezo Zibi, the financial statements – which are still outstanding four months after the original deadline of 30 September – are crucial for the airline to get the funding it needs to buffer itself against “volatility”.

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Unlike Eskom, which was also late but released its results just before Christmas, SAA is quiet about when it will announce its results, despite earlier indications that it would be ready by the end of 2024.

The airline also failed to respond to an inquiry last week about the reasons for the delay and when the results would be announced.

SAA interim chair John Lamola previously told Scopa that SAA needs R2 billion to be able to withstand unexpected shocks. Zibi says such a shock came in the form of the recent pilot strike, and the impact of that on the airline will only be clear once it has finalised its financial statements.

Read: South African Airways unable to sustain pilots’ strike, CEO says

He says once the latest numbers are known, Scopa will continue to monitor SAA closely.

Without financial results, investors shy away

SAA is also seeking funding for its ambitious expansion plans. Experts say the first thing potential investors look for is the latest set of audited figures before they will commit funds. In the absence of these figures, investors will likely shy away.

SAA has been undergoing a rebuilding process since April 2021, when it exited business rescue. It resumed flights in September that year, operating on a significantly smaller scale than in previous years.

In February 2022, the government sold a 51% stake in the airline to the Takatso Consortium, which was expected to inject R3 billion in cash into the business. However, this never materialised and the transaction was terminated almost a year ago.

Read:
Government concludes 51% stake disposal of SAA to Takatso
Government scraps deal to sell SAA
SAA: Government missed the deal of a lifetime

Although SAA has gradually expanded its routes and recently added a new route to Dar es Salaam in Tanzania, Lamola emphasised in November last year that the airline needs funding to more than double its fleet within five years.

At the time, SAA released its 2022/23 results, showing its first profit in 12 years — R252 million — and reported being debt-free.

Read: SAA posts R252m profit

According to Zibi it was a monumental task to fix SAA’s record-keeping with a new management team and board after it exited business rescue. Auditor-General Tsakani Maluleke told the committee that her office initially focused on finalising three historical sets of statements concurrently before tackling those for 2023/24, which were expected to be ready by the end of 2024.

“SAA has a funding problem rather than a management problem. They won’t secure funding without the latest audited statements, and those statements must be credible. There can be no shortcuts,” he said.

SAA subsidiary remains ‘in a mess’

SAA’s low-cost subsidiary Mango has yet to resume flights, and the airline has been unable to find a buyer for it. Furthermore, SAA Technical, another subsidiary, remains “in a mess”, according to Zibi.

Aviation expert Guy Leitch, publisher of SA Flyer magazine, says to truly understand SAA’s performance, one needs to know how full its flights are and the revenue per flight. This information, however, is not available.

“When I hear someone is flying with SAA, I always ask how full the flight was. It seems okay – about two-thirds full. Airlines break even at 70% load factors. I also hear that tickets are cheap, but that’s anecdotal.”

Leitch said SAA is rebuilding cautiously and measuredly, and doesn’t shy away from difficult decisions. He nevertheless adds that its “overhead structure is too large, but they’ll grow into it”.

He agrees that SAA needs new capital but notes that funders are few and far between, and without recent audited statements, it will be challenging to secure funding.

Airline doing well operationally

Transport economist Joachim Vermooten agrees that, operationally, SAA seems to be doing well. The Dar es Salaam route could be viable, provided the aircraft used are appropriate for the number of tickets sold, rather than too big.

However, it remains unclear whether the problem areas identified by the Auditor-General have been resolved. “It’s about normal financial control measures,” says Vermooten.

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He concurs that SAA needs additional funds in this capital-intensive industry. “They can borrow from banks if guarantees are available, but then they’ll have to repay with interest. It’s better to secure equity that doesn’t require interest payments, but this will create pressure to deliver dividends.”

He adds that: “To secure equity investment, the financial statements must be in order.”

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