SA Express faces bleak situation - parliamentary committee

Flying. (Duncan Alfreds, Fin24)
Flying. (Duncan Alfreds, Fin24)

Cape Town – The 2017/18 financial report for airline South African Express paints a grim picture, according to Parliament’s portfolio committee on public enterprises.

SA Express executives presented the annual report before the committee on Wednesday.

According to the airline’s presentation, banks are no longer committed to supporting it unless it can demonstrate a clear turnaround plan, supported by government funding. The airline needs recapitalisation from government.

Once government funding is secured and loans from banks are concerned, its going concern assessment can be finalised and its 2016/17 annual financial statements can be signed off, the presentation read.

Last year the airline failed to table its report in September 2017. It had not submitted its annual financial statements to the auditor general by July 2017, nor was the airline able to satisfy its going concern requirements, it explained.

According to the airline’s submission, its fruitless and wasteful expenditure amounted to R42m, as a result of penalties for late payments and interest charged on invoices.

Its irregular expenditure amounted to R408m, as a result of employees not adhering to procurement processes.

A total of R350m is attributed to tenders which were not advertised, R43.8m was attributed to using expired contracts, and R11.6m was due to three quotations not being sourced.

The balance of R0.8m relates to either a contract not being signed by all parties, the tax clearance certificate having expired or not having been submitted, or the deviation submission not having been submitted.

Investigations into irregular expenditure are under way.

Compared to 2015/16 figures, the airline’s revenue for 2016/17 was 3.34% lower at R2.31bn. The net cash position at year-end was at -R82.4m, compared to -R57.3m reported in the previous year. The group had an operating loss margin of -4.75%, compared to a profit margin of 7.37% reported in 2015/16.

Plans for the future

As for the way forward, the airline plans to leverage on an improved relationship with the auditor general.

It also aims to enforce “consequence management and zero tolerance for wrongdoing”, improve the quality of its service, ensure value for money, maintain and enhance its safety record and compliance and entrench a high performance culture discipline.

The committee mandated its chairperson Lungi Mnganga-Gcabashe to engage with the public enterprise minister to discuss the possibility of a cash injection for SA Express, according to a statement issued by Parliament.

Minister Pravin Gordhan said in his budget vote speech, tabled on Tuesday, that government is working with SA Express to finalise a turnaround strategy and “stabilise the company financially”.

“The airline needs a capital injection from government to strengthen its balance sheet (and) return it to solvency and improve its creditworthiness,” Gordhan said.

The committee wants former directors and executives to be held accountable for the financial challenges of the airline.

“No report has been presented of people being held legally accountable for misuse of state funds,” said Mnganga-Gcabashe.

She called for the board to strengthen its governance, monitoring and evaluation. “If the airline requests a capital injection from National Treasury, the committee needs a guarantee that we are not reinforcing maladministration, fraud and corruption.”

Gordhan said that senior officials from the Department of Public Enterprises have been seconded to the airline while a process of finalising appointments of a CEO and chief financial officer is under way.

“I am reviewing the board, with a view to strengthening its capacity. Reports of corruption at South African Express (which you all will have seen was covered by the media last week) are being reviewed,” he told Parliament.

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