Cape Town – SAA is struggling with “burdensome” debt and a weak balance sheet, Parliament heard on Tuesday.
CEO Vuyani Jarana and other board members including chair JB Magwaza briefed the standing committee on public accounts (Scopa) on the airline’s annual report.
Members of Parliament probed the board on the group’s going concern status which was flagged by the Auditor General (AG) of South Africa who tabled his report on the airline in March. Both SAA and its subsidiary Mango received qualified audit opinions from the AG.
“The history of losses, lack of capital and volatility in foreign exchange rates, along with maturing loans and working capital deficiencies, indicate that a material uncertainty exists that may cast significant doubt on the company’s ability to continue as a going concern,” AG Kimi Makwetu said in the report.
Jarana said that SAA welcomed the AG’s report as it provides pointers for areas the company needs to address such as the systems of control, overall supply management and logistics.
Jarana described the relationship between SAA and the AG’s office as “cooperative”. “We must do the work of getting things right as SAA. The AG gives us assurance to see if we are doing things right,” he said.
Weak balance sheet
Jarana explained that SAA had negative equity of -R9.2bn, indicating that the state of the airline’s balance sheet is “very weak”.
“This is not a position for a good business to run with negative equity. A weak balance sheet can’t support asset acquisition,” he said.
Jarana recalled that when he joined the airline in November 2017, one of the key challenges he had to deal with was the maturing of loans. The board had to renegotiate the timelines for maturity with lenders to March 2019, he explained. The R10bn shareholder injection helped ease the going concern at the time, he added.
However, the debt remains burdensome as the company cannot repay the principle amounts of its loans, and it can only pay interest. To address concerns, the accumulated debt of R9.2bn and the ongoing funding of the turnaround plan is “critical”, he stressed.
Currently SAA’s revenue is not enough to cover daily operational costs, he said.
Akhter Hoosen Moosa, board member and chair of the audit committee, assured Scopa that SAA does have sufficient cash for a 12-month period and has commercial sovereignty. As for the group’s insolvency which stood at R18bn last year, the airline’s reliance on government guarantees, or the R10bn bailout, brought down the deficit.
The airline recorded losses of R5.67bn for the 2016/17 financial year. Jarana explained that the root cause for this was the loss-making domestic routes.
Jarana said that SAA was trying to be everything to all people. SAA had to address the market problem it was facing. For this reason Mango took over all domestic routes as it was identified as a high-growth area for the airline.
Now that the route situation at SAA is addressed, the next step is to consider addressing the market and the efficiency of running its business. “All these things are answered in the turnaround strategy,” he said.
Jarana added that SAA is working with Treasury. “We have a close working relationship with National Treasury.” There is an oversight forum chaired by the Deputy Minister of finance Mondli Gungubele which is looking to take “quick decisions” on issues related to the turnaround strategy. The forum meets bi-weekly to discuss issues, he said.
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