AG: SAA doesn’t have sufficient facilities to realise growth aspirations

SAA is struggling to implement its growth strategy due to a lack of capital.

The auditor-general’s (AG) office told parliament’s public accounts watchdog on Tuesday that while the airline was a going concern, it was unable to move with its plans to boost its fleet and increase its number of destinations.

The entity’s going concern was dependent on significant uncertain future events, said the AG.

Senior manager Thato Kunene said there was lack of capital funding for the airline’s expansion plan as SAA doesn’t have sufficient bank facilities to realise its growth aspirations.

SAA CEO John Lamola told Bloomberg TV in July the airline was planning to add nine destinations from Johannesburg, and increase its fleet by 50% to 21 by March 2025.

Kunene said slow progress in the implementation of the expansion plan and the success of its implementation will determine the future of the company.

The airline’s inability to get funding has an impact on its subsidiaries SAA Technical and Air Chefs, which provides in-flight catering services to airlines. The success of the two entities is highly dependent on SAA as it is their major customer.

“The subsidiaries are exploring strategies to reduce dependency on SAA,” said Kunene.

Historically SAA had a centralised treasury function which supported the company in its strategic objectives by providing funding from a range of sources which included development finance institutions, the loan market (public and private) and international and domestic capital markets.

The entity experienced significant financial difficulty and operational challenges in the years leading to the 2018 financial year which necessitated equity injections from government.

From April 2018 to date, government had injected R38.1bn into SAA, of which R27.6bn was deposited after business rescue, said Kunene.

SAA is fully funded with equity (bailouts). All loans (pre and post commencement financing) were fully paid through a dividend process. The last dividend was paid in August 2023, Kunene said.

The AG presented SAA’s audit outcomes for the financial periods 2018/19, 2019/20, 2020/21 and 2021/22. For these four financial years, the audit outcomes were a disclaimer.

“The outcome is mainly attributable to management’s failure to provide supporting information for audit purposes due to poor record keeping and the fact that SAA lost most of its finance staff during the business rescue process.”

The audit for the financial year that ends March 2023 has been completed but is undergoing final processes with SAA management to send the audit.

The AG office has recommended the SAA board and management should persist with efforts to stabilise governance and internal capacity because implementation of the business expansion plan will require a stable organisation with functional governance structures supported by adequate internal skills and capacity.

It said key executive leadership vacancies must be filled with skilled and experienced individuals, and management must ensure officials responsible for the financial statements and supply chain management are properly trained.

SAA was put under business rescue in December 2019. It exited that process in April 2021 and started flying again in September that year, initially only on six routes with a fleet of six aircraft. It now operates 15 routes.

A deal to sell 51% of government shares in the airline to Takatso Consortium collapsed earlier this year.

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