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South African Airways Financial Concerns Persist as Auditor-General Flags Ongoing Issues

Published February 29, 2024
3 months ago

Despite being a symbol of national pride for years, the financial health of South African Airways (SAA) remains under considerable scrutiny. Recent reports from the office of the Auditor-General (AG) have fueled further concerns regarding the ability of the airline to sustain operations in the long term. This concern comes after the national carrier submitted its annual reports and financial statements for consecutive years up to 2021/2022 to Parliament in December.

Experts and officials from the AG's office have highlighted a range of mammoth issues plaguing the airline. In an alarming briefing to Parliament's portfolio committee on public enterprises, the head of the AG's portfolio, Thami Zikode, emphasized the severity of a "disclaimed" audit opinion. Such an opinion indicates that auditors could not procure sufficient assurance on the financial statements to form an opinion, described by Zikode as the "worst audit opinion you can get."

This bleak assessment aligns with SAA's reported loss of R23.5 billion over the four financial years under scrutiny. Fuel costs, employee salaries, aircraft leasing, and additional operational expenses have significantly diminished the revenue of the already struggling airliner. The AG's analysis further pointed to deep-rooted challenges including inadequate monitoring, ineffectual governance, and chronic instability in leadership. Thato Kunene, a senior manager at the AG's audit office, cited these factors as the fundamental reasons for the disclaimer outcomes.

The discord in SAA's operations doesn't exist in a vacuum, as subsidiaries share a similar negative outlook. The exception is the subsidiary Mango, which has long been wrestling with its own financial viability. Concerningly, it was flagged that SAA's future is mired in the sluggish execution of its expansion strategy, its reliance on government funding, and uncertainties surrounding the sale of a 51% shareholding stake and investment from a strategic equity partner.

The unimplemented business rescue plan for Mango has cast further doubt on the entity's ability to run independently in the future. Deputy Minister of Public Enterprises, Obed Bapela, lamented the challenges in accessing and retrieving the necessary information which has notably impacted the performance and response to the financial crisis within SAA.

In a response, SAA interim chair Derek Hanekom acknowledged the financial turmoil reflected in the airline's reports and affirmed the findings of the AG. He signified the interim board's efforts to resolve past issues and projected the submission of a corporate plan for the five years beginning April 2024 in adherence with the Public Finance Management Act. Hanekom indicated this was a strategic move to ensure improved oversight and implementation of plans moving forward, a sentiment that underscores the need for rigorous monitoring by the shareholder.

For stakeholders and the South African public, these revelations raise questions about the future of SAA. The extensive financial woes and governance shortcomings illustrate the complex, multifaceted journey required to steer SAA back towards stability and profitability. Though the gravity of the situation is acknowledged by SAA's management, and strategies for improvement are in the pipeline, the actualization of these plans remains to be seen. Stakeholders and the broader South African public will be watching closely as one of the nation's key carriers fights to reclaim its place in the skies.

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