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Corruption and maladministration is burying SAA

It is time that directors paid more than lip service to the King III Code.
SAA CEO Vuyani Jarana. Picture: Moneyweb

SAA reluctantly published their audited 2016/2017 annual report in April 2018, as they were winding up the 2017/2018 financial year. The Auditor-General (AG) delivered a damning qualified report, and indicated that “a material uncertainty exists that may cast significant doubt on the company’s ability to continue as a going concern”.

It is perturbing that the 2016/17 annual report was only released in April 2018, even though it had been finalised and signed off on December 8 2017 by the AG. Minister Malusi Gigaba (then Minister of Finance), requested Parliament to approve the delay in filing the report, citing “technical accounting matters” which had not been resolved. Really?

In my view, in a climate of no corporate governance, “technical accounting matters” cannot explain away the substantial restatement of financial figures, the inability to verify certain assets and values because of a lack of evidence, and not meeting the test of a going concern. The fact that the new board of directors spent some four months in delaying the publishing of this report, meant that they didn’t immediately start addressing critical concerns which are further eroding the broken business. These include: no corporate governance; lack of, or no systems of internal control; no, or poor records; holding corrupt officials accountable; implementing a proper accounting system; implementing a proper procurement system, and vetting top officials.

The 184-page annual report is plastered with unnecessary embellishments which do more to irritate than placate, for example, glowing reports on “the most revered brand in Africa”, despite the fact that it is unable to produce a profit.

Getting down to the nitty gritty, I have summarised the most important AG qualifications below:

Basis for qualified opinion

Qualified opinion

Property, aircraft and equipment

The existence of all assets could not be verified, and the AG could not determine the correct net carrying amount, nor could the AG determine the financial impact of the adjustment that should be made to the accumulated loss. The AG could also not determine the amount to be impaired.

Inventory

Ditto

Maintenance costs

Incorrect exchange rates used, recognised in incorrect period, not all recognised in profit and loss, maintenance costs were understated by R282 million, previous years were understated, fair value overstated by R67 million.

Irregular expenditure

Proper records were not kept, hence the AG could not determine the correct amount.

Fruitless and wasteful expenditure

Ditto

Material uncertainty related to going concern status

The net loss is R5.6 billion (2015/6 R R1.5 billion), and the liabilities exceed the assets by R17.8 billion (2015/6 R12.4 billion)

The figures for March 31 2016 and 2015 have been restated

The accumulated loss for 2016 was amended to R26.1 billion) (R25.9 billion), and the accumulated loss for 2015 was amended to R24.6  billion (R24.4 billion)

Duduzile Myeni, the chairperson, was only removed in October 2016. Phumeza Nhantsi, the CFO, who was temporarily seconded from SizweNtsalubaGobodo (SNG) to SAA as interim CFO while she was a director of SNG, and subsequently appointed as CFO in March 2016. Nhantsi and Musa Zwane, the CEO of SAA Technical, were suspended in March 2018 pending a disciplinary hearing.

Our SOEs appear to be linked by the rotation of directors and senior executives, or close relationships between external auditors and senior executives. In this vein, it is to be noted that when Nhantsi was a director at SNG, she was the lead engagement partner of Denel SOC Ltd,  and responsible for signing-off the audit of the Denel Group (Denel SOC Ltd), Denel Aviation, Denel Aero structures, and Denel Land Systems.

The joint external auditors of the 2015/16 SAA annual report, PwC and Nkonki Inc, only identified irregular expenditure of R5.4 million and fruitless and wasteful expenditure of R7.3 million. They had no other findings, signed an unqualified report, and were satisfied that SAA met the going concern test.

A new board was appointed in October 2017, with JB Magwaza as chairman and Vuyani Jarana as CEO. The new board perhaps spoke too soon when they avowed to take “SAA to new heights and are dedicated to returning the airline to financial viability”. It will take a lot more than this. Tough decisions will have to be made, and those responsible for running the airline into the ground should be charged.

On July 3 2017 I wrote that the SAA is spiralling out of control, and required at least R44.5 billion to wipe out the accumulated loss and the debt.  SAA continued its downward trajectory, requiring constant government bailouts.

Going control test

 

R million

Total assets

15 916

 

 

Share capital, reserves, and accumulated loss

-17 802

Total liabilities

33 718

 

 

 

 

Loss for the year

-5 569

 

 

Net cash outflows from operating and investment activities

-2 395

In my view, the current operating model cannot turn the organisation around, and produce enough cash flow to pay finance costs, let alone pay back debt. Unfortunately, the business model is not the sole problem. SAA must urgently address the following:

  • Employees responsible for maladministration and theft should be held to account.
  • These employees should not be allowed to resign (with full pension benefits) before they are charged.
  • Implement proper administration, asset management, financial and accounting systems.
  • Introduce proper internal reporting systems.
  • Introduce proper record-keeping systems.
  • Restructure the internal audit committee, hire competent staff, and introduce an internal training programme. The audit committee should meet on at least a monthly basis. Minutes of their meetings should be kept.
  • The procurement sector must be completely overhauled, and proper control systems implemented.
  • Introduce proper systems to monitor and control the loyalty programme.
  • Introduce effective human resource management systems.
  • Abolish all freebies, such as those given to SAA staff and other government departments.
  • Top officials must be vetted.
  • The directors should be held responsible for reporting on financial results within the stipulated time periods.

Fixing SAA will take more than ad hoc government bailouts. The AG is commended for having carried out a proper audit of SAA, and for having the courage to reveal the rot. It is time that the directors paid more than lip service to the King III Code on corporate governance, the Companies Act, and the Public Finance Management Act. They need to implement the proper systems to pull the organisation back into line. This may however be too late.

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And all of the above has been going on – ad infinitum.
Yet the airline wants another R 5 billion.
Pay someone to take it off my (taxpayer) hands, please.

More telling is when all this started. In the Suid Afrikaanse Lugdiens (SAL) all of the above mentioned lacking control systems were in place and functioned well!

Speaking under correction here,

The international number of support staff for an airline is 165,
for SAA it is over 900?

The previous CEO did not even know how many aircraft SAA had?
and the number was tiny, under 60 aircraft, mostly leased.

What a continental mess!!!

The negative effects of BBBBEEEE at play here.

Sounds like the typical ratio:5 or 6 South Africans to do the work of one international worker. Now take this scenario and apply it all SOEs and government departments and you get the real picture. We refuse to learn and as a result we will continue to suffer.

This has to stop. They have been promising a ‘turnaround’ for how long now? Ten years? More? And yet the song remains the same – we need more money! Where is Gordhan in this? Where is Ramaphosa? So much for the ‘new dawn’ when all we are seeing is the same old moronic approach, where national pride takes precedence over fiscal discipline. We do not NEED a national airline. We NEED better hospitals, schools, universities. We NEED housing and improved infrastructure. SAA is nothing more than a sucking black hole, a giant money pit that will never turn a profit because the discipline to run it like a tight operation (ie, to fire people) simply doesn’t exist. Close it down!

Would you give up your holiday car? Not if someone else paid for it?

The someone else here being the stupid Tax Payer like you and me,
the holiday goer being the clever Politician.

Only way to get rid of SAA is if everyone stops flying SAA , otherwise it will be a permanent yearly loss.

With all those points to be addressed, it is scary and very concerning how a company is being run.On the other hand,being a SOE,it is not surprising.

One day we will only see Politicians, their families and girlfriends flying SAA,
and the TAX Payer will still pay ZAR 5 Billion every 3 months.

This is what happens when you have the Zuma “midas” touch.
The Zuma effect will haunt South African for 50 years.

Sss-sell it!

Problem is….who will want to buy it?….the Chinese?

Chinese are not that stupid to buy SAA

Problem is….who will want to buy it?… Perhaps a Columbian drug cartel?

Looking at that list of what needs to be urgently addressed, it’s all stuff that could be gleaned from a first year Business Management textbook. It’s not rocket science, any basic business should have those things in place as a basic, i.e. proper admin, record keeping, reporting etc… let alone one that flies people around 30 000 ft in the air!
If any normal business did not have those in place it would either fail or receive a SARS audit, yet in this case, people still get paid their nice salaries, and money taken from honest hard working taxpayers gets funneled into this abyss.
It must be shut down, assets sold to pay off debt and let the more efficient private companies take up the slack. Their increased business would take up some of the jobs lost. I don’t think any business people in their right mind would want to buy SAA with it’s huge debt overhang.

Why is Government stubbornly holding on to SAA which obviously is a dead loss and a dinosaur from a by-gone era? My guesses: (1) SAA is a slush fund for the politically connected and their cronies. Why have no idea of the full extent of the looting going on at SAA.(2) SAA gives jobs and jobs buys votes for the ANC. Sitting around all day at head office doing nothing and getting paid for it makes for loyal ANC supporters. (3) SAA is willing to fly routes to African destinations like e.g. Ndola, Harare, Lubumbashi and Brazzaville which no other airline is willing to take on because it is not profitable. However, in solidarity with the African continent, big brother SA has to spend money on something which nobody else is willing to do.

Is it my imagination or is the quality of the CA’s being produced of substandard quality. In my day things like Internal Controls, Record Keeping and Asset Management were fundamental for even a low level Bookkeeper, Financial Manager and ultimately the CFO. It seems EVERYBODY wants the titles, the perks and the exorbitant salaries but delivery and actual management of outcomes is but a pipe dream. I truly find it shocking that basic financial management cannot be undertaken. Is it the BEE quantum or lowering of standards or simply an attitude of “we don’t actually care because nothing will happen to me as I cannot get fired!!”. Really sad state of affairs.

No it is not your imagination. It is however a true nightmare for S A .

Pay back the money CA(SA)s

The ANC watched as the patient bled out, now they shout for more blood. Am scratching my head nothing makes any sense.

In my opinion, There needs to be a JV between all the Southern African Airlines ( Air Namibia, Air Botswana, Air Zim and SAA) operated and run by an efficient entity under a united Southern African Airways banner ….. collectively these airlines can have a reasonable monopoly, share resources and possibly make a go of it.
Without this or a similar plan – SAA should be declared bankrupt and fold.

Close it down, put it up for “fire sale” – its nothing more than a glorified anc cadre taxi service with tickets for their jamborees paid for directly by the tax payers, so in effect we pay twice for their privileges and freebees – stopped using their “service” 17 years ago! – phht

All you have to do is remove one of the ‘A’s from the end of the article heading and you have the absolute, unvarnished truth about South Africa. Those who cannot accept this by now can continue with their race-based and other retorts plus transformation above all else rhetoric etc. but are doing this country, the jobs crisis and the people a massive disservice. Focus on getting as many people as possible employed using the best people (irrespective of race and political persuasion) and then review the situation in 10 years’ time.

It’s no good even talking about it ! Just close it . No one is going buy it and no will even accept it as a gift .
If you do the numbers SAA loses R4,5 MILLION before lunch every day without even including the accumulated loss from previous years !!

Totally agree – the Nigerian government discovered this way back in 2003 when, after years of losses and multiple recapitalisations, it eventually pulled the plug on Nigeria Airways.

Yes an another more A typical model/example was Varig the Brazilian national airline ,run on exactly same lines SOE as SAA ,although Varig also had a freight dept which was the only value sector .
Amazingly, when they ultimately pulled the public purse plug and it shut down . smaller private companies filled the national slots and all of a sudden the aviation industry exploded in Brasil ( employing more in the private sector than Varig with government control )and flying around the country had opened to ordinary working people as a fast cost effective alternative to the long distance bus services which made a massive impact on the working class persons life…go and see for yourself the massive Pax loads flying daily from congolas/Ria/ San Paulo in fact any airport …in the country which economically is similar to ours
So shutting down SAA WILL HELP employment and the industry as a whole – the model exists to test against…..ok it will not help the politically connected, but i understand even our new President has started to set the example by using a low cost national airline……

Perhaps SAA has no fare paying passengers.Nobody on this website seems to use them nor do they know anybody who still flies with them!

In case anyone was wondering why VAT increased from 14% to 15% …… this is one of the reasons why. You could also include ESKOM …

Agreed. But the poor sods who keep voting for the ANC do not understand that almost every cent they spend on anything is subsidizing an incompetent and unethical elitist regime made up of criminals who will continue to milk everyone to the grave. Talk about flying this one into the ground – like they have done with Eskom, SARS, Denel Education and all the others. Each and every Minister, Deputy, CEO, CFO, DG and incompetent senior manager and all the dodgy private sector companies that paid them bribes or delivered half-cock work or products, should be investigated and criminally charged and sent to jail.

Yes beachcomber, and a Columbian drug Cartel also wouldn’t be stewpid enuff to buy it!!!

OK, grammar check time

“Corruption and maladministration is burying SAA”

Jonathan and Mary is walking to town?

This is a disease that is creeping into the language, just like the awful “grocer’s apostrophe” (cabbage’s R10, lettuce’s R 5) and it is WRONG!!! It’s basic conjugation and it’s not real hard to learn. *ARE* *ARE* *ARE*. Corruption and maladministration ARE burying SAA.

End of comments.

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