No sense of concern at calamitous SAA – Kocks

Quarterly report paints ‘bizarre picture of hopelessness’.

A leaked SAA internal quarterly report – that discloses a R1.388 billion loss in the three months ended June 30 and a 51% increase in finance cost – has left experts surprised at how resigned the board appears regarding the bad results, lack of diagnostic analysis and proposed corrective measures.

The loss is incurred despite a 7% increase in revenue and is 169% higher than SAA’s budgeted loss of R497 million. At a net level the cash outflow was R247 million – which was better than the budgeted outflow of R971 million. The report interprets this as a positive swing of R1.218 million even though the real number is R724 million. Bridging finance is stated to be the major component of this “positive variance”.

Ratings Afrika corporate governance expert Charl Kocks, who did an analysis of the report for Moneyweb, says: “Even though it describes a business outcome that is extremely serious and quite calamitous, it does not convey a sense of crisis or of strong concern.” He says it seems as if the author has become resigned to bad results.

“The reader is left with a bizarre picture of hopelessness combined with an unspoken expectation that the matters are not serious, since somehow there will be support forthcoming – although this is not made clear in any way,” Kocks says.

An aviation expert who also studied the report and asked not to be named, says: “SAA’s load factor was 69% versus a target of 72%, for which no reason is identified”, and “SAA does not propose any action which would bring it back to budgeted losses or how to reverse its losses.”

He says if current losses continue at the same pace, SAA could see an annualised loss of R5.352 billion for F2017.

SAA’s financial statements for 2014/15 and 2015/16 have not been finalised due to going concern issues and this leaked report gives the first glimpse of the real state of affairs at the national carrier.

The airline has submitted an application to National Treasury for an additional going concern guarantee, but finance minister Pravin Gordhan has made it clear that no further guarantee will be granted until the current board under controversial chairperson Dudu Myeni has been replaced.

This stalemate has been dragging on since Gordhan’s appointment in December last year.

The extent to which SAA has been relying on government guarantees is clear from the following table included in the report:

Screen Shot 2016-08-02 at 7.21.32 AM

Kocks says the table “paints a dismal picture of guarantees that have increased steadily since March 2007 and show no sign of reduction in future….” Of the R14.394 billion available, only R99 million is currently not being utilised. He says in 2013 the minister of finance agreed that R7.9 billion would become “perpetual guarantees”. “Only then could the auditors conclude that SAA had a going concern status, apparently.”

The report does not give one confidence that SAA could be a sustainable business, Kocks says. The revenue per available seat kilometre (RASK), which is an important performance indicator at SAA, fell short of the expected R1.18 for the three-month period, with actual figures of R1.11, R1.06 and R1.05 cumulatively in each of the three months. “The second, third and fourth quarters were expected to return R1.22, R1.23 and R1.21 each, which seems unlikely.”

Kocks says route profitability was significantly below the planned 85% level for the year at 83%, 78% and 66% for each of the three months. Only three of the nine international (non-African) routes were profitable and in total only 23 out of the 35 routes show a profit when measured at a route profit level plus network contribution.

Both experts question the assumptions relied on in SAA’s planning. Kocks points out that SAA has budgeted for an oil price of $35 per barrel, “an assumption that seems highly inappropriate in its precarious situation, and is clearly unravelling already.”

The aviation experts point at SAA’s load factors that are lower than budget and the comparative numbers for the previous financial year. “Such deviations so shortly after the start of its financial year is indicative of unrealistic assumptions and financial planning”, he says.

He further warns against SAA’s special focus on cutting maintenance costs. “This is an area of operational risk, in the cases where maintenance is done under circumstances of financial distress, which may involve skimping on safety-related matters.” He says it would seem more appropriate that the excess production of seat capacity, expansion and new routes and other superfluous costs should be cut rather than those that required maintenance.

*Moneyweb and its experts had sight of 24 pages of the 43-page report. The portion available included the executive summary, financial position and performance, guarantees and borrowings, hedging, capital investments and long-term turnaround strategy implementation process.

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Reading this , makes you want to weep!
The maiden jewel in the Apartheid crown , handed over to a mob that has gang-raped it for political expediency!

Ah ha! We are finally finding out what fell beneath and between the slats in the wooden floor are we? Finally, the beans are being spilt. At the moment, it seems that all the secrets were being swept under the carpet. We now need the Finance Minister to have a forensic audit team go in and check the books as a matter of urgency. No delays! After which, the worms in the woodwork can be fumigated out, the cockroaches exposed, and anyone found to have done anything illegal, whether they are staff, management, executives, directors, CEO’s, COO’s, or any other fancy title attached to their name, must be prosecuted and given cement shoes and dumped in the sea. No exceptions made. All legal costs for the personal account of those charged if found guilty.

It seems that the clowns who run SAA are debit-side-blind. They see only the assets in the B/S (balance sheet though it could have another meaning) and only the income in the P/L statement. Typical of all SOE’s in RSA. They are supposed to be SOC’s, but the C has been distorted so that an Enterprise does not have the same obligations as a company. It’s quite dreadful and totally unsustainable. It’s also true of SABC (who will now start losing revenue from licences and advertising while spending merrily on their salaries), yet no-one does anything about Comrade Hlaudi and his excesses and downright foolishness. Eskom is another example, and could well become as bad as SAA if it does not do proper accounting. Then we have ministries like Home Affairs with that Gigaba character in charge and who makes rulings on distorted statistics, Joemat-Petterson looking into nuclear – what the hell does she know. And now the cherry on the top – SAA taking “control” of Mango. The common thread is, of course, the chief clown, though no-one will sit up and challenge him. He only did an about-turn with van Rooyen because his action was so outlandish. I dread to think what Treasury would look like now if he had kept his 4-day long position. Please all South Africans, make a huge dent in the ANC tomorrow. I don’t care if you vote DA, EFF or any other parties but not ANC – Mandela would not want votes for the ANC as it has become. Trouble is I’m preaching to the converted on MW – I don’t suppose fellow posters are ANC supporters for the most part.

Its amazing that we never hear a squeak from the CEO of SAA (or the SABC for that matter). They are just puppets earning a fat salary and content to remain silent.

An acting CEO is just a puppet, he is told what to say and in this case he has been told to zip it. SABC is a different matter he will talk if and when he wants to.

It is quite a task to drag them away from their colouring in books..

even if you removed management, the business model is unsustainable. Hence it is not a company, but a government entity. Too many planes, routes that are not profitable. Do we need so many subsidiased routes?

What benefit do taxpayers, as shareholders, get for having SAA – cause I don’t get any benefit from empty planes flying around…

You do get to see the president’s personal jet streaking about above your head which could lead to some pleasant clay-pigeon potting (no I am not suggesting it’s a good idea). 🙂 🙂

It is just another mode of transport to move the cash. It used to be the gravy train, but now it is the gravy plane instead.

Hahahahahahahahahaha,

you’re killing me. This is comedy gold.
(Please note the sarcasm)

I think I’ve made up my mind – should the ANC/EFF be in charge for the next term – I’m leaving this country.

You most likely will be leaving on Thursday then. Save some space on the plane for me 🙂 🙂

SA’s loss will be Eire’s gain. Just make sure you fly Aer Lingus, not SAA as there is no guarantee of getting to destination.

The “cutting maintenance cost” aspect is a bit worrying. A passenger jet is not something you can park in the yellow line while you strip the gearbox or send a runner to pick up the oil that has leaked out and never been checked.

I find this the most amusing:
“At a net level the cash outflow was R247 million – which was better than the budgeted outflow of R971 million. The report interprets this as a positive swing of R1.218 million even though the real number is R724 million.”

SAA numeric skills at grade 4 level, or is that grade 3?…

Internal or not, reports like this should never have left the offices of the board members. To produce such innumerate rubbish is an awful blot on South Africa’s reputation. Nothing goes right, and it seems that the errors are politically motivated and deliberate. Jail is almost too good for the perpetrators, but let’s hope they get some time inside to reflect on what they have done to ruin the country. Jacob, Dudu, Hlaudi, the rest.

Yet Dudu was interviewed on TV last week claiming all was well and the need for state support would fall away within two years (I seem to have heard that before). In denial, or barefaced lies ?

I still find the use of the word ‘guarantee’ a bit odd, as though there were some contingency involved rather than the subsidisation of losses.

The guarantee point IS confusing, yes. The guarantees have been provided (only) to banks in respect of the lending that they have done to SAA. Thus no other service provider or creditor benefits directly from the guarantees. Indirectly, of course, they are protected from claims by the banks. The degree of protection would vary depending on the wording and type of the guarantees (we distinguish between 7 types!) as well as whether the banks are prevented contractually from claiming from and acting against SAA first. If they are forced to rely fully on the guarantees, this is bad for Treasury but good for other creditors of SAA. We have not succeeded in seeing the wording of the guarantees. And yes, we have tried.

End of comments.

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