Auditor-General’s report reveals SAA is far from going like a Boeing

21 Nov 2023

Despite billions of rands of taxpayer money being thrown into the SAA black hole, the airline remains a mess. The Auditor-General has painted a dire picture of financial results not being produced on time by SAA, together with a lack of skills, poor record-keeping and ballooning irregular expenditure.

State-owned SAA has received taxpayer-funded bailouts worth R38.1-billion since 2018. And despite this support, the airline’s ability to fly without more help from the government remains in question.

The government’s support of SAA over the past six years is contained in the Auditor-General’s report — presented in Parliament on Tuesday — on the airline’s audit outcomes for its financial years dating back to 2018.

According to the Auditor-General’s report, from 1 April 2018 to 3 April 2023, the government has thrown R38.1-billion to SAA, of which R27.6-billion was paid to the airline after it entered business rescue in December 2019.

In April 2021, SAA exited business rescue and is still in the throes of its ownership being restructured to allow private sector investors to buy 51% of the airline from the government.

The public is still in the dark about SAA’s financial situation as the airline’s financial statements were last finalised and fully presented in Parliament in 2018 — six years ago.

The Auditor-General’s report states that the audits for SAA’s financial years from 2018 to 2022 “have been completed” but the full extent of the airline’s financial situation has not been disclosed or tabled in Parliament. For most of this period, SAA was under business rescue and the Auditor-General did not audit the airline’s financial statements as its operational and financial affairs were controlled by the appointed business rescue practitioners.

Madidimalo Singo, the business executive responsible for the audits of state-owned enterprises at the Office of the Auditor-General, told Parliament’s Standing Committee on Public Accounts (Scopa) on Tuesday that it was the responsibility of the “executive authority” to authorise the tabling of SAA’s financial statements for previous years. The authority in question is the Department of Public Enterprises, which oversees the governance affairs of SAA.

SAA submitted its financial statements for 2022/23 for auditing in October 2023 and this audit is still in progress. It is also not clear if SAA has turned its situation around, from perennially recording financial losses to being profitable.

However, Derek Hanekom, SAA’s interim board chair, who also briefed Scopa, said the airline was showing “a modest profit at this stage and no loss is expected”.

“We will be cash-positive by the end of the financial year … SAA is not facing a danger of collapse without the [National] Treasury’s support.”

Hanekom added that the airline was no longer in debt and continued to trade as a going concern. The going concern test is one that companies must pass to secure a clean bill of health from their auditors.

While the Auditor-General agreed with Hanekom’s assessment of SAA trading as a going concern, saying it was “appropriate”, it warned that the airline’s status had “material uncertainties”.

Risks around SAA

The Auditor-General’s 22-page report painted a picture of SAA still being in a mess, at least from a governance, capacity and financial perspective, which creates uncertainty around the airline’s “going concern” status.

The Auditor-General also sees SAA’s “continued dependency” on funding from the government for its operations as a key risk to its “going concern” status.

Rookie errors are still being made at the airline.

The Auditor-General found that SAA “does not have an adequate record-keeping system”, which compromises its ability to produce accurate financial statements.

“This was also worsened by the impact of the business rescue process that resulted in the downsizing of the staff and loss of critical skills, especially in the finance function, without adequate business continuity measures that would ensure the preservation of critical skills and capacity as well as a proper hand-over process by the employees that exited the company.

“Currently, there is a lack of adequate skills and capacity to prepare credible financial statements and to support the audit process due to loss of critical skills and poor record-keeping,” the Auditor-General’s report states.

The lack of skills within SAA often resulted in the airline not complying with key legislation relating to procurement and contract management, expenditure management, consequence management and revenue management.

The inability to comply with legislation gave rise to SAA’s irregular expenditure increasing from R22-billion to R44.5-billion from 2018 to 2023, while fruitless and wasteful expenditure increased from R24.8-million to R207.3-million over the same period.

Also adding to uncertainty around SAA’s “going concern” status are delays around the sale of 51% of the airline to private sector investors, while the government plans to retain the remaining 49%. The deal was initially announced in June 2021 and has still not been concluded.

Harith General Partners (an infrastructure company that owns Lanseria Airport in Gauteng) is leading a consortium called Takatso that plans to buy 51% of SAA.

Read more in Daily Maverick: Privatisation of SAA passes crucial competition hurdles

Harith planned to take over SAA on condition that it had no historical debt (to be settled by the government) before it started pumping money into the airline. It has promised to spend R3-billion on a debt-free SAA.

In Parliament, Hanekom did not offer an update on whether Harith had raised the money it plans to pump into SAA or the timeline for concluding the deal, saying it was a matter that would be best answered by Harith.

He only said about the deal: “SAA’s ‘going concern’ [status] can only move forward if the capital injection comes forward.” DM

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Risks around SAA