With another R5.6 billion loss – marking the sixth consecutive year of decline at the airline – the Auditor General has cast serious doubt over South African Airways’s ability to continue as a going concern.
Auditor GeneralKimi Makwetu last week published his audit report for SAA, giving the state-owned airline a qualified audit. Losses amount to approximately R5.6 billion – far higher than earlier predictions – with the group sitting in a negative equity position of R17.8 billion.
In attempting to establish SAA’s financial position, Makwetu found the company had failed to properly value assets (he could not determine the value of inventory stated at R879 million) or correctly record irregular or wasteful expenditure.
“Six consecutive years of operating losses have further eroded SAA’s capital base and this continues to impact on the entity’s ability to operate in a highly demanding and competitive environment,” Makwetu said.
Commenting on the auditor-general’s findings, new SAA CEO, Vuyani Jarana said that there were no surprises in the report, and much of what was said had already been anticipated since last year.
However, he said that all is not lost, and that a number of strategies could be implemented to turn the business around. He believes that the company can still be saved, though concedes it will be a major challenge.
Among some of the plans to turn the business around is to cut loss-making routes its planes are currently flying, and to find an equity partner – though these plans would have to be put on ice while the airline sorts its finances out, Jarana said.
According to think tank, the Free Market Foundation, however, it’s already too late.
The airline simply cannot survive without massive funding from government – but with the country’s tight budgeting, this is not a viable option without taking funding from other departments, it said.
Given the state of affairs at the airline, under the Companies Act, SAA’s board should file for business rescue, and creditors should be informed that the group is unlikely to meet its financial obligations.
But even business rescue “looks increasingly redundant”, the group said, pointing out that a business rescue arrangement is only applicable if there is a genuine belief that the organisation can return to being a going concern – a point which the auditor general already said is under question.
“It is too late for business rescue, privatisation, selling SAA assets or turn-around plans. SAA is broke and unfixable,” the group said.
“Talk of privatisation and finding an equity investor to inject cash is nonsense. No private enterprise in their right mind is going to touch SAA. There is nothing worth buying – and the AG’s report confirms that, even if assets exist, SAA cannot assign values – and neither can he.”
The group said that record keeping has been so haphazard and reckless, that if any real assets exist, their value is unknown, distorted and cannot be quantified. “There are so many worms in this can, even a sale price of R1 would be a risk.”
“The only realistic options left are liquidation or winding down in a planned and predictable process so that all vested interests – customers, staff, unions, suppliers, creditors and more – know what will happen in the future, how they will be affected and what plans are in place to optimise the process and minimise pain.”