SAA’s R38 billion taxpayer bailout
Between 1 April 2018 to 31 March 2023, the South African government injected over R38.1 billion into embattled state-owned airline, South African Airways (SAA).
Of the R38.1 billion that the airline received over the years, R27.6 billion was deposited into the airline post the business rescue process.
This was revealed by the Office of the Auditor-General in their briefing to Parliament’s Standing Committee on Public Accounts (Scopa) on 17 September.
During the Scopa briefing, the finances of SAA were placed under the microscope.
According to the Office of the AG, irregular expenditure increased from R22 billion to R44.5 billion, whilst fruitless and wasteful expenditure increased from R24.8 million to R207.3 million over the four year period subject to audit.
Additionally, audit outcomes have regressed since 2017-18.
Issues identified include:
- Management’s failure to provide audit support due to poor record keeping and loss of finance staff during business rescue.
- Insufficient skills and capacity for accurate financial reporting post-rescue.
- Inadequate organisational structure and control environment.
- No effective action plan for previous audit issues or internal findings.
- Overall regression in internal controls, failing to prevent material misstatements.
Key recommendations put forth by the AG at the Scopa presentation include:
- Stabilise governance and internal capacity for business expansion.
- Fill executive leadership vacancies with skilled professionals.
- Train and capacitate staff in financial and SCM departments.
- Implement and monitor realistic action plans for audit findings.
- Review and update financial and record-keeping policies.
- Enforce strict consequence management and accountability.
- Strengthen IT governance and oversight.
- Ensure internal audit is well-resourced for key areas.
Will SAA receive more taxpayer injections?
Earlier this year, government assured that the public does not need to fret about the government dipping into state coffers to keep the airline operational.
“We want to make that clear; there’s no going back to the past there’s no reliance on government itself… [SAA] must run its operations as efficiently as it can and as profitably as it can and sustain itself,” late Public Enterprises Minister Pravin Gordhan previously said.
This was echoed by interim group CEO John Lamola, who said that “the previous glory of SAA was artificial because it was funded by taxpayers’ money.”
“The SAA we are building is one that can generate its own revenues and cover its own operational costs,” he added.
The airline added that it has reported steady and sustainable growth.
In a letter to SAA staff and stakeholders marking three years of recovery, Lamola said “we are proud that between August 2022 and August 2024, we have grown the airline to 16 aircraft flying 15 routes, with a 400% growth in passenger revenues during that period.”
In the 2022/23 financial year, SAA revenue increased 96% to R5.6 billion. For 2023/24, revenue rose 49% to R7.3 billion, with 13 aircrafts.
He also noted that the airline has more than doubled its route network and tripled its fleet size since its return to the skies.
SAA said that the airline would continue focusing on implementing its corporate plan and expanding its route network.
Airline woes
Back in 2019, SAA, which had around R28 billion in liabilities and was seen as a black hole for taxpayer-funded bailouts, was placed under business rescue (which it exited in 2021).
Gordhan said that placing the SOE under business rescue was to restore confidence in the airline, safeguard its good assets, and help to restructure and reposition the entity into one that is stronger, more sustainable and able to grow and attract an equity partner.
The company exited business rescue on 30 April 2021 when the practitioners filed a notice of substantial implementation of the business rescue plan.
Originally, there was an agreement that 51% of the state-owned airline would be sold to the private company for R51 on the condition that, over time, Takatso would inject R3 billion of capital in the form of a shareholder loan.
Takatso and the Department of Public Enterprises signed Share Purchase Agreement in February 2022.
However, the parties agreed to re-evaluate and re-open negotiations on the transaction structure and the current value of SAA, given its progress and the changing nature of economic conditions since the initial deal.
One of the central disagreements was that of the reevaluated value of SAA – which was predetermined during Covid (when the airline was on the verge of being liquidated).
“It became clear in the negotiations of the revised transaction structure [that it] must take into account public interest and fair market price; however, these requirements were not met in the renegotiations,” said the minister.
One of the central disagreements was the reevaluated value of SAA, which was predetermined during Covid (when the airline was on the verge of being liquidated).
“It became clear in the negotiations of the revised transaction structure [that it] must take into account public interest and fair market price; however, these requirements were not met in the renegotiations,” said Gordhan.
Although the deal did not take off, Mashatile said that while the airline’s performance seemed to be improving, the original plan to bring the private sector on board to make the airline profitable was the correct move and should be explored again.
“I think the government reached the stage at some point where it asked itself a question: do we want to own an airline, what’s the point?”
“The right approach would have been to bring the private sector in even much earlier … If we can still do it now, I think we should because there are many people in the private sector who want to invest in an asset like that,” said Mashatile.
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