South African Airways’ (SAA’s) surprise profit for the year ended 31 March 2023 has come under scrutiny with no explanation from the government as to how the company managed its miraculous turnaround.
The National Treasury reported at the beginning of June that SAA had turned a profit of R500 million for the year ended 31 March and that the carrier is no longer technically insolvent.
Treasury said that SAA turned a profit of R500 million for the year ended March 2023 versus a budgeted loss of R740 million.
This profit comprised mainly of consolidation entries which totalled R505 million. SAA only turned a profit of R31 million.
Air Chefs lost R12.6 million, and domestic-only carrier Mango posted a loss of R66 million. SAA Technical turned the largest profit with R84.4 million.
Treasury says the airline has a net equity value of R670 million as of the end of March 2023, despite currently being sold to the Takatso Consortium for R51 of a total equity value of R100.
When asked by the Citizen how SAA turned a profit and for the details of the R505 million worth of consolidation entries, Treasury refused to answer and instead directed them to SAA and the Department of Public Enterprises.
Treasury also refused to disclose whether the state-owned carrier posted a net or an operating profit.
SAA directed reporters to its annual financial statements, which are set to come out later this year. At the same time, the Department of Enterprises said they would only comment after an audit of the financial statements has been conducted.
SAA has not released annual financial statements for the last five years.
The fact that SAA posted a profit is even more miraculous given that Treasury said for its half-year report to Parliament in February that SAA reported a R50 million loss for the half-year.
SAA Technical also miraculously turned around from posting a R2.7 million loss in the first six months of the financial year to posting a profit of R84.4 million
Considering SAA Technical’s only regular customer is SAA, with a fleet of seven aircraft, experts doubt that the subsidiary could break even – let alone turn a profit.
Moreover, when the company exited business rescue, it had 1,200 employees, and within 18 months, this ballooned to over 2,000 employees. This would normally reflect an increase in operating expenses.
Takatso to the rescue
To save the airline, the Department of Public Enterprises negotiated a deal with the Takatso Consortium to acquire 51% of SAA.
In terms of the deal, the consortium would obtain 51% of SAA shares and provide a capital injection of R3 billion over two years, while the state keeps 49%.
The Competition Commission has recently granted conditional approval. The transaction has now been referred to the Competition Tribunal for its consideration and final adjudication.
Last month, the Competition Commission recommended the tribunal approve a 51% disposal of SAA shares to Takatso provided that certain conditions are met.
The first condition includes removing minority partners (Global Aviation and Syranix) from the consortium to avoid decreasing competition in the domestic airline market.
The second part of the deal includes a “moratorium on merger-related retrenchments and to maintain a minimum number of employees at SAA.”
Recently dismissed Public Enterprises Department director-general Kgathatso Tlhakudi remains opposed to the merger over corruption allegations. He is expected to make submissions later on in the Tribunal’s hearing.
The Tribunal is expected to decide whether the merger can proceed, but its decision is not legally binding and can be challenged in court.