South African Airways (SAA) expects to turn a small profit for the 2022/23 financial year and the next, following four years of deep losses and adverse audit opinions from the Auditor-General.
This was revealed on Thursday when SAA tabled four years of annual financial statements in Parliament. SAA has not produced financial statements since 2018.
The financial statements for the 2022/23 financial year are still with the Auditor-General.
Following business rescue, the airline restarted operations in September 2021 with only six planes. It plans to increase this to 13 plans and expects to produce a small profit for the 2023 financial year and 2024.
The expectation of a profit for both 2023 and 2024 appears to be somewhat unrealistic, as the airline reported earlier this year that it lost R150 million in the first three months of the current financial year ending 31 March 2024.
The National Treasury revealed this in its report to Parliament’s Standing Committee on Appropriations in September.
SAA’s irregular expenditure has also skyrocketed, further hampering the company’s financial recovery.
The Auditor-General, in a report to Parliament, said that the airline’s irregular expenditure shot up from R22 billion to R44.5 billion for the four financial years between 2018 and 2022.
SAA received audit disclaimers for all four years due to material misstatements in the company’s financial reports.
The Auditor-General cited poor record-keeping and inadequate governance as reasons for the material misstatements.
SAA continues to fail to comply with procurement and contract law, as irregular expenditure over the four audited years rose from R22 billion to R44.5 billion.
This is not even the complete picture, as “The group did not include all irregular expenditure incurred in the notes to the financial statements due to inadequate controls to maintain complete records of irregular expenditure,” the Auditor-General’s report said.
“In addition, we were unable to obtain sufficient appropriate audit evidence to confirm irregular expenditure incurred.”
This was again due to poor record-keeping at SAA.
“Failure to implement consequence management encourages a culture where the disregard for legislation, policies, and procedures thrives,” the report said.
This has led some, including aviation expert Guy Leitch, to say that SAA is at breaking point and in desperate need of a cash injection to survive.
SAA told Parliament’s Standing Committee on Public Accounts (Scopa) that putting the company in business rescue was the best decision as it saved the airline from liquidation.
Entering business rescue also enabled SAA to secure a cash injection from a strategic equity partner, the Takatso Consortium.
However, the deal with the consortium has been hit by several delays.
Minister of Public Enterprises Pravin Gordhan initially promised the deal would be completed in March of 2023. This has since changed to the end of 2023.
“I do not think this deal is ever going to happen, although Gordhan keeps promising it will,” Leitch said.
He explained that for the deal to go through, existing legislation governing SAA would have to be changed in Parliament, and the aircraft operating licences would have to be changed. This would take 18 months at least.
However, “without it, the airline cannot grow; it is already stretched to breaking point, and it desperately needs funds”, Leitch said.
SAA will never be able to catch up with its competitors if it does not secure a cash injection. The airline lacks the fleet, the equipment, and the financial resources to compete.
“At this stage, I can’t see a recovery. I don’t see us ever being the number-one airline to Africa again. We are never going to catch up.”