South African Airways’ misreporting concealed a big financial loss

An accounting mistake in South African Airways’ (SAA) latest results saw the carrier swing from a profit to a significant loss, calling into question the company’s financial stability.

SAA recently released its results for the 2023/24 financial year. This marks the second year since South Africa’s national flag carrier exited business rescue. 

In 2019, South Africa’s national flag carrier was placed into business rescue to prevent bankruptcy after it suffered major losses year after year.

In its first year out of business rescue, the 2022/23 financial year, SAA returned to profitability for the first time since 2012, recording a profit of R210 million.

However, despite a 23% year-on-year increase in revenue to R7 billion, the airline could not maintain that momentum in 2023/24, reporting a R354 million loss.

The carrier attributed this loss to various factors, including a R415 million foreign-currency translation loss due to the rand’s volatility.

Other factors include the effect of the Russia-Ukraine conflict, which drove jet fuel costs from R1.3 billion to R1.9 billion, and a global shortage of aircraft, which pushed leasing costs up by over 30%.

However, the company also revealed that an accounting mistake in the prior period concealed a significant financial loss.

For the 2023/24 financial year, SAA recognised a R431 million gain because it scrapped certain debts from the business rescue period.

SAA reported this gain as “sundry income” in its 2023/24 income statement. Sundry income is essentially miscellaneous income, or income a business earns from sources outside its primary operations.

This gain helped SAA to show a R60 million profit for the 2023/24 financial year.

It is important to note that this gain does not represent an improvement in SAA’s performance, and merely represents a decrease in SAA’s debt obligations.

The carrier’s auditors, however, concluded that this R431 million gain should not have been shown as income for the 2023/24 year, but as income for the prior year.

Because of this auditor’s correction, SAA had to restate its 2023/24 financial statements so that the R431 million was removed from the 2023/24 year’s profit, and moved to SAA’s retained earnings.

After this restatement, SAA’s R60 million net profit for the 2023/24 financial year was removed, and instead SAA reported a net loss of R371 million.

A further result of this accounting restatement is that the R210 million profit reported in 2022/23 would never have occurred were it not for the R431 million debt relief.

On an operational basis, without taking the R431 million debt relief in to account, SAA would have reported a net loss of R221 million in 2022/23.

This means that, on an ongoing operational basis, SAA has not reported a net profit since 2012, and its profits are still continuing to deteriorate.

Regardless of how SAA reached its significant 2023/24 loss, this is a far cry from the sustainable, profitable enterprise the airline presented itself as for the 2022/23 financial year.

SAA’s unbelievable turnaround

When the airline announced its 2022/23 results at its Annual General Meeting in November 2024, SAA said it had established solid ground for its current growth trajectory.

At the time, the airline reported a net profit of R252 million and a 183% increase in revenue to R5.7 billion.

This surprised many South Africans who had not expected the airline to be this profitable so soon after exiting the business rescue.

In addition, in February 2024, the Treasury had said in a report to Parliament that SAA reported a R50 million loss for the half-year.

Regardless, SAA said its positive 2022/23 performance was particularly notable given the challenging global aviation environment at the time and the uncertainty surrounding the carrier’s future with a strategic equity partner.  

In addition, the airline said this strong result was achieved despite facing some of the same challenges that led to its 2023/24 loss.

These challenges included pressures of a post-Covid-19 recovery, persistently high interest rates, the conflict in Ukraine, and high oil and jet fuel prices.

“These pleasing results of the 2022/23 financial year are emblematic of the hard and careful work that went into the relaunching of SAA as a reliable airline and globally admired brand,” SAA CEO John Lamola said at the time. 

“This has put SAA on a path to financial sustainability without reliance on the fiscus.” SAA has received over R33 billion in bailouts from the government.

Lamola, who was interim CEO at the time before taking over as the airline’s permanent chief executive, said SAA has now entered a period of consolidation of the current route network and fleet strategy.

He said the carrier is looking to the next phase of “quantum growth” as SAA renews its fleet to elevate its customer offering, open more intercontinental routes, and pursue its environmental sustainability goals.