SAA nosedives into red
R4.3BN: AIRLINE LOSSES KEEP MOUNTING, DESPITE STATE BACKING
Despite government guarantees totalling R19 billion, the state carrier keeps falling deeper into debt.
In the first eleven months of this financial year, SAA has more than trebled its net loss of the previous year, bleeding a staggering R4.3 billion. This comes after National Treasury provided SAA with a R4.7 billion going concern guarantee late last year that enabled the airline to finalise its financial statements for 2014/15 and 2015/16. This brought the total value of government guarantees to SAA to R19 billion.
The red ink is broadly in line with the projections contained in a Business report last August, which was based on an analysis conducted by Ratings Afrika on the basis of a leaked first quarter financial report.
Previously, the embattled airline recorded a net loss of R1.4 billion and provided for a marginally higher loss in its latest budget. But it overshot that by R2.9 billion on falling income, particularly from its air passenger business.
The dire state of SAA’s finances will be scrutinised by parliament’s Standing Committee on Finances (SCOF) today.
SAA’s revenue of R27.6 billion for the first eleven months marginally exceeds the R27.4 billion recorded in the previous financial year, but is 15% below the R32.4 billion budgeted for.
While operating costs of R29.1 billion were 9% under budget, it includes R900 million (18%) under-expenditure on aircraft maintenance.
Ratings Afrika corporate governance expert Charl Kocks warned against this practice in August: “This is an area of operational risk, in the cases where maintenance is done under circumstances of financial distress, which may involve skimping on safety-related matters.”
In documents sent to SCOF members SAA says the rand strengthened by 12% compared to its budget assumption of R16.28 to the US dollar. The weak passenger market is also blamed for its woes. The domestic and regional routes underperformed in particular and are being reviewed.
The airline says it has a high cost base, which is also being reviewed.
The benefits of the stronger rand on SAA’s costs was largely negated by the rising oil price. The airline based its budget on an average oil price of $35 per barrel. But in actual fact it averaged out at $48. Kocks in August referred to this as “an assumption that seems highly inappropriate in its precarious situation, and is clearly unravelling already”.
SAA’s net finance cost increased from R752 million in the previous financial year, to R1 082 million, an increase of 44% with
The weak passenger market is blamed for its woes. The domestic and regional routes underperformed and are being reviewed.
another month until year end. This according to SAA is as “a result of more reliance on debt finance to fund the group’s operating activities coupled with the fact that the budget assumed a level of debt consolidation which has not occurred”.
DA shadow minister of finance Alf Lees said the DA will interrogate these volatile numbers fully when SAA appears before the SCOF today.
It is clear from the report that SAA is on a very short leash. The airline reports that it meets weekly with National Treasury and is in compliance with the condition to share media communication with Finance Minister Pravin Gordhan.