R 1.3 billion operating loss for SAA

Public Enterprises Minister Malusi Gigaba on Monday announced that a task team has been set up to come up with a turnaround strategy for the state owned airline, South African Airways (SAA).

Speaking following the annual general meeting of SAA on Monday, Gigaba said the task team would comprise the newly appointed chairman of the SAA board Vuyisile Kona as well as the chief executive officers of SA Express and Mango.

“The task team must indicate how they will develop and present a turnaround strategy. The task team will give a consolidated view and roadmap for a turnaround,” Gigaba told media.

The task team is expected to report back to the minister by 15 December this year.

SAA reported an increase in revenue of R23.8 billion for the year ended March 2012, which is up from R22.6 billion a year earlier. It reported a R1.3 billion operating loss, while also reporting R128 million in irregular expenditure. This was up by R85 million from the previous year.

According to Gigaba, this showed that there were weak internal controls at the airline. The minister further added that SAA had fared poorly compared to its peers and had performed below expectation.

Gigaba questioned whether management at the airline had responded timeously to the aviation environment which has been experiencing difficulty. The airline had also incurred R4 million in wasteful expenditure.

“At the heart of the strategy must be how we [will] make SAA become financially viable and independent of government support in the medium to long-term,” said Gigaba.

In the last 10 years, the airline had shown cumulative losses of R14.7 billion.

Gigaba was concerned about the rate of cash burn, which had affected the airline’s working capital. He, however, added that government would continue to provide oversight and support to the airline, which had recently experienced mass resignations, including that of eight members of the previous board.

In response to a question on whether SAA would be privatised, Gigaba said: “There are no plans of privatisation.”

Article continues below...

There had been examples around the world of airlines that had been privatised, resulting in them crashing, such as Swiss Airlines.

“There’s nothing inherently inefficient in a state owned entity. For us, we believe it’s strategic for the state to own it.

“SAA can be like those that are financially stable,” said the minister, adding that the department was also willing to look into possible bottlenecks within itself that may make things difficult for the airline.

Earlier this month, government announced that it has granted the airline a R5 billion guarantee for a period of two years starting from 1 September 2012.

A statement issued by National Treasury and the Ministry of Public Enterprises said the guarantee will enable SAA to borrow from the financial markets, thus ensuring that the airline continues to operate as a going concern.

At the end of last month, eight members of the SAA board resigned, including the chairperson of the SAA Board Cheryl Carolus; Russell Loubser; Bonang Mohale; Louis Rabbets; Jabulani Ndhlovu; David Lewis; Teddy Daka and Maggie Whitehouse.

Last week, the airline’s CEO Siza Mzimela announced her resignation through a letter sent to SAA staff. She had headed up SAA since 24 February 2010.

Gigaba said the three-year term of office of the previous board would have concluded at the annual general meeting. A new CEO is expected to be appointed in the next three months, while Kona is also the acting executive chairperson.

Earlier this month, Gigaba appointed new board members who were present at Monday’s media briefing.

Andile Mabizela; Andile Khumalo; Bongisizwe Mpondo; Dr Rajesh Naithani; Carol Roskruge; Raisibe Lepule and Nonhlanhla Kubeka were appointed to the new board in addition to Kona.