Fin24.com | Treasury lifts veil on SAA financial report following spat in Parliament

Fin24.com | Treasury lifts veil on SAA financial report following spat in Parliament
Fin24.com | Treasury lifts veil on SAA financial report following spat in Parliament

Cape Town – National Treasury has elected to release South African Airways' fourth-quarter report, following a spat between MPs over the confidentiality of the airline's competitive strategies.

The standing committee on finance (Scof) was to hear from SAA on its fourth-quarter results and its turnaround strategy on Wednesday.

However, acting chair of the committee Thandi Tobias called off the meeting over a dispute about whether documents could leave the venue as they contain information related to SAA’s competitive strategies, Business Day reported.

The meeting was initially intended to be closed, according to a parliamentary schedule issued earlier this week. Democratic Alliance MP Alf Lees issued a statement on Monday indicating his intention to challenge the decision. An updated parliamentary schedule sent out on Wednesday showed that the meeting was open to the public. 

According to another statement Lees issued on Wednesday, Tobias instructed committee staff members to call security to seize documents that were distributed.

Following the mishap on Wednesday morning, Treasury issued a statement on the matter.

“Unlike many State-Owned Enterprises (SOEs) which operate as sole providers of services, SAA is a commercial enterprise which operates in a highly competitive environment.

“The duty to account to parliamentary committee must be balanced with the degree of protection of the confidentiality of SAA’s commercial strategies,” Treasury said in the statement.

Treasury resolved to make the fourth-quarter presentation public, after considering the need to protect SAA’s commercially sensitive strategies while staying within the governance prescripts.

“The need to protect SAA’s commercial strategies cannot be over-emphasised. We are encouraged by the committee’s intention to conduct some of the reviews of SAA reports in private.

“Holding some of the reviews in committee will allow Members of Parliament to have an in-depth engagement with SAA’s leadership whilst protecting SAA’s commercial strategies,” Treasury said.

SAA bleeds R1.2bn more

The presentation revealed that SAA’s net losses were R1.2bn more than the budgeted amount. A loss of R610m was budgeted for the fourth quarter, but the actual loss amounted to R1.84bn.

Causes were cited as lower passenger numbers than the budget forecast, lower revenue due to currency movements, higher currency translation losses due to the strengthening rand-dollar rate and the overall negative impact from currency movements on net profit of R237m, according to the report.

Fourth-quarter revenue was 12% or R0.9bn lower than the budget of R7.9bn. The shortfall of R419m was attributed to currency movement. Costs however remained relatively flat. Operating costs amounted to R7.85bn, compared to the R7.92bn budget.

For the year the group’s net loss was R2.9bn worse than the budget of R2.8bn and the actual loss was R5.67bn. This was attributed to lower passenger numbers, lower average fare due to increased competition and negative sentiment, higher operating costs driven by higher fuel costs and maintenance costs.

Year-to-date revenue for the 2018 financial year is R2.04bn below budget and costs are R0.4bn above, the report highlighted.

Oversight forum

The report also provides clarity on the role of an oversight forum which has been set up to address liquidity and capital challenges at the airline. It is a joint task force between Treasury and SAA.

The forum will also determine the long-term funding requirements of SAA and its optimal capital structure, as well as creating an enabling environment for strategy implementation.

It will also determine the mechanisms to implement the optimal capital structure and funding model for the airline.

The forum has been in operation since March 2018. It meets every two weeks, and will do so until September 2018.

Turnaround strategy

The group’s turnaround strategy projects that it will break even in 2021. SAA CEO Vuyani Jarana told Business Day that R21.7bn over the next three years is needed to effect the turnaround.

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