Big questions about SAA’s profit

While South African Airways (SAA) recently surprised the country with its first reported profit in over a decade, the airline’s entire current financial state is unknown, and it remains to be seen whether its turnaround will be sustainable.

During its annual generating meeting on 20 November 2024, the SAA interim board reported the airline’s earnings before interest, tax, depreciation, and amortisation (Ebitda) had swung from a R1 billion loss in FY2022 to a positive Ebitda of R277 million in FY2023.

With revenue increasing 183% from R2 billion to R5.7 billion, SAA and its subsidiaries turned a net profit of R252 million.

The board’s interim CEO, John Lamola, said the “pleasing” results were “emblematic of the hard and careful work that went into the relaunching of SAA as a reliable airline and globally admired brand.” 

“This has put SAA on a path to financial sustainability without reliance on the fiscus,” Lamola said.

However, several contextual factors and other pertinent issues must be considered before heaping praise on SAA.

Firstly, the company has not confirmed that the results shared at its AGM were audited.

The airline’s results from the 2019 to 2022 financial years all received a “disclaimed” audit opinion from the Auditor-General of South Africa due to material misstatements.

This type of opinion means that SAA provided insufficient evidence on which to base an audit opinion — the worst kind of finding the AGSA could make.

These findings were attributed to inadequate monitoring and oversight, leadership instability, weaknesses in the control environment, inadequate policies and procedures, and a lack of record-keeping and audit action plan to address prior findings and recommendations, among other issues.

SAA’s assertion that it made a profit may be of no real value if the AGSA makes a similar finding with its latest results.

The publication of its 2023 annual results more than nine months after the end of SAA’s FY2024 raises further suspicions over the reliability of the financials.

FY2023 was the company’s first year back in regular operation since its business rescue.

During that period, it was a much smaller entity with a significantly reduced workforce and fewer planes and flights.

Therefore, finalising the results should have been faster and easier than before.

The FY2024 results should also be far more meaningful as they would indicate whether the organisation was still profitable after resuming limited overseas flights and increasing its staff complement.

Little joy for creditors — and pain for Airlink

SAA’s emergence from business rescue also left the airline largely unencumbered thanks to a R27.6-billion bailout from taxpayers.

While the airline paid off all its debts, its creditors received only 8 cents for every rand they were owed.

SAA also effectively appropriated R511 million in revenue from Airlink ticket sales, which it collected as part of a franchise agreement between the two airlines.

After SAA entered business rescue, it informed Airlink that it would not honour the terms of the agreement.

That resulted in Airlink completely separating its business process from SAA.

The company launched legal action to try to recoup the funds, which it maintained should not be handled like the debt owed to SAA’s other creditors.

However, the Supreme Court of Appeal was obliged to dismiss Airlink’s claim as a business rescue process takes precedence over any other claims.

Simply put, the law prevented the court from imposing an order on SAA that would undermine the prospects of a successful business rescue.

Due to South Africa’s business rescue legislation, SAA was allowed to use money that did not technically belong to it to cover its own costs.

More recently, Airlink scored a smaller legal victory over SAA, with the High Court ordering that SAA must delete, destroy, and not use any of Airlink’s intellectual property obtained by a former executive before she left to join SAA.

This included electronic copies of a Microsoft Excel file containing Airlink’s customer database.

Lastly, the profit that SAA has reported makes up just 0.5% of the R48 billion in taxpayer bailouts it received in the past profit-less decade.

If it maintained this profitability, it would take another 189 years for SAA to make up for its cost to the fiscus, not accounting for the depreciation of the rand.

Aside from these issues, SAA will need significant investment to scale back to its glory days.

While its board has claimed it won’t need taxpayer bailouts, SAA has hinted at acquiring funding from the Public Investment Corporation.

That would see a part of the government pension fund’s performance linked to the airline’s financial growth.

MyBroadband asked SAA for comment on these issues, but it did not respond by the time of publication.