13 March 2018
AG qualified audit sounds SAA death knell – should surprise no one
SAA is finished according to the Auditor General (AG). Or, in the coded language that he uses, his findings “cast doubt on SAA’s ability to continue as a going concern”.
The real surprise in the wake of last week’s AG Kimi Makwetu’s qualified audit reports for SAA and Mango for 2016/17 is the subsequent media furore that seems to miss the point. The apparent losses (R5.6 bn) and negative equity position (R17.8 bn) should surprise no one, being predictable and even signaled by the new CEO Jurana Vuyani back on 29 November 2017 at a parliamentary hearing to the standing committee on finance. SAA cannot survive without massive additional government funding which is not available without further depriving the poor.
Are new Board members and the CEO aware that it is their statutory duty under the Companies Act to:
- file for Business Rescue – but this looks increasingly redundant. A company may only enter a Business Rescue arrangement – if – there is a genuine belief that the organisation can return to being a going concern. Given the AG’s comments, no one can now believe this,
- officially inform creditors that SAA is unlikely to be able to meet its financial obligations, and that failure to do so may open each of them to a criminal record and jail term? Did none of them know of their fiduciary obligations before accepting lucrative board member appointments?
Makwetu stated that: “Six consecutive years of operating losses have further eroded the (SAA’s) capital base and this continues to impact on the entity’s ability to operate in a highly demanding and competitive environment”. The highly competitive aviation market will not give SAA time to effect a speculative “5 year turn around”.
Talk of privatisation and finding an equity investor to inject cash is nonsense. No private enterprise in their right mind is going to touch SAA. There is nothing worth buying and the AG’s report confirms that, even if assets exist, SAA cannot assign values – and neither can he! Record keeping has been so haphazard and reckless, that if any real assets exist, their value is unknown, distorted and cannot be quantified. There are so many worms in this can, even a sale price of R1 would be a risk.
Ominously, record-keeping at SAA subsidiary SAA Technical SOC Limited – which maintains SAA, Mango, Comair and others – is no better. A lack of evidence of their inventory and an inability to verify the existence of some inventory items, meant the AG could not determine the value of inventory stated at R879 million. Informed sources say this and the 30% third party procurement policy introduced by previous chair Dudu Myeni are having a devastating impact on the operational efficiency of not only SAA and Mango but also Comair and others who use SAAT.
The FMF has long been vocal on the solution. It is too late for Business Rescue, privatisation, selling SAA assets or turn around plans. SAA is broke and unfixable.
The only realistic options left are liquidation or winding down in a planned and predictable process so that all vested interests – customers, staff, unions, suppliers, creditors and more – know what will happen in the future, how they will be affected and what plans are in place to optimise the process and minimise pain. Let’s take the political fear out of winding down SAA.
FMF executive director Leon Louw said, “Be honest – would you invest in SAA? Would you buy badly maintained old SAA airlines? Would you make a serious investment based on financial statements of which even SA’s auditor general cannot make sense? No. The answer is, wind it down properly, predictably and with regard to all vested interests especially employees. But politicians are afraid to make this decision. A pity – they may be surprised at how beneficial it would be to the economy and all concerned.”
The government, SAA’s Board of directors, CEO Vuyani, new SOE Minister Gordhan and Treasury Minister Nene need to find the courage to do so and quickly to save more billions.