Since the Covid lockdown ended, which paved the way for the reopening of borders and resumption of air travel, airlines globally have returned to profitability. The state-owned South African Airways (SAA) has apparently not been left behind.

For the first time in many years, SAA is set to be on track to profitability, judging from the presentation in Parliament on Tuesday by the government about the airline’s financial situation.

According to the presentation, SAA was on track to pencil in a “profit” of R500-million for the 12 months ending March 2023  — an excellent situation considering that the airline’s management and board were expecting a financial loss of R740-million during the period.

However, there is a big catch to this “profit” as SAA’s financial statements have not been audited and might actually be lower after accounting for some expenses when the airline’s management and board are ready to publish financial results.

But it is the first time in a long time that the word “profit” has been mentioned in the same breath as SAA. The airline, according to public knowledge, last turned a profit in 2011. SAA’s financial situation has since been unknown and opaque — it has failed to submit its annual financial results to Parliament since 2017. SAA is obliged by law to table these statements in Parliament.

Despite the lack of financial results, it was widely known that the airline was insolvent as it increasingly approached the government (essentially taxpayers) for a financial bailout.

The SAA of today is much smaller. Its operations have been restructured through a business rescue process, which the airline exited in April 2021. The SAA of today leases nine aircraft, flying fewer than 20 times a day. Before the airline entered business rescue in December 2019, it leased more than 20 aircraft, flying more than 20 times a day, including domestic, regional and international routes.

According to National Treasury officials, a smaller SAA that flies limited domestic and regional flight routes is leading to a profitable airline. It also helps that the demand for domestic and regional flights is close to recovering to levels last seen before the Covid lockdowns which floored airlines across the world.

“SAA is no longer technically insolvent,” says a National Treasury presentation to Parliament on the airline’s financial situation. The Treasury represents the government, which is still the sole shareholder of SAA. The net equity value, a metric for measuring a company’s financial situation after subtracting the value of its assets after liabilities (including debt) stood at R670-million as at 31 March 2023.

At an ecosystem or group level, SAA, which operates flights, remains profitable. For the 12 months ending March 2023, SAA eked out profits of R31-million, while its subsidiaries pencilled in financial losses. These include losses of R12.6-million by Air Chefs (which offers food catering for SAA flights), R84.4-million by SAA Technical (responsible for the maintenance of SAA flights), R66-million by Mango Airlines (a domestic flights carrier affiliated with SAA and still in the throes of business rescue), and R505-million by other operations of SAA.

Accruals and adjustments

“For the first time in a long time, we can say that the amount [of profit] is substantial even if there are accruals and adjustments to be made by auditors. We can say we have made an operational profit,” said SAA CEO John Lamola in Parliament on Tuesday.

But again, auditors have not audited SAA’s financial statements and the situation will be materially different after the auditors comb through the airline’s financial books. 

During the parliamentary session, Public Enterprises Minister Pravin Gordhan defended the decision to still sell a 51% shareholding in SAA to a consortium that comprises private sector investors. The consortium is called Takatso. It comprises Harith General Partners (an infrastructure company that owns Lanseria Airport in Gauteng), Global Aviation and Syranix, both of which are partners in the aviation industry and co-owners of SA’s newest domestic airline, Lift.

Harith owns 80% of the Takatso Consortium and would be responsible for providing funding for SAA’s capital needs, while Global Aviation and Syranix own the remaining 20% (10% each). In the consortium, Global Aviation and Syranix would be responsible for providing the technical expertise in the running of SAA.

Although the Competition Commission, which regulates competition dynamics in SA’s economy, recommended three weeks ago that the Competition Tribunal approve the Takatso Consortium’s purchase of a majority stake in SAA, it has imposed one condition. The commission wants Global Aviation and Syranix to exit the SAA deal by selling or “divesting” their shareholding in the Takatso Consortium before the tribunal can provide final approval of the deal. 

This implies that the government might buy the shareholding of the minority shareholders in Takatso, inferring that the government would still maintain a majority position in SAA and be on the hook for its future financial requirements.

Gordhan said the commission’s recommendations are for the consortium partners to deal with.

“Their 20% shareholding is in Takatso, not SAA. There is no question of buying them off. This is a matter between two people and entities, they have to sort out their squabbles,” he said.  Gordhan is hoping for the Takatso-SAA transaction to be concluded by August, once it passes regulatory approval hurdles. DM