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TRANSCRIPT
APRIL 2018
SAA Group
Presentation to Standing Committee on Appropriations (SCOA)
2 CONFIDENTIAL – FOR DISCUSSION
Briefing on
Current State of
Airline and
Market
Update on
Turnaround
Implementation
Strategy,
Implementation
and Strategic
Options Risks
Governance,
Supply Chain and
Audits
1 2 3 4
5
Agenda
Oversight Forum
6
1 Briefing on Current State of Airline and Market
4 CONFIDENTIAL – FOR DISCUSSION
Significant increase in
loans due on
demand/within a year
In recent years SAAG has experienced management turbulence, deteriorating results and increasing debt levels
Breakdown of long term
liabilities not available
prior to FY05
Liabilities not
reported
prior to FY01
Coleman Andrews Andre Viljoen Khaya Ngqula Siza Mzimela
Vuyisile Kona
Musa
Zwane SAAG CEOs
Thuli Mpshe
Monwabisi
Kalawe
Nico Bezuidenhout
Note: Guarantees accessed via Transnet prior to stand alone SOE status; *capital expenditure is investment in aircraft, property, equipment & intangible assets
Source: Company financial statements, SA Treasury budget review
1 – BRIEFING ON CURRENT STATE
SAAG
Chairs Donald Ncube Jakes Gerwel Cheryl Carolus Dudu Myeni
= less than 1yr = between 1-5 yrs = more than 5yrs
Maturity
5 CONFIDENTIAL – FOR DISCUSSION
While numerous attempts have been made to restructure, SAAG has met with limited success due to a failure to translate into implementation
Today
Net profit after tax
• Lack of coherent, integrated strategy
• Overt focus on cost reduction without
adequately addressing operating model
constraints
• Limited commercial and business skills to
drive revenue growth
• Reduced customer focus
• Inability to attract and retain best talent
in the market
• Poor implementation driven by a lack of
communication
• Instability of management and
breakdown of culture
• Slow decision-making often due to
increased management restrictions
Note: Financial Year ends 31 March; FY17 NPAT is for YTD; LTTS = Long Term Turnaround Strategy
Source: Corporate Plan, April 2017 – March 2023
Reasons for Underperformance
Corporate Plan
(2017 - Seabury)
1 – BRIEFING ON CURRENT STATE
6 CONFIDENTIAL – FOR DISCUSSION
Increased competition has resulted in a loss of market share and reduced yields
23 ppt Drop in
marketshare
11% Drop in
average fare*
45 ppt Drop in
marketshare
12% Drop in
average fare**
71 ppt Drop in
marketshare
12% Drop in
average fare**
Domestic Regional International
Note: *Average fare CAGR FY14-FY18 for SAA only (excludes Mango); **Average fare CAGR FY14-FY18
Source: SAA data on airline capacity
1 – BRIEFING ON CURRENT STATE
2
Update on Turnaround Implementation
8 CONFIDENTIAL – FOR DISCUSSION
SAAG faces a number of liquidity challenges and has identified mitigations and remedial actions
• Reduction in inflows
• Restricted cash access
• Difficulties with fund raising
• Poor domestic and regional GDP growth
• In discussions with the Shareholder
• Government guarantees
• Liquidity improvement and
management
• Freeing up blocked and restricted cash
Liquidity Challenges and Risks Mitigations and Remedial Actions
2 – UPDATE ON TURNAROUND IMPLEMENTATION
9 CONFIDENTIAL – FOR DISCUSSION
R10bn Treasury cash injection used to service immediate debt obligations and working capital needs
2.2 2.2
4.7 4.7
10.0
(7.5)
(5)
-
5
10
15
Cash @ Apr17 TreasuryInjection
DebtRepayments
Cash availablefor FY18
ZAR
bn
Financing FY18 Operational Requirements
SAA Group Financing Cashflow FY18
Source: Management reports
This position is already unsustainable and will become significantly worse without immediate intervention
Treasury
injection
covered debt
repayment and
cash for
operations
2 – UPDATE ON TURNAROUND IMPLEMENTATION
● FY18 operational cashflow burn
● Restricted cash held in restricted
accounts as well as blocked funds in
Angola, Zimbabwe and Nigeria
● SARS payments to be effected in FY18
10 CONFIDENTIAL – FOR DISCUSSION
Total P&L impact of initiatives not implemented in FY2018 is estimated at R1.6bn
The FY2018 budget and LTTS were premised on certain key assumptions and initiatives; some of these have however not materialised as planned
Key Assumptions
Forex & Oil Price Assumptions Negative Market Dynamics not Anticipated
Key Initiatives
1. Exit 5 wide body aircraft
2. Retain narrow body aircraft
3. Reduce freighter fleet
4. Procurement benefits
5. Central Africa routes rationalisation
1. Sale of 5x owned A340-300 aircraft
2. R900m capital budget
3. Purchase of 2x A340-600
4. R13bn recap over three years
5. Going concern
1. Additional competitor capacity
2. Growth of LCCs
3. JNB by-pass
4. Cape Town reaches critical mass
1. ZAR/USA at R13.2 vs R13 budgeted
2. Brent at $53.6/Bbl vs $50.0/Bbl budgeted today @
$67/Bbl
Status of completion Status of completion
Not completed Completed
Key
2 – UPDATE ON TURNAROUND IMPLEMENTATION
11 CONFIDENTIAL – FOR DISCUSSION
A number of quick wins have recently been implemented, to arrest immediate losses and start to turn around performance …
Capacity
Redistribution
Route
Optimisation
Other
Organisation
• Shifted 4 narrow-body aircraft to Mango to address excess capacity for SAA and reduce impact of
Low Cost Carriers (LCC) market share gain
• Planned return for 1 of 3 freighters to lessor to optimise profitability
• At lease maturity, shift from 737-300 to ATR-72 aircraft (freight) to further improve operating
cost economics
• Reviewed unprofitable routes including reductions in West Africa, LHR and domestic transfer to
Mango
• Adjustment of SAA schedule to focus on business and premium economy traffic
• Continuing to build Change Hub in order to manage transformation within the business
• RfP issued for operating model redesign – creating fit for purpose organisation
• Renegotiated terms with key suppliers
• Approached potential lenders to support financing requirements
• Initial discussions with Board regarding role of subsidiaries
Staff costs • Engaging labour around state of the airline and possible restructuring
• Negotiations with labour and pilots to achieve greater productivity
2 – UPDATE ON TURNAROUND IMPLEMENTATION
12 CONFIDENTIAL – FOR DISCUSSION
Trending below
last year
Trending above
last year
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
-8% -5% -5% -8% -8% 1% 4% 5% 7% 6% 8% 2%
-2% 0% -8% -1% -1% 5% 9% 15% 11% 4% 0% -9%
-2% -3% -4% -4% -1% -4% -5% -11% -11% -15% -16% -16%
5% 3% 3% 0% -4% -3% -3% -2% -2% -2% -3% -3%
3% 0% -2% -3% -5% -7% -8% -12% -12% -16% -19% -18% 3% 2% 0% -1% -1% -4% -7% -12% -13% -18% -28% -29%
-13% -7% -6% -7% -4% 5% 7% 6% 8% 8% 13% 7% -12% -10% -9% -10% -8% 0% 6% 7% 10% 10% 25% 22%
Total - SAA Routes
10916 49 41 23
154
-67-151 -191 -181 -122 -129
-93
+76-180 +59
+156
-134
-164
-163-80 -103
-73+196
C4 (m's)
2 291 2 278 2 195 2 307 2 308 2 208 2 2612 066 2 142 2 034
1 8071 994
ASK(m)
-88 -87 -89 -88 -87-80
-91 -95-101 -97 -95 -94
Gross CASK
-11%-7% -8%
9%
-3%
-8%
5%1% 2% 2%
-9%
1%
Gross Margin
93 96 92 9889 87 88
85 80 8092 88
Gross RASK
77%69% 68%
76%
74% 75% 76% 72% 76% 72% 68%73%
LF%
1 7581 575
1 4891 753 1 719 1 666 1 720
1 4791 631
1 4721 227
1 453
RPK(m)
85 87 85 87 86 87 83
75 78 80 85 80
Yield(c/RPK)
588 705 554 781513 216
586 047 577 420 564 743 581 935500 831 537 412
449 251376 761
420 028
TOTAL PAX
3 645 3 744 3 804 3 906 4 036 4 182 4 160
3 305 3 292 3 421 3 634 3 522
Gross Avg Fare
… that have led to improvements in RASK, yield and average fare across the SAA network
13 CONFIDENTIAL – FOR DISCUSSION
… DOMESTIC
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
-9% -5% -1% -8% -1% -1% 5% 14% 14% 14% 26% 26%
1% -5% -4% 0% -6% -3% 4% 17% 13% 7% 8% -14%
-2% 1% 0% -1% 2% -3% -5% -18% -16% -26% -41% -46%
1% 1% -1% -2% -2% -4% -3% -1% -5% -1% 2% 2%
-2% 2% -1% -3% 0% -7% -8% -19% -20% -27% -40% -45% 0% 3% 0% -2% 0% -6% -8% -19% -19% -27% -42% -48%
-6% 0% 4% -2% 1% 12% 14% 17% 24% 20% 33% 31% -11% -7% -2% -7% 0% 2% 9% 15% 19% 15% 27% 29%
Total - DOM
1 22 9
76
-42 -23
-81-51 -33 -29 -21
-51
-38+3
+14
-31 +20-11 +6
+37
+11+5
+57
+99C4 (m's)
341 334
321 324 333 321 326
271 278241
180 180
ASK(m)
-116-125 -118 -120
-108
-126 -122 -129-148
-135 -139 -146
Gross CASK
-6%
-25%
-9%
5%
-6%
-18%
3%
28%
-11% -14%-8%
Gross Margin
135 137128
118
151 150
113 110100 106 108
120
Gross RASK
81%74%
83% 84%
69% 73% 73% 77%83% 81% 77%
71%
LF%
252
261222
243 243 248269
218 214173
150 152
RPK(m)
102 99 99108 116 120 119 125
136 134
100 100
Yield(c/RPK)
270 921243 618
263 418
277 734 268 896 265 639 282 662
231 187 232 683
181 834152 037 154 308
TOTAL PAX
1 372 1 4501 560 1 605 1 524 1 565
1 791 1 756
1 312 1 380 1 332 1 317
Gross Avg Fare
Trending below
last year
Trending above
last year
2 – QUARTER 3 REPORT
14 CONFIDENTIAL – FOR DISCUSSION
… REGIONAL
2 – QUARTER 3 REPORT
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
-3% -5% -8% -8% -6% 6% 8% 12% 13% 14% 17% 16%
-4% -3% -8% -1% -2% 3% 11% 16% 11% 1% 0% -8%
0% -4% -2% 1% 2% -1% -10% -15% -13% -18% -19% -18%
5% 4% 0% 0% -6% 0% -1% 6% 2% 4% 2% 3%
6% 0% -2% 1% -4% -1% -11% -10% -12% -14% -17% -15% 7% 3% 2% 3% 0% 2% -6% -4% -6% -7% -12% -11%
-11% -10% -8% -7% 0% 8% 10% 8% 11% 10% 18% 16% -9% -12% -12% -9% -4% 3% 3% -1% 4% 1% 7% 6%
Total - REG
31 1256 58 59 38
0
91
7 1
95
-24
+4
+4 -17
-43-25
+17 -14
-21
+9
+61 +75
+101C4 (m's)
510 526 521
508 492 491 475440 463 432
383419
ASK(m)
-102 -101 -103 -103 -101-93
-105 -110-119 -114 -109 -113
Gross CASK
6%
-5%
10%15%
2%
20%
2%
9% 10%7%
Gross Margin
117 119 119134
110 113 115
108 103 98113 112
Gross RASK
68%63% 60%
67% 67%74%
66% 63% 64%
64% 67% 66%
LF%
345 354
318293
335 329 315 294343
284240
270
RPK(m)
110 112 111 109 103114 114
96 100 99 104 108
Yield(c/RPK)
180 362 171 256 160 833186 897 184 884 175 304
170 889158 885
179 968
150 663129 249
147 754
TOTAL PAX
3 283 3 294 3 4393 162 3 362 3 271
3 060 3 056 2 997 3 188 3 159 3 298
Gross Avg Fare
Trending below
last year
Trending above
last year
15 CONFIDENTIAL – FOR DISCUSSION
… INTERNATIONAL
2 – QUARTER 3 REPORT
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
-10% -6% -6% -8% -11% -2% 3% 1% 4% 3% 5% -3%
-1% 2% -9% -3% 1% 8% 11% 16% 12% 7% 4% -3%
-2% -3% -6% -6% -3% -5% -4% -8% -9% -11% -9% -8%
6% 3% 4% 1% -4% -4% -3% -4% -2% -4% -5% -5%
4% 0% -2% -5% -6% -9% -7% -11% -11% -15% -14% -13% 5% 1% -3% -5% -5% -7% -6% -10% -10% -14% -14% -12%
-15% -8% -8% -9% -8% 1% 4% 1% 4% 5% 9% 2% -16% -10% -9% -10% -9% 0% 4% 3% 4% 5% 11% 1%
Total - INT
104
-56-141
-86-9 -11 -19
-152-47 -78
-139
-16
-80 +58 -147
-40
+24
-4
-100
-90-158
-108-93
-88
C4 (m's)
1 460 1 429 1 379 1 448 1 454 1 396 1 4601 356 1 402 1 361
1 2441 395
ASK(m)
-74 -75 -74 -72
-75 -75 -79 -82 -86 -84 -83 -81
Gross CASK
-9%
-16%-5%
-15%
9%
-1% -1% -2%
-15%
-4%-7%
-2%
Gross Margin
8075
80 7770
7065 69
8175 79
71
Gross RASK
79%70% 71%
80%
78% 78% 78%71%
77% 75%67%
74%
LF%
1 152
1 004 9741 156 1 140 1 090 1 136
9681 074 1 015
837
1 031
RPK(m)
72 74 70 74 75 71 67
64 65 6976
67
Yield(c/RPK)
130 609112 604
108 765
130 254 129 118 123 800 128 384110 759
124 761 116 754
95 475
117 966
TOTAL PAX
8 867 9 152 9 121 9 024 9 013 9 0998 420
7 880 8 253 8 727 9 0568 429
Gross Avg Fare
Trending below
last year
Trending above
last year
3 Strategy, Implementation and Strategic Options
17 CONFIDENTIAL – FOR DISCUSSION
The Group turnaround plan forecasts breakeven by FY2021
(7)
(6)
(5)
(4)
(3)
(2)
(1)
-
1
2
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23
ZAR
bn
SAA Group
SAA Group Net Profit/Loss
Actual Forecast
Source: Management reports
3 – STRATEGY, IMPLEMENTATION AND STRATEGIC OPTIONS
18 CONFIDENTIAL – FOR DISCUSSION
1. Transform SAA into a commercially capable organisation
whilst defending the safety track record. “Flying for Profits”
2. Establish an efficient production and
operating platform for SAA
3. Win the battle for premium and
business traveller in the domestic
market.
4. Win the battle for price
sensitive segment of the
market in the domestic
market.
5. Become a focused and niche
player in the international
market leveraging alliances
and partnerships
6. Grow scale in the regional market through organic growth
and commercial partnerships as well as SAATM
8. Develop aviation skills for the
group and achieve workforce
diversity in all occupational
categories
7. Lead in customer experience
management
9. Shape the aviation policy in
SA and Africa to defend SAA
market and enable growth in
the market
10. Strengthen balance sheet
and address liquidity
challenges
The SAA Change Agenda is driven by ten key strategic priorities
3 – STRATEGY, IMPLEMENTATION AND STRATEGIC OPTIONS
19 CONFIDENTIAL – FOR DISCUSSION
Take control, reduce costs
and deliver service Exercise Internal and External Options Maximise Shareholder Value Optimise Revenue and Customer
Service
15 -30 months 0-6 months 3-18 months 24-36 months
● Cost/contract management
● Focus on core activities
● Network & Route Profitability
● Customer Engagement
● Robust Systems & Processes
● Management and organisation Accountability
● Revenue Management
● Cost Management
● Brand / Marketing
● Profit Centres
● Digital
● Recover Market share
● Market & Customer focussed Strategy
● Fleet alignment
● SAAT / Air Chefs / Cargo
● Voyager
● Mango
● Alliances / Code shares
● Strategic partners
● Promoter of the African Experience
● Network Growth
● Revenue Growth
Plan leverages a structured approach consisting of 4 phases; initial phase focuses on
addressing immediate remedial actions
Grow
Stabilise
Change
Arrest
November 2017
3 – STRATEGY, IMPLEMENTATION AND STRATEGIC OPTIONS
20 CONFIDENTIAL – FOR DISCUSSION
Market Strategy - A number of key strategic initiatives to address the market at domestic, regional and international level
Arrest Change
Take control, reduce
costs and deliver service
Exercise Internal and
External Options
Stabilise Grow
Maximise Shareholder
Value
Optimise Revenue and
Customer Service
Market Short term action (6 m) Medium term implementation (6-18 m)
Short term initiation (6 m)
Longer term implementation (18+ m)
Medium term initiation (6-18)
International • Lease LHR Slot
• Resolve HKG
• Review North-America
• Revenue focus on other routes
• Whole of state approach to connecting traffic
• Review CPT options
• Aircraft layout/product
• New markets east west e.g. Sydney, Melbourne, South America, Miami
• Evaluate China options
• JVs with Star Alliance and other partners
• LHR second rotation (from Africa)
• Product (wifi on board, Right size)
• Become key player for East - West premium traffic through JNB leveraging alliances and partnerships
• 4th US destination
• LCC long haul operation
• Create JNB as premium connecting Hub
Regional • Grow Mango on LCC routes
• Manage franchise partners – mixed asset model
• Growth traffic through West Africa
• Whole of state approach to connecting traffic
• Create JNB as premium connecting Hub
• Smaller gauge through partner or self
• Reconfigure A/C layout
• Increase west Africa links to US and UK
• Establish East Africa hub through partnership
• Address airport infra requirements (JNB), e.g. immigration, fast-track, pax & baggage transfer
• Franchise model for Africa – SA Express
• JV
• Become major regional player consolidating JNB hub through strategic partnerships
Domestic • SA focus on premium and connecting traffic (FSC)
• Mango wins the battle for leisure and price sensitive traffic (LCC)
• Resolve issues around SA Express
• Move majority of flights to Mango • Consider future SAA position in domestic market
• Premium and connecting traffic (SAA)
• Maintain leadership position in price sensitive traffic (Mango)
• Develop SA Express
3 – STRATEGY, IMPLEMENTATION AND STRATEGIC OPTIONS
21 CONFIDENTIAL – FOR DISCUSSION
Organisational Strategy - A number of radical strategic initiatives will underpin the airline restructuring and its implementation
HR organisation to fit the revised operating
model and develop professional skills and
workforce diversity across all areas
Creating the culture and tools to ensure
customer service excellence through an
integrated customer engagement strategy at all
touchpoints throughout the journey, improving
NPS
Distribution channel strategy is aimed at
increasing share of direct digital sales, reduce
number of call centres and lower indirect
channel costs
Develop codeshares beyond Star Alliance,
similar to the Air New Zealand model, with a
view of reviewing membership
Overall fleet reduction to be implemented
• Narrow body: sub-lease 738 to Mango and
maintain A320 narrow body fleet constant
over 5-year period
• Wide body: reduce A340 fleet from end-
2018
Develop through partnerships
• Seek JV with SAAT once operations restructured and develop a southern MRO centre of excellence
• Spin AirChefs with a potential JV so SAA remains involved as stakeholder/shareholder
• Enable Voyager for potential future part spin-off
• Evaluate outsourcing or strategic partner for Cargo
Transform SAA into a commercially capable airline
whilst maintaining passenger safety record and
establish an efficient production and operating
platform, asking for exemption from the PFMA
• Business process simplification
• Restructuring
• Cost programmes
Deploy IT platform to enable efficient business
and operational support
3 – STRATEGY, IMPLEMENTATION AND STRATEGIC OPTIONS
4
Risks
23 CONFIDENTIAL – FOR DISCUSSION
Limited management capacity to execute the strategy is a key risk to the implementation of the turnaround plan
Role Division Status
1. Legal Officer Legal Interim resource starting April
2018. Search ongoing for a
permanent appointment.
2. Risk Officer Risk Interim resource starting May
2018. Search ongoing for a
permanent appointment.
3. Procurement Officer Procurement Appointment made
4. Chief Commercial Officer Commercial Filled. Started February 2018
5. General Manager: Cargo Cargo Shortlisted and interviews
scheduled for 6 April 2018.
6. Chief Information Officer IT Appointment made
7. CEO Mango Mango Resource acting
8. CEO Air Chefs Air Chefs Appointment made and will
commence April 2018
9. Head of Department: Taxation Finance Appointment made and will
commence May 2018
10. Regulatory Policy Risk Filled. Started March 2018
4 – RISKS
24 CONFIDENTIAL – FOR DISCUSSION
Additional capacity to industrialise strategy implementation is required at SAA
Alliance and JVs
Finance
Data Science
Digital
Revenue Assurance
Distribution Channel
Legal
Enterprise Risk
Supply Chain Management
Network Development
Revenue Management
Sou
th A
fric
an A
irw
ays
Skills and Capacity Required at SAA
SAA to leverage external capacity to provide the
necessary skills and capacity as when required
In addition to stabilising the Group Executive Committee at SAA, there is
a need to bring short-term highly skilled resources to industrialise the
strategy implementation.
4 – RISKS
25 CONFIDENTIAL – FOR DISCUSSION
Conditions and key dependencies for successful turnaround strategy execution at SAA
Conditions
1. Continuous going concern
2. Close collaboration between the shareholder and the board
3. Good governance and Board responsiveness
4. Executive and organisational capacity and skills
Key Dependencies
1. Successful manpower productivity rightsizing
2. Organisational culture and agreement with labour
3. Speed and agility of contract revisions and re-negotiations
4. Funding of the SAA turnaround plan and debt extension beyond FY2019
4 – RISKS
26 CONFIDENTIAL – FOR DISCUSSION
Dependencies and risks for the revised financial plan
● Lifting of 6-month contract moratorium
● Successful manpower productivity rightsizing
● Speed and agility of contract revisions and re-negotiations
● Responsiveness from Board on decision making
● Continuous going-concern
● Long-term debt extension beyond FY19
● Retirement of wide-body aircraft
● Macroeconomic drivers
● Competition behaviour and market reaction to SAA initiatives
● External drivers such as FX and Brent price
● Risk of unionised labour unrest and follow-on effect on operations
● Cash flow
● Aircraft availability and dispatch reliability
Key dependencies
Main risks to financial plan
4 – RISKS
5
Governance, Supply Chain and Audits
28 CONFIDENTIAL – FOR DISCUSSION
SAA has seen a significant increase in irregular, fruitless and wasteful expenditure compared to FY2016
Expenditure FY2017 Quantum Root Causes
1. Irregular • R125.9 million • Interest on late payments
• Lack of planning on aircraft returns
• Delays in finalising contracts 2. Fruitless and wasteful • R40.4 million
Irregular expenditure mainly resulted from delays in concluding contracts, whilst fruitless and wasteful
expenditure was largely a result of late payments
Progress in addressing irregular, fruitless and wasteful expenditure
● Reviewing the Supply Chain Management (SCM) Policy
● Capacitating the SCM department
● Undertaking refresher training for the rest of the business
● Consequence management where appropriate
5 – GOVERNANCE, SUPPLY CHAIN AND AUDITS
29 CONFIDENTIAL – FOR DISCUSSION
The Board and management acknowledge the severity of the AGSA findings …
2016/17 Qualification Areas Audit Finding(s)
1. Property, aircraft and equipment • SAA did not adequately review useful lives and residual values of property,
aircraft and equipment in accordance with IAS 16
2. Rotables
• Existence of some rotables could not be verified; and
• The completeness of the rotables on the fixed asset register could not be established
3. Property, plant and equipment (PPE) • SAA did not assess its PPE for impairment in terms of IAS36
4. Inventory
• The key assumptions applied by SAAT in calculating net realisable value were not supported by sufficient appropriate audit evidence
• Existence of certain inventory items could not be verified
5. Maintenance costs
• Maintenance costs recognised in the incorrect period
• Maintenance costs not reflecting on Statement of Comprehensive Income
• Incorrect exchange rates used
• Prepayments charged to the Statement of Comprehensive Income
6. Irregular expenditure • SAA did not establish adequate controls to maintain complete records of
irregular expenditure
7. Fruitless and wasteful expenditure • SAA did not establish adequate controls to maintain complete records of
fruitless and wasteful expenditure
8. Material uncertainty related to going concern • Material uncertainty exists that may cast significant doubt on the
company’s ability to continue as a going concern
5 – GOVERNANCE, SUPPLY CHAIN AND AUDITS
30 CONFIDENTIAL – FOR DISCUSSION
… and a detailed project plan is being implemented to address these findings
2016/17 Qualification Areas Root Cause(s) Resolution Status Target Date
1. Property, aircraft and
equipment
• Annual review of useful lives and residual values on owned aircraft not done at component level
• Lack of clarity on property ownership between SAA & SAAT impacted accuracy of allocation of adjustments
In progress May 2018
2. Rotables • Stock counts not done
• Stock receipt on both Memis & SAP not done
In progress May 2018
3. Property, plant and
equipment (PPE)
• Carrying value of assets more than recoverable amounts
• Accelerated depreciation on some assets
In progress May 2018
4. Inventory • No records of policy being applied Completed February 2018
5. Maintenance costs
• Accruals not made
• Differences between SAA & AGSA on treatment of restoration costs
Completed January 2018
6. Irregular expenditure • Lack of planning on aircraft returns
• Delays in finalising contracts
Completed January 2018
7. Fruitless and wasteful expenditure
• Late payments In progress April 2018
8. Material uncertainty related to going concern
• Under capitalisation
• Accumulated losses
In progress September 2018
5 – GOVERNANCE, SUPPLY CHAIN AND AUDITS
6
Oversight Forum
32 CONFIDENTIAL – FOR DISCUSSION
The Oversight Forum – (April – Sept 2018)
6 – OVERSIGHT FORUM
PURPOSE
1. National Treasury as a shareholder of South African Airways and the Board of Directors of SAA have decided to form a joint task force ( The
Oversight Forum) aimed at jointly finding solutions to the funding challenges facing SAA as well creating an enabling environment for
successful execution of the turn-around strategy at SAA.
2. Both National Treasury and Board of Directors of SAA understand that an urgent solution must be found to address the funding challenges
facing South African Airways.
TERMS OF REFERENCE
1. Determine the optimal capital structure for SAA;
2. Determine mechanisms to implement the optimal capital structure and funding model for SAA;
3. Define a work programme to plan and monitor the realisation of the objectives of the Oversight Forum, as set out in the attached “Oversight
Committee Work Plan”; and
4. Design appropriate mechanisms to oversee and monitor the implementation of the turnaround strategy beyond the term of the
Oversight Forum
COMPOSITION
1. The Chairperson of the Oversight Forum shall be the Deputy Minister of Finance. and the Deputy Chairperson will be an SAA Board
Member. In the absence of the Chairperson, the Deputy Chairperson shall chair the Oversight Forum.
2. Minuted resolutions of the Oversight Forum shall be binding on the Parties, who undertake to implement their respective tasks within the
agreed time frames.
3. The meetings of the Oversight Forum shall take place bi-weekly (in either person or teleconference/videoconference) on dates pre-
determined by the Forum. Any amendments to the pre-determined dates will be after consultation with the SAA and National Treasury
representatives.