SAA posts R1.3bn operating loss

Nicky Smith

PUBLIC Enterprises Minister Malusi Gigaba has questioned whether the response from South African Airways (SAA) management was adequate and timeous enough to cushion the airline from the turbulent aviation environment, with the struggling carrier yesterday posting an operating loss of R1.3-billion.

Gigaba, the shareholder representative, said that while it was understood that trading conditions were challenging, they were the same for all airlines and SAA had performed worse than its peers.

The carrier reported an increase in revenue to R23.8-billion for the year ended March 31, from R22.6-billion in the previous financial year.

Gigaba said he was concerned about the rate of cash burn at SAA, which had depleted the working capital and exposed the airline to possible default on some of its contracts because of its weakened cash and balance sheet position.

The airline had been hit hard by higher fuel prices, which pushed up fuel as a proportion of operating costs from 28% to 33%.

The airline has been rocked over the past three weeks as the financial difficulty in which it found itself put enormous pressure on the relationship between the former board and the Department of Public Enterprises.

Many board members resigned last month, citing a breakdown in the relationship between themselves and the ministry. Within weeks of their departure, SAA CEO Siza Mzimela and two senior managers announced their intention to leave the airline.

Gigaba said the new board had been mandated to turn the loss-making business of the airline around and to contain costs.

A task team, announced by the minister yesterday, must present a holistic turnaround plan for the aviation assets by December 15. The task team includes newly appointed SAA chairman Vuyisile Kona and the CEOs of South African Express and Mango.

SAA’s chief financial officer, Wolf Meyer, said global volatility in aviation markets continued throughout the year.

High fuel prices settled above $110 a barrel for the 2012 financial year.

Meyer said SAA’s “cost compression” programme was well under way to remove R1.3-billion from the airline’s operating costs.

The airline was hit by costs other than fuel spikes – such as airport taxes, which cost R129-million in the year; and parking, landing and navigation fees, which rose 18% to R99-million.

Meyer said stripping out the costs of the increase in fuel prices would have meant the airline would have reported a net profit.

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