The Standing Committee on Public Accounts (SCOPA) held a joint meeting with the Portfolio Committee on Public Enterprises to receive an update on the state of affairs at South African Airways from the Minister of Public Enterprises, staff at South African Airways and the business rescue practitioners appointed to the airliner.
The Minister requested that no questions on the business rescue plan or investigations be directed at the business rescue practitioners as their work was confidential until approved by the creditors. The briefing by officials gave some background on how SAA had ended up in business rescue on 6 December 2019, and the implications of being in business rescue, as well as the relevant sections of the Companies Act. SAA was the first public entity to be placed in business rescue and a lot of lessons would be learnt by government and business rescue practitioners in the cross-matching of the Companies Act and the Public Finance Management Act. The Annual Financial Statements for 2017/18 and 2018/19 had not been provided within one month of the Audit Report as required by the Public Finance Management Act but the Minister had, lawfully in terms of section 65(2) of that Act, delayed the tabling of the Reports. If the Annual Reports were tabled, they would effectively place SAA in liquidation.
The Minister added that once the board of SAA had come to the view that the entity was in financial distress, the board had to determine whether to restructure, go into liquidation or go into business rescue. In recent times, SAA had relied heavily on the private sector for funding and, at that time, funding was only available if SAA went into business rescue. SAA then required post-commencement finance to sustain it during the process of business rescue. After doing an assessment, the business rescue practitioners had come to the view that the entity was rescuable but not as it existed at that moment due to corruption, poor management, mismanagement, poor choices of aircraft and the fact that most aircraft were leased which meant that there was a base cost for every flight. The current funding would be sufficient to carry the Airways through to early March, which was when the report by the business rescue practitioners was due.
The Committee was aware of the provisions allowing a Minister to provide reasons for not submitting an Annual Financial Statement but the Committee was not in agreement with a prolonged non-submission of annual financial statements. It had been two years and the Committees wanted SAA to develop a roadmap for submitting financial statements. Members wanted to interact with that process. Despite protestations from SAA that it was not possible to submit financial statements, the Committee remained fundamentally and unequivocally resolved that financial statements be submitted so that SCOPA was in a position to fulfil its oversight role as per the parliamentary rules. The provision in the Public Finance Management Act giving an entity authority to give reasons for not tabling financial statements, did not give the entity authority never to table the Annual Financial Statements. Ultimately, the Minister agreed to discuss the possibility of providing management accounts in the interim. He also proposed that all Members of Parliament and all government officials be requested to fly SAA in order to improve passenger numbers and revenue.
Members had many questions for the Minister and the officials. What were the consequences for the people who had failed to carry out their duties in the entity? How much funding did SAA now require? Could the Minister perhaps inform the Committees of some of the lessons learned and the interaction of the Companies Act and the PFMA? To what extent were there aviation experts advising the business rescue practitioners? There was a shortfall of R2 billion in 2016 and now the shortfall was R4 billion. What informed that increase?
A Member asked if the State-owned Enterprises were not just grandiose welfare institutions. Would the economy not be better served by allowing private business to take over and running the companies according to the needs in the market? Members were concerned that flights on the extremely busy route from Johannesburg to Durban had been cancelled while flights on the minor route from Johannesburg to Nelspruit had been retained. What was going on? Lastly, Members asked what the intentions were regarding labour.
Members suggested that Parliament needed to address the loophole in section 65(2) of the Public Finance Management Act or more entities would use that loophole and there would be nothing Parliament could do.
The Chairperson declared the meeting suspended, not closed. He maintained that the Committees needed to hear from the business rescue practitioners. Their work had to be concluded by 6 March 2020 and a date would be set for the business rescue practitioners as the Accounting Authority to appear for a full hearing. SAA could not venture into any new arrangement without SCOPA hearing from the business rescue practitioners who were responsible for the transitional period. SCOPA would map out the way forward. SAA remained at the centre of parliamentary focus and SCOPA awaited financial details from SAA.
The Chairperson welcomed everyone to the joint meeting of the Standing Committee on Public Accounts (SCOPA) and the Portfolio Committee on Public Enterprises. The meeting was being held to obtain a briefing on the state of affairs at South African Airways (SAA).
Adv S Swart (ACDP) noted that the presentation sent by SAA was marked “Secret” but the meeting was open to the public.
The Chairperson responded that SAA would address that issue when it made the presentation.
Remarks by the Minister of Public Enterprises
Minister Pravin Gordhan apologised for the quality of his voice as he had laryngitis, but he assured the Committees that, other than that, he was fighting fit. He added that the document was no longer secret. SAA had been requested by SCOPA to provide an update on its status and would make a presentation that would give some background on how it had ended up in business rescue on 6 December 2019, and the implications of being in business rescue as well as the relevant sections of the Companies Act. SAA was the first public entity to be placed in business rescue and so a lot of lessons would be learnt by government and business rescue practitioners in the cross-matching of the Companies Act and the Public Finance Management Act (PFMA). SAA was prepared to respond to any other issues that the Committees might have.
The team of business rescue practitioners had been requested to be present but they could not answer questions on the business rescue plan or investigations. The business rescue practitioners were developing a business rescue plan and when it is approved, it would be made public. The Minister asked, respectfully, that Members not address any such questions to the practitioners.
Presentation by SAA
Mr Melanchton Makobe, Acting Deputy-Director General, DPE, presented the report to the Committees. He was supported by the Acting Director-General (ADG), Kgathatso Thlakudi and the Chief Director: Head of Aviation, Ms Nonny Mashika.
Mr Makobe explained that performance at SAA had deteriorated in the 2019/20 financial year leading to business rescue as liquidation was not a viable option. The business rescue practitioners were developing a business rescue plan inclusive of restructuring and, in the interim; the government was providing post-commencement finance (PCF) to sustain operations. He detailed the events leading to business rescue and noted that Mr Les Matuson and Mr Siviwe Dongwana had been appointed as joint business rescue practitioners.
Mr Makobe detailed the implications of liquidation and why it was not viable. He also explained the implications of business rescue as well as the powers of the shareholder, board and business rescue practitioners and how business rescue came to an end.
The Annual Financial Statement had not been provided within one month of the Audit Reports but the Minister had, lawfully, delayed tabling of the AFP. If the Annual Reports were tabled, they would effectively place SAA in liquidation.
Section 65 of the Public Finance Management Act No 1 OF 1999 stated: Tabling in legislatures. — (1) The executive authority responsible for a department or public entity must table in the National Assembly or a provincial legislature, as may be appropriate—
(a) the annual report and financial statements referred to in section 40 (1) (d) or
55 (1) (d) and the audit report on those statements, within one month after the
accounting officer for the department or the accounting authority for the public entity
received the audit report;
(2) If an executive authority fails to table, in accordance with subsection (1) (a), the annual
report and financial statements of the department or the public entity, and the audit report on those
statements, in the relevant legislature within six months after the end of the financial year to which
those statements relate—
(a) the executive authority must table a written explanation in the legislature setting out
the reasons why they were not tabled.
The Minister stated that SAA went into business rescue formally on 6 December 2019. It was the board that had determined that business rescue was the way to go. Once the board had come to the view that SAA was in financial distress, the board had to determine whether to restructure, go into liquidation or business rescue. In recent times, SAA had relied heavily on the private sector for funding and, at that time, funding was only available if SAA went into business rescue. SAA then required PCF (post-commencement funding) to sustain it during the process of business rescue. After doing an assessment, the business rescue practitioners had come to the view that the entity was rescuable but not as it existed at that moment due to corruption, poor management, mismanagement, poor choices of aircraft and the fact that most aircraft were leased which meant that there was a base cost for every flight. All of those factors would be considered in the restructuring. The business rescue plan would say in what state SAA could survive as a viable business into the future and what restructuring was required.
He added that a choice would have to be made regarding which routes remained and which were discontinued and that would determine the kind of fleet required and the required staffing. There would be negotiations with lessors and other stakeholders as well as the shareholder. SAA had a very large head office and other expenses that would make many routes unprofitable. However, if one took only the core costs, some routes could be profitable. Other airlines had bought their aircraft and so did not carry ongoing costs in the way that SAA did. Those were some of the elements that would emerge from the business rescue plan. The issue was the money required in the interim. Some money had come from the fiscus, private lenders and also Development Finance Institutions (DFIs). A key issue was how those involved managed to ensure that pressure on the fiscus was reduced and the entity could grow into the future?
The Chairperson said that he was aware of the provisions relating to annual financial statements but the Committee was not in agreement with a prolonged non-submission of annual financial statements. It had been two years and the Committees wanted SAA to develop a roadmap for submitting financial statements. The application of any provision, such as section 65, had to be rational. In the previous meeting with SAA that had been explained. The Committee remained of the view that a process had to be set into motion and Members wanted to interact with that process.
The Committee had intended to visit the board in December to discuss how it would happen but events had taken place. Whilst there was an understanding of the prevailing realities, the financial statements for SAA were required. SCOPA was duty bound to examine the financial statements. It also did not want to set a precedent that would be followed by other entities. SCOPA was not dictating when it should happen, but a process had to follow that would ensure submission of statements. The submission to delay financial statements was an exception, not a norm and so when the financial statements had not been presented for two years, going on three, it became a problem, but it was still going to happen. Fundamentally and unequivocally that was still going to happen.
Mr A Lees (DA) requested that the meeting proceed on a question and answer basis.
Given the fact that it was a joint meeting, the Chairperson determined that each Member had three questions.
Mr Lees noted that the Minister had suggested five questions per Member.
The Chairperson agreed that that could be done if the Minister was chairing the meeting.
Mr Lees stated that the provision in the PFMA giving authority for an Executive Authority to give reasons for not tabling financial statements, did not give the entity the authority not to table at all. There was a lacuna in the provision as it did not state the period in which an entity did not have to table once it had given reasons but that did not mean that SAA never had to table the statements. That was a legal issue.
Mr Lees had submitted a PAIA application but had not received a response. However, his information was that the board had resolved to liquidate the airline. Was it true that the board had taken a decision to liquidate prior to December 2019?
Mr Lees asked that the business rescue practitioners answer some questions, although not about the plan. There had not been a formal report about the matter but R2 billion had been made available in December by a bank. On what basis had the loan been made? Were further guarantees issued? Were guarantees issued with the full blessing of National Treasury and the Minister of Finance? When were the loans repayable? Apparently, the R2 billion had been used up by the end of January and there were reports of salaries not being paid. There were reports that the Development Bank South Africa (DBSA) had loaned SAA R5.3 billion. How long would it last, when would it have to be paid, and by whom?
Ms N Mente-Nqweniso (EFF) understood that it was a joint Committee meeting so they could ask about financial as well as general matters. Members had heard about why the bailout was required but there was no detail regarding why the money was required and what the money would be used for. In the last Annual Financial Statement (AFS) tabled in Parliament in 2016/7, the shortfall was only R2 billion. The Committee did not know if SAA needed R5 billion, R10 billion or R20 billion, and why it was needed. In 2016/17, the income of SAA was R30 – R31 billion and operations were around R33 billion. There was a plan in place in 2018 to deal with all the issues raised in the meeting by the Minister.
As far as Section 65 was concerned, Ms Mente stated that the Minister ought to have put systems in place and ensured that there were consequences for the people who had failed to carry out their duties in the entity. How much did SAA now require? It had been R2 billion in 2017 but had risen to the current point. The Committee had even identified a logistic company that was situated at the airport alongside SAA Technical, that was not needed but was contracted to manage SAA’s own equipment and it was being paid millions. It was there to manage stock bought by SAA for use by SAA Technical. The issue of spares disappearing at SAA Technical had never been dealt with. The Committees needed to know what had happened. She agreed that that SAA had to be saved, and she agreed with putting SAA into business rescue. However, money could not be thrown down the drain. Could SAA please explain what had happened to those involved? Had there been consequences?
Ms Mente noted that SCOPA had met with the board and there had been a proper plan, but now everything was spiralling and the plan was not implemented.
Mr G Cachalia (DA) noted that, in terms of the appointment of the business rescue practitioners, a report was required and clearly an extension had been given but, in the interim, it was reasonable to ask, not with specific regard to the plan because that would come later, what had led to the rationale for the direction chosen in the binary choice between liquidation and restructuring. Clearly restructuring had been chosen. Could the Minister share some information about what had informed their belief to make that particular choice under a certain set of circumstances? Could the business rescue practitioners unpack some of those circumstances so that Members could be wiser? The presentation that the Committees had received was clearly procedural and in the public domain and did not take the Committees further.
Adv Swart noted that the Minister had said that the Members knew about the background to SAA from the Zondo Commission and the delinquency trial of the former board chairperson and that it was the first entity to be placed under business rescue. Could he perhaps inform the Committees of some of the lessons learned and the interaction of the Companies Act and the PFMA? It was unchartered territory and Parliament needed to exercise its oversight even though the business practitioners had taken over as accounting officers. It was a challenge, understanding that the plan to be produced would have to be discussed but there were critical issues such as the discontinuation of routes and the possible sale of aeroplanes. The Committees needed to engage on those issues. When the Portfolio Committee had met the board, it had said there would be large capital injections. Members saw now that there was a degree of capital injections and a key question was how long those capital injections would last. Considering that it was unchartered territory, to what extent were there aviation experts advising the business rescue practitioners?
Mr B Hadebe (ANC) stated that his interest was in the financials. In terms of section 65 (1) and (2) of the PFMA there was the opportunity to submit an explanation to Parliament. Nevertheless, section 65(1) was still applicable and determined that an entity had to submit its financials to Parliament. It did not give the leeway of not tabling at all because SAA had provided explanations. At the previous meeting, the board had said that it could not present the financials because it could not guarantee the company as a going concern and there had been an undertaking from the shareholder to provide R2 billion and that when the R2 billion funding had been received, the financials would be provided. Funding had been received but the financials had not been provided. Section 65(2) did not give the entity leeway to ignore section 65(1) and pretend as if it did not exist. When was SAA planning to submit the financials? Without the financials, Members could not understand the extent and nature to which intervention was needed.
The Chairperson stated that the financials remained an outstanding matter. He noted that the Minister had said that they were in unchartered waters. The last time that SAA had appeared before the Committee, Members had been informed that the basis not to provide the financials was informed by a legal opinion. The Committee had requested to see that legal opinion. The Committee had consulted parliamentary legal services and so, to understand the situation better, the Committee wanted to see the legal opinion. That had not been seen. Members had had very little joy in respect of receiving information from SAA. Promises had been made but deadlines had not been met.
Mr Hadebe asked if SAA understood that 65(2) compliance meant that they did not have to comply with 65(1) ever. Two consecutive financials had not been submitted.
Responses by SAA
The Minister explained that that was the dilemma of going into business rescue.
Mr Makobe said that section 65(1) was the obligation and 65(2) provided the opportunity to give reasons for not complying. It did not give the option of not complying with section 65(1) but it gave an organisation the opportunity to address the going concern issues so that it could comply with section 65(1). It was not business as usual. Business rescue practitioners (BRP) were developing a plan to show that SAA could be rescued. Once the BRPs had finalized the plan and it was implemented, the financials could be supplied. The BPR had to address the creditors and say that the business could be rescued and that had to be voted upon by the creditors. Once that had been done, SAA would be on a good footing and the AFS could be supplied.
The Chairperson cut him short. The Committee was not prepared to discuss whether it should get the financials. He wanted to leave the previous agreement that SAA would supply financials on the table. The Committee had noted the circumstances that Mr Makobe had outlined but one did not submit financials on the basis of a going concern, one submitted on the basis of compliance. There would not be a discussion: SAA had not complied and the Committee required a plan or a roadmap for submitting the AFS. The financials should tell the story as it existed, going concern or not. As the Committee had said, SAA had exhausted its leeway and he was leaving the agreement as it stood.
Response by the Minister of Public Enterprises
The Minister stated that he would take proper legal advice so that everyone understood the position of SAA and section 65. The reality was that the business had been facing liquidation and completing the financial statements would have meant that liquidation would have happened immediately, planes would have been grounded and the business would have closed, jobs would have been lost and creditors would line up. The board had endeavoured to avoid that scenario. He respectfully suggested that it was not about compliance or non-compliance but about the reality of managing failing SOEs and ensuring that the state saved whatever it could, saved as many jobs as it could and realised as many assets as it could. He would get a legal opinion, especially on section 65 versus the Companies Act. However, he would also see if he could get some financial statements so that Members could see what was going on, but without giving any financial accounts. He needed a week or two to get some insight into the possibilities.
The Minister informed Mr Lees that he was not aware of a decision to liquidate SAA. All guarantees were determined by the National Treasury and the Minister of Finance and he would present details in the Budget Speech on 26 February 2020. Members would see what National Treasury’s intentions were in the Budget Speech.
Why did SAA need PCF? The Minister explained that a business in business rescue continued as it was and it needed PCF to feed the company, pay workers, etc. All guarantees were supplied by the fiscus. He was aware that a Gupta mine had gone into business rescue without a PCF and workers had not been paid. The PCF allowed the business to continue as usual until it was re-structured.
The Minister informed Ms Mente that finance was required to keep the business going. In November 2019, there had been a two-week strike and one union had stated that it was not safe to fly SAA. Ticket insurance was immediately withdrawn in the US and that had resulted in an 85% drop in ticket sales. 65% of SAA’s booking were for foreign/international flights. In late November two SA ticket insurers had withdrawn insurance but in the past week, the business rescue practitioners had persuaded the two insurers to insure SAA tickets once more. If a ticket was not insured, the passenger was taking all the risk for delayed flights, etc. and passengers were reluctant to take that risk. Ticket insurance was critical to get an airline working. Withdrawing that provision had forced a decline in SAA. Thirdly, certain travel agents, such as Flight Centre, had refused to book any passengers on SAA flights but, following a meeting with the Association of SA Travel Agents, that position had changed. They were now supporting bookings on SAA. Confidence in an airline was critical. The Minister suggested that if all Members of Parliament travelled on SAA, it would make a difference and if all government officials travelled SAA that would really increase revenue. Perhaps the Chairperson could push that position. He noted that opposition parties tended to travel on different airlines.
The business rescue practitioners had to constantly match the question of costs versus revenue. Between National Treasury and SAA, they were doing the best they could to provide PCF. He asked Ms Mente-Nqweniso for the name of the company that she had referred to and any other information that would enable the business practitioners to commence saving money.
There had been endless reports and turnaround plans but the big problem was the inability of the state to implement the plans and if those plans were not implemented, the entity reached the position of SAA. The board had good intentions but did not have the capability of doing what had to be done.
The Minister informed Adv Swarts that an aviation firm had been employed to advise the business rescue practitioners who were also looking at the previous recommendations of aviation companies. The sale of aircraft referred to the A340 which preceded the rescue process because it was about technical issues and how expensive those aircraft were to fly.
As far as lessons about the PFMA and Companies Act were concerned, the Minister stated that he was still digesting that but if a business rescue practitioners became the accounting authority and they were accountable to the Executive Authority in the first instance in terms of the PFMA and then once the plan had been published, the Executive Authority became accountable to the structures as per the Constitution.
Mr Lees said that Members had not received full responses to their questions.
The Minister stated that there was a bigger pool of debt and that would be addressed in the Budget. The money borrowed from the SA Development Bank would last until early March 2020 and had to be repaid by SAA by about mid-year. Those were moving parts and every day it was necessary to adjust matters and to save as many jobs as possible.
Mr Cachalia stated that he had asked, beyond the headlines news, for the rationale that had led to the choice of business rescue, given that there had been an extension for the development of the plan.
The Minister replied that restructuring, as in the business rescue process, had been responded to: liquidation was not the best option for all stakeholders as it had several catastrophes, there was something to be rescued, and the business rescue practitioners saw something of value in SAA.
Ms Mente noted that there was a shortfall of R2 billion in 2016 and now the shortfall was R4 billion. What informed that increase?
The Chairperson explained that in the last Annual Financial Statement, the revenue was about R31 billion and expenditure was at R33 billion. SAA had provided that figure to the Fifth Parliament.
The Minister referred to the graph in his presentation and said if an entity keeps making losses, revenue declined and costs increased. The strike, the withdrawal of insurance and loss of sales had led the debt to grow. A couple of years ago, the strategy had been to shrink to grow and so the number of flights had been reduced. The frequency of flights was cut by the management to save and grow but if a company kept shrinking, one ended up with increased losses.
The Chairperson noted that there was no SAA flight from Durban to Cape Town so he could not fly SAA.
The Minister stated that it depended how many people he brought onto the flight.
The Chairperson asked that all questions be pointed and succinct.
Mr S Somyo (ANC) was guided by the presentation made that was based on the Companies Act. When the Minister’s team applied on the basis of section 150 that the business rescue practitioner sought to develop a plan that had to be published. His basic interest was in seeing an institution that met the requirements of its own existence. The board had proposed a way forward and now there was the appointment of business rescue practitioners. The Committee had been given some kind of a view of what was pertaining at that stage. The Members’ questions were not serving the purpose of specificity and that specificity would only come with the report. He asked the Minister to provide timelines for the report and then the meeting should be closed.
The Chairperson noted the proposal but was not going to present it at that time.
Mr E Buthelezi (IFP) took the avoidance of catastrophe as the reason for going the route of business rescue practitioners. The Minister had referred to plans that had not worked as a result of the state’s lack of capability to implement the plans. How was the Minister convinced that after all had been done that the state could implement the plans?
Ms B Swarts (ANC) asked for timeframes for the business rescue practitioner process. After three months, there would be monthly reports from the business rescue practitioners. Was the date counted from 16 December or was it from the date that the team began working? The board and SAA had told the Committee of losses emanating from Airlink. What percentage of SA Airlink did SAA own? SAA handled infrastructure for Airlink and did bookings and servicing of planes “free” in exchange for the two percent “franchise fee”. She wanted to know if there were any dividends from the servicing of SA Airlink. Did SAA service Airlink planes free of charge. What did the 28-year package deal entail? She asked for an analysis of SA Express which was a failing entity but it competed with Airlink. What was the link? It seemed that SAA did a lot of babysitting of SA Airlink. What were the pilot salaries and their family benefits? Why could the state not rationalise the three airlines of SAA, Mango and Airlink?
Ms T Marawu (ATM) appreciated the presentations by the Acting DDG and the Minister. She asked about the turnaround plan of the board. There were critical points in that plan that would be helpful – would those be incorporated or would there be a new plan? Secondly, what about timeframes? Thirdly, were the skills available to implement the plan? Was a skills audit taking place so that one knew if there were skilled people available who could implement the plan?
Ms C Phiri (ANC) wanted confirmation of why it had been deliberately decided not to go for liquidation. She had understood that the AFS had not been submitted because that would lead to liquidation. She wanted a confirmation even though her colleagues had already asked the question because the people of South Africa had to understand that point about section 65. She also asked when the plan would be presented. From what date were the three months of business rescue counted?
Ms B van Minnen (DA) noted that the Minister was concerned about failing state-owned enterprises (SoEs). SoEs were being bailed out with taxpayers’ money, resulting in devastating cuts to departmental budgets. She understood the concern about employees, but were the SoEs not just grandiose welfare institutions? Would the economy not be better served by allowing private business to take over and run the companies according to the needs in the market?
Ms van Minnen asked why the opportunities to sell SAA over the past couple of years had not been taken up. With SAA actively admitting that they could not provide the AFS, was that potentially disadvantaging creditors?
Mr N Mwankwa (UDM) asked if section 65 was not open to abuse as it was open-ended. Parliament needed to address the loophole in section 65(2) or more entities would use that loophole and there would be nothing Parliament could do. He suggested to the Minister that when entities could not provide the AFS, they should provide other financial information. Members could not understand the scale of the problem without any financial information. The Minister had briefed the Committees about the decision taken in December. He simply had to give the date for the business rescue plan and then the meeting would be over because there was nothing further to discuss. The Minister had to give a commitment about giving some financial information or Members could not ask questions.
Ms J Tshabalala (ANC) said that it was a necessary trauma to save the national carrier. She asked the Minister about the routes and the provision of licenses for other airlines to use the routes. Perhaps those licences should be suspended so that SAA could service those routes. She expected that nothing would happen outside of the Labour Law but what was to be done about Labour? When would the management team be assembled to implement the plan? The ANC was very clear that it wanted to retain SAA as a national carrier. Which airline was it that was interested in entering into a strategic equity and management partnership with SAA?
Ms O Maotwe (EFF) said that Members had come excited and the nation wanted to know how the funds were being managed. However, when the Minister still has to consult lawyers about releasing the financial statements, then it was a different animal. If he was a personal shareholder in a company that did not produce an AFS, surely he would have shot all the management and executives? SAA was a national asset and the nation “out there” wanted to know what was happening. The Minister had an entity and he was getting money so she wanted to know how he was managing those funds. It ended there. When was Parliament getting the AFS? The Minister could not give excuses like legal opinions. She was not interested. The Minister had to give the answers – it remained his responsibility. Regarding the issues of funding, what was it that was going to be done differently to turn SAA around if funding was provided? SAA was being run into the ground. Members had the powers to remove the Minister and she suggested that if the AFS was not provided, the Minister and all those involved would be removed.
She asked how a flight on the extremely busy route from Johannesburg to Durban could be cancelled but the flight from Johannesburg to Nelspruit was retained. What was going on? There were other intentions there.
Lastly, she asked what the intention was regarding labour. Labour was a very important stakeholder and Labour was taking SAA to court as the airliner was cancelling routes and would dismiss workers The workers in Durban had been told not to return to work in March but there had been no consultation with labour in that regard.
The Chairperson said that it had been agreed that Parliament wanted the statements. That was non-negotiable. The Minister spoke of getting legal advice but SAA already had an opinion from a lawyer. SCOPA had asked to see the legal opinion but had not been given a copy. Nevertheless, an opinion remained precisely that, an opinion. The law, in section 65(2) of the PFMA stated that reasons could be given for not submitting an AFS, but those reasons did not have to be accepted by Parliament.
SCOPA had an agreement with SAA that a plan would be made to supply the Annual Financial Statement (AFS). That agreement was not being retracted.
Response by the Minister of Public Enterprises
The Minister informed Mr Somyo that three months took one into early March. The business rescue practitioners had to present a plan by that time and as soon as the plan had been accepted by creditors, the plan would be presented to one or both of the Committees as they determined. New expertise would be brought into the airline and SAA would use existing expertise to develop a team that was able to run an airline. Not everyone had the skills to run an airline. The SAA/government held a 2.67% stake in SA Airlink.
Pilots’ salaries and benefits were regulated by an evergreen agreement negotiated in the 1990’s. The agreement had gotten SAA into extreme difficulties. The board had decided on a court action to review the status of that agreement. The Pilot Union was one of the seven unions recognised at SAA and they were all talking to business rescue practitioners. SA Express was also in business rescue as one of its creditors had approached the court and there might be some difficulties as a result of that process. Mango, Air Chefs, SAA Technical and SAA were all subsidiaries or components of the SAA Group. The future of all entities had to be decided as the process unfolded. There was chaos in SAA Technical. Ten years ago, SAA Technical had been a leading technical division in the world and certainly the best in Africa, but it had been decimated by capture and corruption but there was a rebuilding process there under the previous CEO and now it was being run by new CEO from New Zealand who was trying to patch things together. There was huge amount of value in SAA Technical that needed to be saved.
The Minister assured Members that all previous business models would be reviewed and those that were relevant would be taken onboard. That had happened in the case of Eskom. He told Ms van Minnen that SoEs were definitely not welfare institutions. As the President had said, government wanted state-owned entities that had a commercial mandate, where that was applicable, and a service delivery mandate, where that was applicable. Secondly, SoEs had to be financially self-sufficient, unless the state needed to subsidise services, especially to the many poor people in the country. Thirdly, SoEs would have to review their business models. Eskom was an example where the business model had been reviewed and arising from that was the Eskom Roadmap Paper and arising from that was the restructuring. That would apply to other entities that might have been applying a business model for more than ten years. Unfortunately, that did not make it applicable to doing business in the future. Some services, e.g. freight and port services, were important to the cost of doing business in SA, and especially the administrative pricing. The entities had to be established and pay for themselves. It was not about being welfare schemes because they had to be clear about their roles and responsibilities and be able to deliver on those.
A key weakness seen in SoEs was operational inefficiency and that, with corruption, had decimated entities. The Eskom inquiry had shown how deep the damage was to the entities. Members should read the report of that enquiry. The damage was not going to be repaired overnight; it was going to take a long time. The Administrator of PRASA had said exactly the same thing on television the previous day. A new board or executive would not automatically change things. It could not change operations. There was tough work ahead. The attitude and culture in an entity had to change. The relationship of revenue to costs was vital.
The Minister stressed that, ultimately, it was about money, as SCOPA well knew. Where there was a possibility of sustainability that had to be the demand placed on the board. Neither the private sector nor the state was the panacea. One had to get the right combination. Ms Tshabalala had asked who would be chosen as equity partner and others had spoken of selling SAA. SAA could possibly be sold for R1 but one would more likely have to pay people to take SAA. The business rescue practitioners had to turn SAA into a viable business before anyone would even look at the business. No one wanted a loss-making business.
The Minister stated that Mr Kwankwa had made an important point about section 65(2). However, he assured the Members that there was no deliberate intention not to supply the AFS on the part of SAA. The impediment had been the possibility of liquidation if those accounts had been prepared. He thought that making the SAA management accounts available might assist SCOPA. He would get a legal view and the business rescue practitioners’ views on that matter.
He said that routes for SAA were all up in the air. At the moment all routes were unprofitable because SAA was paying leasing costs on aircraft and the excessive head office costs were linked to routes. An analysis of the situation at head office was underway and one could then see what could be done about it.
The Minister assured Members that before business rescue, there had been interactions with Labour and the business rescue practitioners were still engaging with Labour. He pointed out to certain Members that the law did matter because that was the law. One could not disregard the law.
The Minister stressed very strongly that there was no intent by he or the present management to run the company down. There were others who were attempting to do that and they should be identified and dealt with more quickly than they were being dealt with.
The Minister admitted that an error had occurred in Durban. A manager had misread or misunderstood a note from the BRPs and had provided incorrect information but that person had withdrawn the statement the very next day as it had been brought to the person’s attention that the statement was incorrect. He had a report from the person involved declaring the withdrawal of the statement. The court case had nothing to do with that incident and the court had decided in favour of SAA.
The Minister agreed that he would inform the Committees as soon as the business rescue practice report was ready and he would make a presentation to the Committees.
The Acting DG informed the Committee that Airlink had its own maintenance services in-house and did not rely on SAA for the servicing of its aircraft.
Mr Lees said that the business rescue practitioners had to answer the questions, not the Minister. Mr Cachalia’s question was not about the decision to put the company into business rescue. That question had been thoroughly answered. Only the business rescue practitioners could say why they had decided within the first ten days that the business was rescuable. Their role was to see if the business could trade its way out of debt. He presumed that financial commitments were made about PCF. He asked that the business rescue practitioners answer the question as it was a key question.
Mr Hadebe said that everyone was alive to the possibilities and realities that were happening in SAA but SCOPA had been patient for two years. After two years, SAA had to gravitate towards normality and compliance. Parliament did not want to see SAA go into liquidation and create massive job losses. That would be met with the hostility it deserved. The Committee derived its authority from parliamentary rule 245 and so all entities had to provide financials. The business rescue practitioners had to understand that and had to supply the date for submitting the AFS. The business rescue practitioners had to account from the point that they had taken over on 6 December when they had become the Accounting Authority according to section 49 of the PFMA. He would have loved to hear the voices and the views of the business rescue practitioners.
Ms Mente said that there were questions that the Minister could not answer, only the Administrators. She presumed that the board was still there but was taking direction from the BRP. Kintetsu World Express (KWE) was the company that she had referred to earlier. It was situated in the hangar next to SAA Technical. SAA had paid R267 million to that company to invoice SAA technicians for their own stock. In the board turnaround plan, that contract and others were to be cancelled to eliminate the excess in expenditure. Which contracts had been cancelled? Pilots’ benefits were outrageous. Had those issues been addressed? SAA had to obey the law and submit its financial statements. SA could not be a lawless country.
The Chairperson said his frustration was the Members’ frustration. He wanted to find a way of arriving at where SCOPA wanted to go. He did not want to conduct a hearing in a vacuum. A hearing would be conducted. He wanted the AFS, and if SCOPA had to go to SAA with “boots on the ground” to obtain financial details, SCOPA would do so. SCOPA did not sanitise facts. If the right things had been done at SAA, the current situation would not exist.
He suggested that the meeting be suspended, not closed. All was not well in the state of SAA and the Members had reason to be concerned. He requested answers to the questions and then he and the co-Chair would consult. The purpose of the meeting was to ensure that it was understood by SAA, the ministry and the business rescue practitioners that all their work would take place within the parameters of the oversight of the Committee.
The Chairperson stated that he was exercising dictatorial tendencies and suppressing Members’ requests to speak.
Response by Minister
The Minister appealed for patience. It was unfair to place business rescue practitioners in a position where they could only provide fragmented answers. The Members needed a full response and he guaranteed that that would happen. Decisions still had to be made regarding routes and other issues. He took the point about liquidations and the point about the PFMA and the fact that the Companies Act did not specify SoEs. He would follow up on the company mentioned by Ms Mente. She was correct in that certain contracts had to be looked into and, where necessary, the contracts cancelled to save costs.
The Chairperson maintained that the Committees needed to hear from the business rescue practitioners. Their work had to be concluded by 6 March 2020 and a date would be set for the business rescue practitioners, who formed the Accounting Authority, to appear for a full hearing. SAA could not venture into any new arrangement without SCOPA hearing from the business rescue practitioners who were responsible for the transitional period. In the legacy report matters had been raised, those matters and futuristic matters. However, SCOPA would not deal with policies – that was the business of the Portfolio Committee on Public Enterprises.
SCOPA would map out the way forward. The matter had not ended. SAA remained at the centre of parliamentary focus.
The meeting was adjourned.
Hlengwa, Mr M
Magaxa, Mr K
Buthelezi, Mr EM
Cachalia, Mr G K
Gordhan, Mr PJ
Gumede, Mr SN
Hadebe, Mr BM
Kwankwa, Mr NL
Lees, Mr RA
Maotwe, Ms OMC
Marais, Mr EJ
Marawu, Ms TL
Mente-Nqweniso, Ms NV
Mkhwanazi, Ms JCN
Phiri, Ms CM
Somyo, Mr SS
Swart, Mr SN
Swarts, Ms B
Tshabalala, Ms J
Van Minnen, Ms BM
Zibula, Ms BT
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