ACSA, ATNS & SA Civil Aviation Authority Annual Reports 2021/22; with Deputy Minister

Meeting report

South African Civil Aviation Authority Annual Report 2021/22

Mr Ernest Khosa, Chairperson, South African Civil Aviation Authority (SACAA), and Ms Poppy Khoza, Director of Civil Aviation, presented the SACAA's annual report.

They said its objectives included controlling and regulating civil aviation safety and security; overseeing the implementation and compliance with the National Aviation Security Programme; overseeing the functioning and development of the civil aviation industry; promoting civil aviation safety and security; developing any regulations that were required in terms of the Act; and monitoring and ensuring compliance with the Act and the Convention.

The SACAA had adopted six strategic outcomes in the current five-year cycle which informed its 2021/22 annual performance plan (APP). These were:

1. Strengthened safety and security oversight system

2. Financial sustainability

3. Enhanced human capital management

4. Innovation and technology management

5. Improved stakeholder engagement and service excellence

6. Sustained good corporate governance and organisational effectiveness

The AGSA reported four audit findings. Three findings were classified as other important matters -- an annual financial statement (AFS)-related disclosure note incorrectly stated, internal control deficiencies for awards within the panel of attorneys, and a misstatement of actual achievement as reported in the APP. One finding was related to administrative matters -- the late submission of progress on quarterly procurement plans to the National Treasury. All the AG's findings had subsequently been resolved, which had also been verified by internal audit. There were no material findings, and the SACAA had also recorded no irregular, fruitless and wasteful expenditure

South Africa was last audited by the International Civil Aviation Organisation (ICAO) under the Universal Safety Oversight Audit Programme (USOAP) continuous monitoring approach (CMA) methodology in 2017, after which the country was currently at 87.39% effective implementation of the eight critical elements. South Africa closed more than 80% of the findings in 2019/20 and invited the ICAO for an ICAO Coordinated Validation Mission (ICVM). Due to the ICAO’s tight schedule following the outbreak of Covid-19, South Africa had been advised that it would rather conduct a full on-site USOAP CMA audit from 22 March to 3 April 2023. Preparations in this regard had commenced, and South Africa hoped to increase the current rating to above 90%.

Accident and incident statistics

The SACAA, through a Ministerial order, was mandated with the administrative functioning of the Accident and Incident Investigation Division (AIID), while the Department of Transport (DOT) was responsible for the functional running of this Division. Under the ICAO Annex 13 guidelines and the Civil Aviation Regulations (CAR) Part 12, the mandate of the AIID was:

To investigate accidents and incidents to determine the probable causes of such accidents;

To identify systemic weaknesses in the activities of the civil aviation industry;

Where permissible, to issue safety recommendations to prevent the recurrence of accidents; and

To not apportion blame or liability following an investigation.

 

The SACAA had approached the Department regarding funding for the acquisition of FIU aircraft. A response had been received on both occasions that the request was not approved. SACAA would continue utilising the services of a contracted service provider.

Transformation of the civil aviation industry involved implementing a three-year transformation plan.

There was a rising number of general aviation (GA) aircraft accidents. Several interventions involving multi-stakeholders were being rolled out to reduce aircraft accidents

(See attached document for comparative analysis of aircraft accidents and incidents between 2019/20 and 2021/22).

Deputy Minister's comments

Ms Sindisiwe Chikunga, Deputy Minister of Transport, acknowledged the high number of skilled women in high positions within the sector.

The hard work of the ministry and the entire South African delegation to the ICAO Council led by the Deputy Director General (DDG) for aviation made it possible for South Africa to be elected and get 151 votes. The assembly unanimously elected Ms Poppy Khoza to be the first woman president in the entire 78 years of the entity’s existence, which made South Africa very proud. This was because of the continuous contribution that the country was making towards the aviation sector. It was a monumental victory for women in aviation from all over the world. Ms Khoza had received a standing ovation from the crowd at the recent assembly, something that had happened for the first time. She had dealt with matters that had never been dealt with before in any of the assemblies, but had managed to resolve the issues hand.

All three aviation entities were fully audited for the 2021/2022 financial year by the Auditor-General of South Africa (AGSA). The aviation sector has been negatively affected by the pandemic. Traffic trends were starting to increase and making an economic increase that would be more than the income made during the pandemic. The Minister had indicated in yesterday’s meeting that new boards were going to be elected for the Air Traffic and Navigation Services (ATNS), the Airports Company of SA (ACSA) and SACCAA, as the boards had lapsed. Board vacancies were being filled now.

SACAA has delivered clean audit outcomes for the past seven years and achieved 100% performance targets. ACSA and ATNS had received unqualified audits with findings. ACSA had achieved 90% of its targets, and the 10% of under-achievement had been due to COVID-19 restrictions. The ATNS had met 50 % of their targets, and this was due to management instability. A new chief executive officer (CEO) was appointed, and started in April. A turnaround strategy was in place to ensure the entity was capacitated to deliver on its mandate.

Regarding the Federal Aviation Administration (FAA) audit, the DOT received an invitation from the U.S. FAA to look at article 6 of the transport agreement between South Africa and the United States of America in 1996. According to this article, any party could conduct a safety assessment on another party. SACAA was assessed by the FAA on 15 November 2021, and in March, it received a preliminary report which had a few findings. On 12 July, the FAA did a physical validation of the close findings, and during the elective assembly, it confirmed that the close findings were satisfactory. The Department had been informed that South Africa retained their category one status during the meeting. Aircraft and airlines from South Africa could fly freely to the U.S without any hindrance. There were a few countries that the FAA downgraded, and their aircraft could not fly to the U.S. It was exciting that South Africa had retained its status, as the airlines could fly to the U.S.

From 15 to 26 August 2022, South Africa was audited by ICAO. This universal security audit programme was a continuous monitoring approach led by SACAA, but it included all the aviation entities and airlines on behalf of South Africa. The last time this happened was in 2011, when SACAA had achieved 81.3 %. After that, it surpassed the ICAO target, which in 2023was 80% and above. South Africa was now expecting the preliminary report from the ICAO around 26 October. The audit had not been finalised, and there was no hidden report. The report would also not be the final report, as it was preliminary. The state would have 30 days to provide comments to the ICAO. Thereafter, the ICAO would release the final report confirming the number of findings the state found and whether any significant security concern had been found. South Africa was confident that ICAO would raise no significant security concerns for this period. This would be a security report and it would be very confidential. No country makes its report available to the public because the public has criminals who would like to invade the security of the airspace. This would also make people very scared to come to South Africa, because they would know that criminals were aware of how the airspace, airlines and airports were managed and secured, so it could not be made public. Members of the Portfolio Committee should not think that reports are being hidden, and must remember the confidentiality of the report.

There was an aircraft that had landed in Cape Town without a foreign operating permit. This matter was still being investigated, and SACAA had implemented enforcement action against the operator for ignoring the prohibition notice. Other measures had also been taken, but the incident was still being investigated.

The aviation sector has shown resilience and adaptation during very difficult times. The sector believed they were operational, and their financial plans continued to address issues created by the global meltdown of the pandemic.

Discussion

Mr T Mabhena (DA), refers to slide 21 of the ACSA audit report, and sought clarity on what it meant. Did it mean the correct processes were not followed when appointing attorneys on the panels? What issues were involved? He noted that the issues had been resolved, but wanted to know what had happened. It seemed as if they possibly included processes involving corrupt practices. Sometimes complicated language was used to cover up issues, especially regarding irregularities. What corrective measures have been taken to address the issues? What had happened to the people who were involved? Were there any commitments to ensure this did not happen in the future?

The annual financial statements (AFSs) stated that there were related issues of disclosure that were stated incorrectly. For such a big organisation as the SACAA, it was expected that they would hire competent people with accounting backgrounds. All financial statements had to be in order because they were used to assess the internal controls of the state-owned entity (SOE).

Expenditure control commitments (ECCs) remained a problem, where instructions were issued but were not followed, and irregularities were not addressed and adhered to. He criticised the aggressive nature of its communications, and the legal letters sent to stakeholders. The SACAA served the community and the community’s well-being was also important. What was happening around this issue? The next time the Committee met with the organisation, they would want to know more about this issue. It was concerning, because it speaks to how the community and stakeholders would view SACAA as arrogant, and it seemed as if the organisation placed its needs above the needs of the community. The organisation seemed untouchable.

Mr K Sithole (IFP) welcomed the presentation, especially because there was no illegal and fruitless expenditure. Referring to transformation, he said there were only 1 016 black people and 10 843 white people. This gap was very big, so when was it going to be closed? The organisation had said they had nine student-headed families -- what were the criteria followed to assist these students and their families? In the presentation, it was mentioned that the organisation could be downgraded to category two from category one. What did this mean, and what input did SACAA have in this? The international requirement was a big concern, because it did not seem as if someone was above them, and they were only following their principles.

The safety of the county’s airspace was an issue. If an airplane could land in the country without being traced before landing, it meant that something was wrong, and it needed to be explained. What mechanisms were in place to prevent this from happening again?

Mr M Chabangu (EFF) welcomed the presentation, and commented that if ministers or deputy ministers were not present in the meetings, it led to questions not being answered. He understood their commitments, but the unanswered questions should be written down and given to them to be answered at a later stage, either in writing or by email. How did the 165 accidents happen that were recorded? What mechanisms could be used to stop this from happening? What criteria were used to help the nine selected families being looked after? The exchange students, especially in France, were not experiencing any problems like any other students with accommodation because of funds or accommodation. Were they not stranded, as they had been sent by government to attend school in France and they could not return?

Mr L McDonald (ANC) wanted to make recommendations on the fatalities that had occurred. Could the Portfolio Committee have a breakdown of the fatalities that occurred in the airspace based on Zulu Uniform and Zulu Sierra registrations as a background? One was maintained by the company and the other was self-maintained. A comparison could then be drawn to see where the problem was and if it was a problem of bad maintenance of the aircraft. South Africa had zero accidents with commercial flights, but they had many incidents. These incidents could lead to accidents, as there have been very serious incidents because of engines, leaking aircraft, and tyres. Some incidents were not recorded or reported, leading to major accidents.

As a Committee, they should communicate with the Department and make sure that the Directorate for Civil Aviation's (DCA’s) calibration aircraft is replaced. As much as security protocols were not for public use, those were one of the things that the Committee must ensure so that they could have their aircraft. SACAA should not allow third parties outside the country to do the calibrations. There were some accidents with the South African Police Service (SAPS) and South African Air Force (SAAF) aircraft where people died. The SACAA did not investigate these because they investigated themselves, which needed to be stopped as soon as possible. A mechanism must be put in place to investigate all accidents by the SACAA. If nothing was going to be done, then matters would get worse and fatalities would increase. He added that the bursary programme was a step in the right direction, and it was time that more people were helped and assisted.

Mr P Mey (FF+) commented that all the members of the board were black males and females -- was it not supposed to be a "rainbow nation," with no whites and no brown or Indian people? Minority groups must be included. What were the reasons for excluding minority groups?

Ms M Ramadwa (ANC) commended the entity for the fact that there were no irregularities and wasteful and fruitless expenditure. Clarity was needed on the vacancies that they had spoken about. How many funded vacancies were there, and when would they be filled? If there were vacancies in the entity, it would create instability. When did they go to schools when doing outreach programmes, and which provinces were visited? If there were schools that they wanted to visit, how did they do that? Why could the airplane that had landed in Cape Town not be detected?

Responses

Mr Khosa said SACAA remained true to the values of the organisation, which included excellence, teamwork, integrity, collaboration, respect, humility, and appreciation of the roles of stakeholders. SACAA was a very humble organisation, and there had been no findings against it for irregular or wasteful expenditure. It was not for the board to say how it should be composed. Not all members of the board were Africans, as one was of Indian descent and previously, a white male had been on the board as well, but he had resigned. The SACAA Act did not mention anything about race, and race was irrelevant in the Act.

Ms Khoza acknowledged the minor administrative finding that had been mentioned. The audit was clean and could not be clean if corrupt activities were found. It had been because a register was not kept on rotation. It was not known that it was a requirement for the SACAA to keep a register regarding which legal firms they referred to. Some of these cases happened on an urgent basis, and a register had been used to track issues of rotation. There were no findings of fraud or corrupt activities, and the audit was clean. SACAA upheld its mandate according to the Civil Aviation Act. It did not deal one-on-one with communities, so she had no idea about the aggressive nature of SACAA that was spoken about, or that the organisation was untouchable.

The organisation could be downgraded if it did not comply with the international requirements prescribed by the ICAO, so the U.S. FAA would audit South Africa to check whether they were complying with international standards and recommended practices. If gaps were found, then South Africa may be downgraded. In this case, it had been confirmed that South Africa was compliant with the international requirements and obligations, and had kept its category one status.

Ms Phindiwe Gwebu, Corporate Services Executive, SACAA, said that the criteria used involved partnering with the Department of Social Development, and they would access their database. The SACAA also did its research with diligence before it approved any family. The families were also monitored on a day-to-day basis, and the Department gave feedback back to the SACAA. The SACAA also does periodic check-ups on the family to ensure they are fine. The aim was that when SACAA left the families, they would be economically stable, and could stand on their own feet. For as long as the family was still headed by a young person either at school or a tertiary institution, the SACAA would continue to support them until they could support themselves. The Department of Social Development would then recommend a different family, and the SACAA would do its research to make sure that the family was indeed deserving.

Ms Khoza answered the question about the vacancies, pointing out that the SACAA was a highly technical institution and there was a lot of competition in the industry for technical skills. The SACAA found itself competing in the industry, but when the threshold was considered, there were about 570 positions that were planned to be filled, and the financial year had closed at 560 vacancies. Those ten vacancies were always in the process of being filled. The resignation and termination rates were high, as SACAA was also competing with Middle Eastern authorities. Other entities were looking at South Africa’s technical skills, and there was a premium that went with it, as they paid very well. There were retrenchment strategies in place, and SACAA tried its best to retain skills as far as possible, but it was difficult because of the strong competition.

Air Traffic and Navigation Services (ATNS) Annual Report 2021/22

Mr Simphiwe Thobela, Chairperson of ATNS, supported by the organisation's CEO and CFO, delivered the presentation on the entity's annual performance, which included the organisational profile, the governance overview, risks and opportunities, the financial performance, and key highlights and challenges. Issues highlighted included:

• Safety incidents, which required intensified training interventions, and a corporate annual safety plan;
• Threats to security and/or vandalism, where the focus would be on developing an aviation security programme in line with site threat assessments, and on developing and implementing innovative technology that could assist in detecting and preventing security threats and vandalism;
• Financial sustainability risks, which would require sourcing additional external funding for the organisation, including shareholder capital injection, cost containment measures and sourcing additional revenue;
• Cyber security risks, which would mean conducting continuous cyber risk assessments, and the implementation of the infrastructure modernisation roadmap; and
• The inability to attract and retain critical skills, where talent management, succession planning, and developing a retention strategy would be crucial.

ATNS recognised the importance of securing stakeholder support for its long-term success by enhancing transparency, sharing knowledge, and generating innovative solutions. The organisation regularly engaged key stakeholder groups that were most relevant to the business. It viewed its long-term commercial well-being and stakeholders’ interests as mutually inclusive.

Turning to the entity's financial performance, Mr Thobela said the ATNS non-regulated business activities contributed 16% of the company’s revenue, and encompassed their long-term strategy to facilitate regional expansion. Revenue from their non-regulated business had increased by 36% compared to the prior year due to the post-COVID-19 recovery experienced in the broader aviation sector.

Capital expenditure for 2021/22 was R186 million against a target of R182 million. This was largely due to delays in the execution of their capex projects. Capital commitments for the entity amounted to R375m at the end of the financial year. The entity expected to enter into further new commitments amounting to R69m in this financial year.

ATNS had secured a loan facility of R500 million from the Development Bank of Southern Africa ( DBSA) to fund part of its capex. The loan would be exhausted in 2023/24 due to entity’s financial position being impacted by Covid-19. There was a need to fund the additional capex requirement as the shortfall could not be funded through its reserves, given the continued weakening of its financial position.

The Aviation Training Academy achievements included:

• Implementation of virtual training for selected products;
• Development of a modernisation roadmap to increase efficiencies through technology;
• Creation of new products through the product diversification strategy to expand their product offering;
• Refurbishment of the facilities to complement the modernisation roadmap;
• ICAO Regional Training Centre of Excellence and member of the ICAO TRAINAIR Plus steering committee;
• Training of aviation personnel from more than 30 African states over this period, across multiple aviation disciplines;
• Air Transport Association (ATA) head appointed Vice President of the Association of African Aviation Training Organisations;
• ATA representative elected as Africa Regional Director of International Federation of Air Traffic Safety Electronics Associations (IFATSEA);
• The Academy's success rate had been consistently above 90%;
• Certification from multiple African CAAs ( SA, Ghana, Uganda, Tanzania, Namibia, Seychelles, Roberts FIR);
• International Air Transport Association (IATA) regional training partner for on-site and distance learning;
• Continued International Standards Organisation (ISO) 9001;2015 certification.

(Further details of the presentation can be found in the presentation attached.)

ATNS on Cape Town airport incident

Ms Nozipho Mdawe, CEO, ATNS, said the organisation had been very aware of this incident. Safety was critical in the airspace, and technology had been put in place to ensure operations were safe and employees had been trained accordingly. Activities that were executed by the employees of ATNS were governed by the standards that were defined by ICAO. ATNS was made aware of this aircraft, but the aircraft also complied with all the requirements to accept and operate an aircraft in the airspace and to land it in South Africa, as they had the necessary documentation.

When the ATNS was alerted, they collaborated with the CAA, and ACSA took the lead. ATNS had worked with them to ensure they complied with all the requirements. It had investigated and ensured that they assessed whether there were any violations of the safety rules and standards, and none were. The compliance was based on the submission the flight plan, and all the requirements were met and well received by the aeronautical information centre. ATNS ensured that they worked together with the CAA, which they also informed that there was a prohibition. The ATNS was supposed to address this prohibition, but because it was not according to the processes that were defined, there was a gap in the ATNS’s internal communication. However, they ensured that the processes were captured accordingly on the system. The role that ATNS played was to make sure that they adhered to the processes that were defined by the safety standards that were prescribed, as well as complying with the SACAA framework standards.

Discussion

Ms Ramadwa wants to know why the aircraft was not detected before landing in Cape Town.

Mr McDonald read the white paper on the virtualisation of air traffic control (ATC), and supported the move of ATNS to virtualisation. Some services that could be rendered could be done virtually across the country. One must be mindful that this process did not take away jobs. A mechanism should be found to reinforce the need for government and stakeholders to fund the ATNS, which provides an extremely important service to all people entering South African airspace. One of their key principles that they had left out was that their actual clients were the people that sit in the aircraft, and he was not sure whether they knew the importance of the role of ATNS. There had been cases where there had been no ATC and towers were unequipped by staff, and by bringing in virtual ATC and heavily funding in that direction, the shortage of staff could be overcome. It would also be easier for ATNS to increase their capabilities in wider Africa, which was desperately needed.

There had been a recent spike in vandalism in the country. An explanation was needed why the zero-one runway in Cape Town had been made category two and not a category three, when it was desperately needed for category three, because Cape Town had very bad weather. A category three would not be such a big expense as a category two, and it would have been much easier for local aircraft and international aircraft to land in Cape Town when the weather was bad.

Could the ATNS provide the Committee with a standard operating procedure when an aircraft that had not filed a proper flight plan had a prohibition on them? When would the air force be called to do an escort if it was an aircraft coming into the country to do a drug run or something illegal? If there was no standard procedure in place for such an occurrence, it would cause many problems and chaos.

Mr Sithole recalled that in 2020, 2021, and 2022, ATNS had received an unqualified report with findings. Why was the ATNS not dealing with the findings, because the findings were the same? Why could ATNS not deal with the AG's findings? Another concern was the loss of R378 million that could have been used to develop infrastructure. What consequence management had been done to ensure that those who were responsible were held accountable? Could the ATNS indicate the provinces where they had helped rural schools? The 25 schools that were mentioned were not a lot of schools, so he wanted to know which schools they were.

ATNS's response

Ms Mdawe said that part of the processes stipulated that the ATNS did not look at a standard operating procedure (SOP). It was a gap that had been identified and through the CAA, the ATNS had to make sure that they were compliant with the CAA requirements and that it was captured in the flight plan process. The processes of the ATNS were very technologically inclined. There was no manual process and they limited the agencies to engage in matters that would expose them. Communication between the pilot and the ATC was directly in terms of what was required by the ATC when the aircraft entered into the airspace. The SOP was not required when going into the airspace, but the ATNS had looked into it and would ensure that this gap was closed. It was a trial run, and the ATNS would be sure to provide feedback. The SOPs could be shared, and they would also include the revised elements that had been identified as gaps in the process of aircraft acceptance into the airspace.

The virtual approach to rendering services was very critical. The world was moving towards virtual towers, which should not lead to a loss of employment. The role of the National Development Plan (NDP) was to create employment and not to take it away. Employers were skilled in different areas of operations, and it was something that the ATNS wanted to maintain.

The ATNS environment was very dependent on attitude, so the training and development of employees were highly dependent on it. They had the best employees in terms of attitude, skills and competence who were operating in the air traffic control environment, including the management teams that supported them. The ATNS prided itself that they were one of the best in terms of aircraft, traffic control management, as well as traffic service in Africa.

Mr Matome Moholola, CFO, ATNS, said there was a considered effort within the entity to address all findings, especially the recurring findings. An audit turnaround plan was developed and monitored monthly by the executive committee (EXCO) and quarterly by the audit and risk committee. These findings included an impairment of a project done before the COVID-19 pandemic. The previous financial year, it had engaged with the AG that it should not be impaired, but it was not impaired. In this financial year, it was treated the same way, and given that the environment had changed, ATNS had lost some money because of COVID-19. The AG had felt strongly that it must be impaired. The board had worked with the AG, and with its guidance, it had been impaired. The system was not created with adaptability in mind, and the system had run its full life cycle. The ATNS was in the process of replacing the full life cycle of the system. Hopefully, going forward, some challenges would go away.

The R378 million loss was because of expenditure being more than the revenue that was able to be generated. It was not linked to mismanagement. As an entity, the highest costs were salary-related costs, and the entity had to resort to Section 189 to manage the large salary base, but there was a point at which salaries could not be touched any further. Expenses could also not match the income, so a loss had been incurred.

Ms Mdawe agreed that there had been issues with the Very High Frequency Omnidirectional Range (VOR) navigation system and Instrument Landing System (ILS) because of the challenges faced in operation, especially the vandalism. ATNS had managed to restore the ILS for runway zero-one, as well as for runway zero-one-nine. Those had been worked on. The runway in Cape Town was too short to accommodate the level three that had been referred to. If another level was considered, the runway must be extended and deployed differently to support that infrastructure. For ATNS to comply with the level three benchmark, they had to invest in technology and airport infrastructure. The problems would then be resolved through investment in infrastructure technology in communication and navigation. Some technologies were old and needed to be replaced, which was why the entity requested additional funding.

ACSA annual report 2021/22

Dr Sandile Nogxina, Chairperson of ACSA, introduced the presentation and handed over to his management team to provide the entity's financial results for the year ended 31 March 2022. The entity’s key findings included the airport health accreditation management, its excellence in human resources management, and its four top airport awards.

The presentation was led by Ms Mpumi Mpofu, CEO, and Mr Siphamandla Mthethwa, CFO, who said global air traffic recovery was still non-linear, but was showing positive trends, with demand expected to continue into 2022. Key points were:

• Optimistic outlook for recovery, with signs indicating that a 2024/25 recovery to pre-pandemic levels was well underway;
• Global uptake of Covid-19 vaccinations was enhancing travel confidence;
• Africa was anticipated to reach close to 72% of pre-pandemic passenger traffic levels by the end of 2022;
• Locally, recovery was expected to be led by domestic travel;
• ACSA's network had recovered to 49% of its pre-COVID passenger throughput by year-end;
• Recovery in aircraft movements was at 71%;
• Domestic travel accounted for 81% of passenger traffic (70% pre-COVID);
• Recovery of the international segment had been slower due to travel restrictions during the reporting period;
• The recent liquidation of Comair would harm the recovery;
• The reduction in fleet capacity continued to be a challenge.

 

The financial performance for the year reflected the impact of the COVID-19 pandemic, which had severely curtailed both aeronautical and non-aeronautical revenues.

• There had been a significant improvement in the financial performance and the outlook. The performance was, however, affected by the two waves of Covid-19 and civil unrest in July 2021.
• The recovery was uneven, however, with domestic and regional traffic recovering to 58% and 36% of pre-pandemic levels respectively. In contrast, international traffic, hampered by travel restrictions and the Omicron variant in the third quarter of the financial year, recovered to only 29% of pre-pandemic levels.
• The financial position of the company remained solid, with a strong asset base and low levels of debt.
• The capital expenditure programme was limited to maintenance and refurbishment as part of the recover and sustain strategy.
• The cost-reduction initiatives introduced in the previous financial year continued to minimise operating costs. These included headcount rationalisation through voluntary severance package (VSP) and early retirement (ER) programmes.
• Rental reprieves had been granted for commercial partners who were also negatively affected by Covid-19.

 

Audit of consolidated and separate financial statements

The consolidated and separate financial statements present fairly, in all material respects, the financial position of the group as of 31 March 2022, and its financial performance and cash flows for the year.

The AGSA did not identify any material findings on the usefulness and reliability of the reported performance information for objective one (financial sustainability).

Regarding compliance with legislation, effective and appropriate steps were not taken to prevent irregular expenditure amounting to R44 million, as disclosed in note G.13 to the annual financial statements. The majority of the irregular expenditure disclosed in the financial statements was caused by non-compliance with supply chain management (SCM) prescripts or legislation that led to irregular expenditure.

The FY 2021 closing balance of R634 million in irregular expenditure (IE) reported in the prior year's AFS had been adjusted to R393 million due to R126 million pertaining to two IE removals that were approved in FY 2019/20, and R114 million of previously reported IE having been removed in the current financial year.

Current year's irregular expenditure

IE incurred in the current year amounted to R37 million (2021: R 274 million) due to non-compliance with regulations that govern SCM. An amount of R13 million of the previous year’s IE had been identified in the current year. 

Current year's fruitless and wasteful expenditure

The fruitless and wasteful expenditure identified in the year was related to the following reported incidents:

(a) Interest on South African Revenue Service (SARS) re-assessments (R53 000) and late value added tax (VAT) payment (R242 000).

(b) Interest and penalties on late payments to suppliers of R2.6 million.

(c) R989 000 paid for goods not received.

The entity provided the Committee with details of the audit findings, root causes and its response.

(See attached presentation for details).

Financial summary

The group's improved financial performance compared to the prior year was due to the easing of travel restrictions. This was reflected by an improvement in both aeronautical and non-aeronautical revenues, a positive Earnings before Interest, Depreciation, Tax and Amortisation (EBITDA), and a significant reduction in its net loss -- R1 billion, compared to R2.6 billion in the prior year.

The results demonstrated the group’s resilience in the face of an unprecedented crisis precipitated by ongoing lockdowns, travel restrictions, and the need to drastically scale back operations. These results indicated that the business was now in the recovery phase.

The group’s economic regulation strategy continued to improve predictability and transparency and balance the risk and reward in regulatory decisions. A permission application process was currently underway, and the tariff decision would be implemented from the 2023/24 financial year.

These matters relating to the funding of the group must be noted:

• The company had maintained short-term banking facilities amounting to R1,8 billion;
• The company was planning to refinance R1.7 billion of AIR02 fixed rate bond maturing in April 2023;
• Agence Française de Développement (AFD) had granted a waiver period relating to financial covenants until March 2024; and
• The company still engaged the Public Investment Corporation (PIC) on possible shareholder financial support.

The group continued to pursue further efficiencies throughout the business to ensure long-term financial sustainability, sustainable capital expenditure limits, and disciplined capital allocation.

ACSA would remain focused on its core business of running airports efficiently and striving to continuously improve the passenger experience. Its growth strategy was to grow its footprint domestically and on the African continent, with a diversification of revenue streams. It would execute innovative IT and digitisation initiatives through collaboration with its stakeholders, redefine the airport’s space in city life, and make airport hubs more attractive leisure destinations for passengers and the public.

(Further details of the presentation can be found in the file attached.)

Discussion

Mr McDonald acknowledged that there had been a lot of problems with fueling at ACSA. It needed to sit down and strategise its refuelling of aircraft. South Africa could not be held back by companies that were not forward-looking and could not make decisions. ACSA should recognise its challenges and keep the challenges of the economy in mind. It cost airlines millions of rands to carry additional fuel to get to Cape Town, because there was no fuel. Cape Town international airport needed urgent attention, because the runway and taxiway were busy crumbling. Their expenditure had gone down, but more must be done to fix the issues.

There was no sign of black participation or companies growing to enter aviation. In the presentation, many abbreviations were used for Cape Town International and King Shaka International. In the future, these must be changed and made clearer, as they were confusing.

Was ACSA speaking to airlines that were currently in financial distress? Was SAA paying its bills?

The international airport in Cape Town was in complete darkness when there was load shedding, so lighting must be installed in the arrivals area. The queues were almost 1km long when the airport was busy, because there were not enough people doing temperature scans.

Mr Mabhena said that when ACSA spoke about the clustering of airports, nothing had been said about the Pietermaritzburg airport. Which cluster were they under?

Another Member also wanted to know if there had been any progress in acquiring a contract to manage Polokwane International Airport.

ACSA's response

Ms Mpofu said ACSA was happy to provide an updated fuelling strategy, which was part of their growth strategy. Fuel was one way in which they had revised their current arrangements and going into the future, it would ensure all those measures were in place. No aircraft would not be refuelled, because ACSA would be providing contingency reserves. It would ensure that in the contract arrangement, the fuel providers agree to ensure that they could provide fuel when needed. The fuel strategy covered several areas that had been raised, so ACSA would share those plans. It was a comprehensive strategy that had been designed to especially manage those issues.

Cape Town International Airport's nomenclature was quite an issue because when they stuck to the aviation name, other non-aviation members then asked questions about it and they had to provide a  normal explanation. They would try a combination of both and place them into brackets. The ICAO registration names were very difficult and not familiar, but both would be incorporated.

Where there were contractual arrangements, MOUs or contract designs with airports such as Richards Bay, they would fall within the cluster of the coastal airports. This excluded Pietermaritzburg as the ACSA did not have a contract with them. Polokwane airport’s contract was in the process of negotiation and a process of formalisation. Meetings were being held so that process was in the process of being finalised.

Mr Mthethwa confirmed that ACSA did not have to pay any additional tax because of the judgment. The principle argued in court was around how far back a person could go in objecting to an assessment. The tax court had agreed with the ACSA that they could go back to 2011, and the Supreme Court had said there should be a cut-off regarding how far it could go. This did not stop the ACSA from objecting to any future assessment on the same matter, but the due penalties had already been paid.

All airlines were up to date with their accounts, but the airline that had gone into liquidation would have to write off whatever debt was there. The current operators were all current and with no challenges experienced, including SAA.

Dr Nogxina commented that the questions Mr McDonald asked were illustrative of the historical problems found with agreements at ACSA. ACSA was currently working on it and they were developing a few strategies to be prepared and presented to the Committee.

The meeting was adjourned.