SAA: Progress update, audit outcomes & investigations (with DPE Deputy Minister)

Meeting report

Opening Remarks
The Chairperson welcomed members and meeting guests.

The meeting would focus on South African Airways (SAA). The Committee would be briefed by Auditor-General South Africa (AGSA) and the Special Investigating Unit (SIU) on SAA’s audit outcomes and the SAA investigations respectively. The Committee would then be presented with a progress update from SAA.

The Chairperson acknowledged the apology from the Minister. He indicated that the Deputy Minister was present.

The Chairperson asked the presenters to highlight the most critical sections and indicated that the Committee members had read the presentations prior to the meeting.

Deputy Minister’s Remarks
Mr Obed Bapela, Deputy Minister of Public Enterprises, said that SAA had recently had a very successful Annual General Meeting (AGM). Things were “not good” but were getting better in terms of progress. He highlighted the issue of the non-tabling of Annual Reports and indicated that SAA would be able to table its annual financial statement.

SAA came from a very difficult operating environment but was steadily making progress. It was not yet where they wanted them to be, but they were gradually making progress.

SAA Board Remarks
Mr Derek Hanekom, Interim Board Chairperson, SAA, said that SAA had gone through a very difficult time. The presentation was not something SAA felt proud of. SAA had four years' worth of terrible performance. The audit outcomes were expected. The outcomes highlighted disclaimers, which had also been expected.

SAA’s big challenge was firstly overcoming the preceding four years. The Audits and Risks Committee, Governance Committee, and SAA management had made an extraordinary effort to do so. SAA also had to deal with the four years of outstanding audits. It had taken a tremendous effort to get to the point where the audits could be tabled. SAA’s big test would be the current financial year (2023/24). The board and management were doing their best and were determined to have an unqualified audit. SAA’s big challenge was how it navigated its way out of the current situation. He was confident that with good governance and a viable airline that Parliament and the Board could feel proud of, SAA could overcome its challenges.

SAA had begun re-entering the inter-continental space, starting with Sao Paolo. There were two flights per week out of Cape Town and two flights per week out of Johannesburg. An additional inter-continental flight was coming early the following year.

Part of the difficulty in preparing the Corporate Plan for 2024/25 and the years that followed was the uncertainty regarding the share-equity partner. It was unclear when this partnership would begin but he was aware that it was on the cards. An interim board had been appointed. The uncertainty made long-term planning difficult because of the arrangement with the share-equity partner and the required capital injection. SAA was uncertain if it could plan on the capital injection of R3 billion, or if it should plan as if the capital injection would not happen.

SAA’s cash flow was healthy: it would not collapse. Nevertheless, the growth the entity had in mind would depend on the capital injection. SAA had not received any funds from the Government or Treasury, including the amount that had been pledged by Treasury. SAA had no problem with this. He said SAA would survive without any subsidy from the state and it was currently surviving without subsidies from the state. SAA was not asking for any further contributions from Treasury. It was focused on the R3 billion capital injection from the share-equity partner. However, there were still many uncertainties with the share-equity partner.

Mr Hanekom said that the share-equity partner had been approved in principle by the Competition Commission and Tribunal. The Tribunal’s decision that there should be no retrenchments had comforted senior management and other staff members. This meant that when the new arrangement kicked in with a new majority shareholder, they would not be allowed to retrench staff.

The Chairperson thanked the Deputy Minister and Mr Hanekom. He said it was always good news when no money was wanted from the fiscus. He handed over to AGSA to brief the Committee on the outstanding audits.

AGSA Briefing on SAA
Ms Madidimalo Singo, Business Unit Leader, AGSA, presented AGSA’s audit findings for 2019, 2020, 2021 and 2022.

Due to undergoing business rescue, SAA had not presented AGSA with its financial statements. Since the business rescue period had ended, the financial statements were presented to AGSA and thus the audit could be concluded.

For the four years under review (2019-2022) SAA’s audit outcome indicated a disclaimed opinion. This was largely due to material misstatements in the financial statements submitted for the audit, material findings on compliance, and material findings on the audit of predetermined objectives.

The root causes of the outcomes of SAA subsidiaries ( South African Airways Technical SOC Ltd (SAAT); Air Chefs SOC Limited (Air Chefs); Mango SOC Ltd (Mango); SA Travel Centre SoC Ltd; and SAA Share Trust) were attributed to inadequate monitoring and oversight, instability in leadership, impact of business rescue process, weakness in the control environment, inadequate policies and procedures, lack of proper record-keeping and the lack of audit action plans to address prior findings and implement recommendations.

The AGSA recommended that the Committee follow up on the progress of the action plans to improve financial and operational challenges and the internal control environment. The Committee should follow up on the progress of the share-equity partner transactions and the stabilisation of organisations structures and measures to ensure capacity and key leadership vacancies were filled.

(See Presentation)

SIU Briefing on SAA Investigations
Adv Andy Mothibi, Head, SIU, briefed the Committee on the entity’s SAA investigations.

SIU indicated that it entered a secondment agreement in 2019 with SAA to assist its forensic investigation department and collect evidence for the motivation for a proclamation.

Slides 11- 26 presented a summary of SIU’s investigation into the various allegations. This included a description of the allegation, the finding or progress to date, and the outcomes (actual and possible).

SIU highlighted an amount of R3.4 billion in potential cash and/or assets to be recovered. It had already recovered R14 million in cash and/or assets. SIU indicated that R130 million in losses had been prevented. 

Due to State Capture, some members of the Accounting Authority failed to properly manage the financial affairs of SAA. Additionally, SIU found that some board members had benefitted from corrupt payments facilitated by at least two legal firms.

SIU received new allegations in relation to the Takatso deal which is undergoing SIU internal processes of assessment. The SIU has made requests for information from various sources (Competition Commission and Auditor General and the Department of Public Enterprise) to assess and motivate for a proclamation. Information is being packaged and to be submitted soon.

(See Presentation)

SAA Progress Update
Mr Malesela J Lamola, Chief Executive Officer (CEO), SAA, presented a status update on SAA.

Despite fleet acquisition challenges, SAA would end the 2024 fiscal year operating 17 routes, including two intercontinental routes. It was expected that by February 2025, SAA’s fleet size would be stabilised at 21 airplanes, making SAA competitive. SAA had introduced a route to Sao Paulo.

In terms of the non-tabling of Annual Reports, the audits had been completed.

SAA’s current cash position was positive and it had paid the liabilities associated with the receivership highlighted in the business rescue plan.

On 25 July 2023, the Competition Tribunal approved the 51% disposal of SAA government shares to Takatso with conditions of minority shareholders divesting from Takatso Aviation and SAA not retrenching within 2 years of approval. The subsequent steps are as follows:
Aviation Regulatory Process: Apply to relevant aviation regulators for licensing approvals.
Repeal of the SAA Act, 2007: The process has started. The Department is in the process of seeking Cabinet approval for introducing a bill in Parliament.
Fulfilment or Waiver of Conditions Precedent: Prior to the transfer of shares, ensure all conditions precedent are either fulfilled or appropriately waived to maintain the legality and integrity of the transaction.
Transfer of Shares: Execute the legal transfer of shares from the current shareholder to the new strategic equity partner with all necessary documentation.
Establishment of New Governance Structures: Set up new governance structures for effective management and decision-making under the Strategic Equity Partner (SEP). This may involve forming a new board of directors and executive leadership.
Implementation of Agreed-upon Strategies: Collaborate to develop and implement strategies for the national carrier's growth and development, focusing on areas such as operational efficiency, market expansion, and customer service improvements.

(See Presentation)

Discussion
The Chairperson thanked the AGSA, SIU, and SAA for the presentations.

SAA and the Department were asked to provide clarity on the key question regarding the bold statement made by the Minister: “No money, no deal”. Was the money forthcoming? It would be pointless to hang on to a deal that was centred around finances if the finances were not available. Otherwise, a new course of action was needed. He was concerned that the issue had been going on for such a long time.

He thanked AGSA for completing the audit and noted that the latest audit was underway. He thanked the members for their critical engagement and the focus that had been given to the issue of SAA. He reiterated that the ultimate concern was the Share-Equity Partner deal money.

Ms V Mente (EFF) requested clarity from AGSA on the figures presented. AGSA highlighted that R44.5 million had been lost in irregular, fruitless, and wasteful expenditure over the years that SAA had not submitted its financials. She highlighted the R3.4 billion in civil litigation reported by SIU and indicated that this amount could increase based on the outcomes of the ongoing investigations. What was the Department doing to recoup the difference? The auditing could not end with a description of what happened, AGSA needed to indicate what could be recouped and how much SIU was responsible for. A large amount of money was being lost that could not be traced. How much would not be able to be recouped? Understanding this would assist Parliament in what its actions needed to be.

Ms Mente requested AGSA’s understanding of the Takatso deal. There were no financial statements and therefore a price could not be put on SAA. If a figure was put on SAA to be sold, what was this informed by?

SIU had reported on many investigations. Were there any cases that SIU had not reported on in the presentation?

She referred to the Tribunal decision that employees would not be retrenched. She felt that this was untrue. There was a qualification that there be no retrenchments in the first two years and thereafter employees would likely be retrenched. Even within the first two years, in terms of the labour laws, there was not a solid finding on agreements based on employment. There could be a case where there was no money and retrenchments would be enacted. In that case, there would be nothing SAA could do about the retrenchments. There were no court findings that were solid in its resolution that no retrenchments could be done. If the new partner could not afford the employees, there was no way to prevent retrenchments. It was not fair to say that there was an agreement for no retrenchments.

She highlighted the Chairperson’s question regarding the money. The “where is the money” question was based on how much SAA had been sold for. What was the sale price based on? How was the price of the entity quantified? There had been no financials provided for the past four years and therefore SAA could not refer to these processes without being upfront to the Committee. She was concerned about the secrecy within the entity, especially considering that it was a state-owned entity (SOE). Currently, SAA was operating at full scale, it did not matter how many aircrafts the entity had, and the entity was operating with the funds of the state. SAA indicated the entity was functioning well. Why was SAA still adamant about selling the entity? Selling the entity puts the employees, infrastructure, and company at risk. The government would no longer be a factor in the entity. It had been indicated that 51% of the shares would be sold. This meant that the Government had no deciding power or vote and the partner would have authority. The partner having the majority share would likely reduce the likelihood of no retrenchments after two years.

She referred to the new operations launched by SAA. The launching of new operations was a good thing in bringing SAA back to its previous level of operations. However, she felt that SAA had not addressed the issue of aircrafts. SAA had not explained how many aircrafts it had and how many were being leased. Previously, the issue of aircrafts created a huge loss for SAA in terms of leasing, maintenance, and corrupt tenders. What was the status of aircrafts at SAA? How many aircrafts did SAA have? How many aircrafts could be bought? How many aircrafts were being leased? What were the operational costs in terms of aircrafts?

Mr A Lees (DA) said he was confused about the funding that had been appropriated by Parliament for the business rescue process. The business rescue plan required R2.5 billion to deal with the receivership, and this has not been appropriated. The Committee had been told that the receivership that needed R2.5 billion to resolve had been paid. Where did this money come from? He acknowledged that SAA had said that they had cash available, and the cash flow was positive. What were SAA’s profits since restarting in 2021? Was SAA back in debt? Were the current liabilities paid? Had money been borrowed? He felt that this was the only way that SAA would have been able to pay the R2.5 billion.
He referred to the 2016/17 financial year wherein SAA had failed to submit its Annual Report. After multiple excuses from the SAA board, AGSA then released the unaudited financial statements. Then this year, given the AGM had taken place on 10 November, why are the financial statements of SAA not being released? Most questions revolved around the finances of the entity. This was not an issue as a result of the SAA Board, but an issue with the Ministry. AGSA should help the Committee by releasing the SAA’s unaudited financial statements as it had done in 2016/17.

He highlighted the Takatso deal. One of the requirements from the Tribunal was for the minority shareholder to withdraw from the deal. That had not happened. The value of SAA was not, for example, R100 where R51 would be paid for 51% of shares. It was not appropriate that the minority shareholder was told they could not have the shares they bought or were promised – a deal had been made. If the shares of the minority shareholder were wanted back, it had to be paid for according to the share value and cost of the entity. He noted AGSA’s reservations on the matter. There would have been due diligence to ensure that Takatso could pay the R3 billion contribution or not, and whether the state was going to make any contribution. If SAA was so profitable that they had been able to pay the receivership, then the Minister of Finance could decide not to give SAA any more money. SAA was accepting the going assumption on the basis that there would still be state funds coming in. Was SAA counting on the state to provide more funds?

He asked SIU about the R3.4 billion recoveries. Could SIU confirm that the money recovered through the SIU went to the National Revenue Fund, and not to SAA? SAA had already been bailed out through the business rescue plan and billions of rands in taxpayer money. SAA could not get a gratuity through SIU, leaving the creditors who had to write off money not getting the money. The business rescue plan did not allow for this and would collapse if SAA received the recouped money.

The business rescue plan had a set of requirements for different actors, including the state, to meet. If the requirements were not met, SAA would be back where it was in December 2019 – all the creditors and liabilities would be back. For example, in terms of Airlink, approximately R1 billion was written off on ticket sales. If the business rescue plan was not followed directly, would the business plan not collapse? It was a risk for SAA if the business rescue plan was not explicitly followed. What were the consequences for SAA if this happened?

He asked how SAA was able to deal with all the financial demands without going heavily back into debt or borrowing money. SAA had indicated that it had not received money from the state.

He noted that the Chairperson of SAA had said the Takatso deal was finished. How could any deal be entered into to sell shares for R51, and then a few years later SAA stated that the shares could not be sold for R51, and a new evaluation would be done and expect the Takatso to pay the new price? He felt that Takatso would firmly stick to the original agreement of R51.

Mr S Somyo (ANC) said that the reports signalled a potential new birth of SAA that was based on how the previous issues were addressed. He highlighted Sections 71, 51, 52, 53, and 54 of the Public Finance Management Act (PFMA) which emphasised the role of the accounting authority. AGSA had highlighted instability and the functioning of the executive. It was indicated what the accounting authority’s responsibilities were in terms of the corporate plan and budgets. When looking at the trend of what the interim board had inherited there was a concern of whether SAA was able to withstand the demands, specifications, and losses. The transition to the future should be strong so that the future is strong, and if the transition is weak, it would create a fragile new SAA. The Chairperson of SAA had indicated that the entity could survive without any support from Treasury. That was what needed to be seen in the transition to guarantee the future it wanted to realise.

The interim board had been appointed in May 2023. The fact that it was an interim board added to the fragility in the entity. AGSA highlighted the absence of firm governance in the entity and said that was proven to result in irregularities. Was SAA being led to a future that was the same as its past? The executive authority should firmly deal with those issues and create a firm base to ensure the future it envisioned.

The strategic partnership outlook had not yet been announced. SAA could not plan according to these uncertainties. Focus should be given to corporate plans and good governance structures.

He referred to the map that showed SAA’s potential international trips. Did SAA still have licences? If SAA still had the licences that could be a motivating factor.

He asked how SAA would firm up the issue of employment without the involvement of handling agents in operations. For example, if a route was chosen and capacity was brought in through the employees who were no longer there rather than having handling agents. Was SAA moving towards being able to fulfill the routes it had indicated? Was it working on gaining the capacity to improve the entity’s effectiveness?

AGSA had highlighted that some matters were unfulfilled within SAA. He noted that there was an agreement between AGSA and SAA on several matters, except for one area related to the sourcing process. The sourcing process would be improved to ensure that it followed a process that was aligned with the requirements of Section 217 of the Constitution. This was supported by Sections 51 and 52 of the PFMA. The reluctance to fulfill this requirement was unfortunately inherited from the previous board. SAA needed to give the Committee a guarantee that they were moving towards the scenario where South Africans would benefit from SAA and that SAA would build an environment free of the issues identified by AGSA.

He appreciated SAA’s determination to move forward and restore the carrier to its former glory. He felt positive that SAA was moving in the right direction.

The Chairperson referred back to his previous remarks regarding the capital injection and the Takatso deal. In the case that Takatso was unable to raise the necessary capital, the Minister had stated: “If that were to occur there would be no deal, the Department of Public Enterprises would have to explore other possibilities.” He reiterated his request for clarity on the matter. On what basis would the deal have been made, if the numbers attached to it from the audit were outstanding? On what basis was R3 billion decided? What informed this amount?

He noted that SAA was currently re-establishing itself and was operating at a limited scope. At a previous meeting with SAA, the nominal profit outlook had been highlighted. SAA was able to set itself an expansion programme beginning with these limited operations and the incremental introduction of routes, which were more business-based, rather than according to political intervention like some of the previous cases. He was unsure how the Johannesburg-India route had been cancelled. South Africa had the highest population of Indians outside of India and there would have been heightened movement from Kwa-Zulu Natal. When he had previously highlighted an introduction of a Durban-Cape Town route, the CEO of SAA had responded that a business decision would be taken, not a political one. That demonstrated SAA’s movement away from political decision-making.

SAA could recalibrate itself. That called into question the legitimacy and necessity of the deal at that point. Private-public partnerships had to be reasonable and rational. On 4 December 2019, the eve of the introduction of the business rescue plan, members had been ready to go to SAA the next morning. The circumstances before the business rescue process and post the business rescue process fundamentally altered the discourse of the deal and the numbers and figures on the table. Was the R3 billion rational and reasonable? Was this amount consistent with the current type of SAA? To whose benefit was the deal – was it for SAA or other interests? He felt that SAA had moved past the circumstances that necessitated selling. Was the R3 billion forthcoming? Was the R3 billion a competitive figure? Was SAA selling for the sake of selling? SIU was attempting to recover money. There were many layers to the deal.

Ms B Zibula (ANC) was frustrated that the Committee had been raising the same questions continuously. Mr Somyo had asked whether SAA still had its licences. A large amount of money was lost or uncertain and this created fear. Would the money be received or not? It was not easy to sit on the Committee because the public had many questions. The public needed the Committee to answer their questions. She expressed her disappointment.

SAA Responses
Mr Hanekom thanked the Committee for engaging and asking challenging questions.

He appreciated the comments made and the work done by AGSA. He felt that the information could have been updated. AGSA stated that “SAA does not have adequate record-keeping systems,” and he felt that this was incorrect. The information supplied in the past did not have adequate record-keeping systems. There were no problems with the current record-keeping systems. In its recommendations, AGSA recommended that the executive authority should drive stability at a board level. He clarified that there was stability at the board level. The Minister was very satisfied with the functionality of the Board. All of the governance structures were in place, including for the subsidiaries. This had not been the case for many years. All the statutory requirements under the PFMA are in place.

SIU would be able to respond better to the question regarding the R3.4 billion. He clarified that there was no guarantee that the R3.4 billion would be recouped. However, where there may be some confusion is that past losses may be recovered. This may not be possible. All that could be recouped were the costs incurred through irregularities or corruption –The losses over a long period had to be written off. There was no recouping those losses. The only way that would happen was if Treasury found an extra R20 billion, which was unlikely.

He highlighted the issue of retrenchments. The Tribunal decision was legally binding. He confirmed that the decision was not binding forever. SAA was not experiencing a reduction of the workforce, but rather an expansion. Every new route put in place required additional cabin crew, pilots, and other staff members. SAA was moving from a substantially reduced workforce to a growing workforce. If everything went well in terms of the arrangement with the share-equity partner and capital injection, it would allow for more growth. There was no reason to believe that in two years after the share-equity partner deal kicked in, there would be a need to retrench anybody. For the first two years, the share-equity partner would not be allowed to retrench anyone.

He clarified that SAA was not back in debt. In terms of the concern regarding not seeing the financial statements, he stated that the audit of 2022/23 had not yet been completed. The other four audits had been completed. He suggested that it was an issue between the Committee and AGSA. The 2022/23 audit was still ongoing, and SAA was showing a modest profit and no losses. In preparing the corporate plan and expansion, SAA did factor in the R3 billion. It would have been nice to have received the money pledged by Treasury, but it had not been received. The Committee was welcome to put pressure on Treasury if it wanted to. The money had not been received and was not mentioned in the Medium-Term Expenditure Framework (MTEF). SAA was currently working on the assumption that it would get no money from Treasury. He predicted that SAA would be cash-positive by the end of the current financial year. SAA was able to cover the receivership. That was considered a positive sign of a turned-around SAA because it was able to do that without any support from Treasury. SAA would have been able to achieve some of its other aspirations if the money from Treasury was available. SAA no longer factored in the money from Treasury when making plans. SAA did however factor in the R3 billion payable over three years.

SAA is and will continue to be a going concern, but it was not the company the interim board wanted it to be. Progress could only move more rapidly if some of the capital injection was forthcoming. Currently, SAA is not facing any kind of danger of collapse, even without the funds from Treasury. He was not in the position to respond to whether Takatso could make its R3 million contribution.

The interim board had no involvement in the decision to go for a share-equity partner. SAA would have been facing liquidation had the agreement not happened. At the time, there were no willing buyers. SAA’s current position was not the same as its position was when entering the deal. SAA was not in a position to negotiate favourable terms. The evaluations of property placed values at approximately R5 billion – the amount did not reflect potential earnings and was only an evaluation of SAA’s fixed property. In theory, the R3 billion was a payment for a 51% share. He had been told that at the time of the arrangement, R3 billion was the best deal that SAA could get with a share-equity partner. It had not been based on buying the fixed property – no one would buy the fixed property of a loss-making operation and fixed assets could not be sold off. For the next year’s budget and the years thereafter, SAA would not factor in the potential recovery. The procedure was for the recovered funds to go into the Revenue Fund. He referred to his previous statement that the budget would be cash-positive by the following year and beyond and indicated that the budget was not cash-positive based on the assumption of any of the funding coming into the entity.

He agreed that the interim board inherited the situation at SAA. In terms of whether the interim board was complying with the PFMA, he said the interim board was compliant. He invited the Committee to engage with the board and the chairpersons of the various committees on the board. He said the Audit and Risk Committee was very hard working and was fulfilling the role for SAA and the subsidiaries. SAA had paid back all the money required and was not in debt. The chief financial officer (CFO) would expand on the matter.

He responded to the question regarding licences. SAA had managed to retain the landing rights at Heathrow Airport. The aviation licence applications were one of the processes that needed to be completed before the share-equity partnership came into effect. The CEO would provide more information on the matter.

He responded to the concern of what would happen if the money was not forthcoming. He referred to the Minister’s remarks and indicated that the deal was that if there was no money there would be no deal. He requested that the Department provide more details on what still needed to happen for the deal to go through. That included the repealing of the SAA Act.

Global Aviation had not demanded any payment. The condition of the deal was that they should divest and move away from SAA. Global Aviation had sought a firm of consultants to assess the potential value. Global Aviation wanted somebody to take over their shares at SAA.

He responded to whether the sale would continue. The deal for sale had been agreed upon. If the deal had not been made, SAA would have gone into liquidation. If it was the case that the agreement could not proceed or if the terms of the agreement could not be met, it would have to go back to the drawing board. If that happened the sale could be reconsidered. At that time, the agreement had to be honoured.

He agreed with the Chairperson regarding the Mumbai (Johannesburg-India) route. The route had not been discontinued under the interim board and the Chairperson would have to consult with the previous chairperson and board on the reasons for the decision. He agreed that the route should not have been discontinued. The decision preceded the State Capture period and reflected a great deal of corrupt activities. The cost of the decision had not been indicated. The costs of such a decision to discontinue the Mumbai route were not considered. The advantage of having a national carrier was that the returns from a route went beyond what the airline might make. Even if the route was marginally profitable or resulted in a marginal loss, the value and profit gained through tourism would be significant. The partial loss would have to be covered for example by cross-subsidisation. SAA was too afraid of that at the current point in time. Any route chosen going forward would undergo thorough due diligence because SAA could not afford to take on loss-making routes. He agreed that the potential of reintroducing the Mumbai route should be considered and had the possibility of a direct Mumbai-Durban flight – which none of the other intercontinental flights offered. There were other routes that offered immense opportunities, but he was not currently able to share the information.

Ms Lindsay Olitzki, Acting CFO, SAA, confirmed that there had been a R2.5 billion expectation. A R1 billion allocation was received on 3 April 2023. In previous years, SAA had recognised that the fiscus had been constrained and that if the Government was not going to assist with the receivership, the money still needed to be paid. Without making the receivership payments, SAA would revert to business rescue and ultimately liquidation. SAA had considered what could be done to source funds. SAA was not in debt and did not have an overdraft facility with any of the banks. Airlines operated with various streams of sourcing money and over time these providers had required guarantees or cash to reduce exposure if something happened to the airline. SAA had put a significant amount of cash away. Through the business rescue plan, SAA received funding to process refunds and as the refunds were processed the exposure to other providers was reduced. SAA had engaged with the entities over the previous 18 months, and as the exposure reduced, they had been willing to refund incremental amounts. Those amounts, which were returned mostly in dollars, enabled SAA to have sufficient additional cash to support the receivership payments.

Mr Lamola said that part of his job was to protect and promote the image of SAA. Mr Lees had referred to money stolen from Airlink by SAA. The matter had been through a difficult judicial process. There had been two court cases. One court case had been dismissed, where Airlink claimed that approximately R800 million should have been refunded to Airlink by the business rescue practitioners. In the past weeks, a resolution had been reached for the business rescue practitioners, not SAA. Airlink had then collected an amount of money, like the other creditors.

SAA viewed itself as a national carrier that, amongst other things, was responsible for promoting and strengthening the local aviation industry. SAA did not view their peers as competitors and wished to support them where they were able to, and not to work in a competitive or dishonest manner to weaken them.

He responded to the question of why SAA was still going to be sold, despite the entity’s progress. The way the global aviation industry was structured such that SAA, even with its positive performance, could not remain and become an asset to South Africa in its current form – a 100% Government-controlled airline with a fiscus experiencing socio-economic challenges. SAA needed external funding and the funding could only come from capital markets – domestic, international, or an equity partnership. The future structural model of SAA was that the entity needed a strategic equity partner. SAA was being prepared for the shareholder, so that when the shareholder made any decisions there was a “live” SAA that could be negotiated around.

He responded to the question regarding the air traffic licences. Air traffic licences did not belong to any airline, they were the property of the state through a bilateral agreement with other countries. SAA had previously had several route licences. The laws that governed the administration of the licences stated that if the licence was not being used or if the allocated traffic rights were not being used, the licence would be lost unless continually re-applied for. Since the business rescue, SAA faced the danger of losing its licences. When SAA restarted, one of the major jobs was to make quarterly submissions to the licensing councils to explain the reasons SAA had not been flying, present SAA’s recovery plan, and request that licenses be renewed. Airlines competed over the licenses. As SAA was doing well it was partly propelled by the legislative imperative. If SAA did not continue to fly and unless all the routes were announced, licenses would be lost to the competitors.

He raised the question regarding the Mumbai route. The global shape of the market had changed from what it had previously been when SAA had flown the Mumbai route. For example, Emirates had developed Dubai as a hub. SAA was faced with a limited number of available aircrafts. The good news was that most of the traffic that came from Dubai was a connection in Johannesburg to go to Latin America. Since introducing the route to Sao Paolo, the Mumbai case is in the approval process. Additionally, Air India, like SAA, was a member of Star Alliance, and as members of Star Alliance negotiations were taking place regarding the route.

SIU Response
Adv Mothibi said the SIU had presented the allegations received in terms of focus areas. The focus areas covered all the allegations received. Most of the focus areas had progressed to a stage where SIU was able to indicate when the investigation would be concluded. However, focus areas 19, 21, 22, and 23 were still ongoing. They could be areas where further findings could be reported. SIU would ensure that all of the allegations were covered, and all the findings reported, including where investigations were still ongoing.

He responded to the questions regarding the recovery of money lost by SAA. The SIU’s model of recovery was that following the discovery that money had been lost, SIU went to the High Court and Tribunal to apply as the first applicant and the state institution as the second applicant. At the end of the process when the order was received for money to be paid back, the recovery model indicated money should go back to the state institution. SIU informed Treasury in terms of the recovery amount and that it had been returned to the state institution. In many instances, SIU received comments of concern that the money was being returned to the same institutions where it had been lost due to corruption or maladministration. That provided SAA with the opportunity to make a clean break from the past. The clean-up should involve consequence management. Officials and employees who caused maladministration or corruption should be removed from the institution. That would reassure the Committee and the public that the money would be directed to its intended purpose.

He responded to the issue of the R3.4 billion. The slide stated, “Rand value of potential cash and/or assets to be recovered.” The word “potential” is derived from the fact that the matter was investigated and the contract value amounted to R3.4 billion. For example, if there was a contract of R1 billion that was awarded irregularly there was a recovery process ordered by the court. It was possible that the whole R1 billion was not recovered. The court applied a strict legal principle. The recoveries would be based on the legal principle. This process has been the reactive part of SAA’s transition, in that the investigations had been conducted and this would continue throughout the transition period. SIU would continue to investigate and ensure that investigations were concluded. In terms of maladministration, SIU would also consider what would cause the governance failures and who was responsible. SIU would then begin acting more proactively by ensuring management took SIU’s findings into account during SAA’s transition. This would enable prevention mechanisms to be put into place to ensure that there was no repeat of what had happened before.

AGSA Responses
Ms Singo said that over the four-year period reviewed, AGSA had indicated the challenges faced by SAA, especially in terms of ensuring that the accounting records reflected the transaction the entity entered into. The recommendations of AGSA and the inputs by SAA management highlighted the remedial action plan. A lot of the root causes that contributed to the findings reported would take time to resolve. As the remedial action plan was developed it was critical to indicate what would be addressed in the short- to medium-term and what would be addressed in the long-term. This would ensure that the root causes of the internal control deficiencies were addressed. Part of this was ensuring that there was stability at the executive management level and that there was adequate record-keeping. In a lot of cases, AGSA was unable to express an opinion on the numbers presented and compliance because the information was not available to look into.

She first responded to the questions regarding irregular, fruitless, and wasteful expenditure. Over a period of time, AGSA picked up an increase in irregular, fruitless, and wasteful expenditure. However, AGSA indicated due to the limitations of scope experienced during the audit, it would not be able to express an opinion on whether the numbers were complete. That would have been reflected in the audit report. The PFMA required that once an act of non-compliance was identified as having led to irregular, or fruitless and wasteful expenditure, investigations would be conducted into the irregularity. That would determine, from an accountability standpoint, who the officials responsible for the act were and assess what could be recovered. During the audit, AGSA found that, when looking at the details of irregular, fruitless, and wasteful expenditure, proper records were not kept in terms of the non-compliance and the investigations. AGSA was unable to get details on the investigations that were conducted or confirm the completeness of registers. Based on the findings that had been raised, the accounting authority had to continue to look into the instances of irregular, fruitless, and wasteful expenditure and to finalise the investigations, and make the information available. Consequence management then needed to take place.

She responded to the matter of recouping funds. AGSA had provided details to the accounting authority. AGSA recommended that, where the investigations had not been conducted, investigations must be conducted. That would help identify who the responsible officials were and what consequence management needed to occur. Thereafter, when AGSA referred the matters to the accounting authority and adequate steps had not been taken in terms of the investigation, AGSA would exercise its powers in terms of understanding whether the non-compliance resulted in financial losses and if they had, AGSA would ensure that adequate actions were taken against the responsible officials.

She responded to the questions regarding Takatso. When financial statements were prepared, they were meant to reflect a firm presentation of the account of a particular entity. A disclaimer of opinion indicated that when looking at whether the financial statements of SAA failed to present its accounting affairs. AGSA’s observation was that it could not express an opinion. This poses the challenge of determining the appropriateness of the selling price and the impact that the sale price may not be for the benefit of the state.

She responded to the question regarding the tabling of Annual Reports. Section 65 of the PFMA required the executive authority to table the Annual Report within a period of six months. For the period when the entity was under business rescue, the financial statements were not presented to AGSA for auditing. Over the three years, AGSA was not presented with the financial statements for auditing. When the financial statements were presented for auditing, AGSA finalised the audit as quickly as possible. The AGM was held on 10 November 2023. The executive authority had the responsibility of tabling the Annual Report to the structures of Parliament. If AGSA foresaw that there was an undue delay in the tabling of the Annual Report, it would exercise the powers granted by the PFMA to table the report on behalf of the entity. In that case, AGSA had indicated that the executive authority would table the report.

She responded to the questions regarding the going concern. There were some material uncertainties indicated in the notes to the financial statements. Takatso had a dependency on when the transaction would be concluded. The material uncertainties identified as impacting the going concern assumption would be highlighted and noted as having an impact on the going concern. When AGSA reviewed Takatso, it considered whether there were frameworks for such an instance. AGSA found that there were no frameworks and recommended that the Department create a clear regulatory framework to govern the transaction. AGSA found that in the absence of a regulatory framework, Section 217 of the Constitution should be considered. AGSA was of the view that in the absence of a regulatory framework, the Department could defer to the Constitution.

The Chairperson indicated that any questions that were not responded to could be answered in a written submission to the Committee.

Ms Singo said that AGSA had been very concerned with what it found at SAA. However, AGSA believed that with adequate governance structures and stability, there would be improvements.

The Chairperson highlighted that the meeting had run overtime, and the members had a House sitting to attend. Any other questions could be answered in writing.

The Deputy Minister highlighted the issue of the sale of SAA. At the time, the creditors had gone to court and intended to apply for the liquidation of SAA. The shareholder urged that SAA be put under business rescue to save it from liquidation. This was the best decision at the time and resulted in an incremental recovery within the airline. He was hopeful that the same could be done for Mango. During the business rescue, a bid was opened for strategic partners. The interim board was stable and management was focused on its transition to a strong airline. He noted the need for stability at the board and highlighted the uncertainty around this and the partnership deal. It was difficult to appoint a permanent board with uncertainties regarding the deal. He reiterated the Minister’s remarks of “No money, no deal,” if the deal fell through other possibilities would be explored.

Ms Jacky Molisane, Acting Director-General, DPE, said that the Annual Report was going through the editing process and would be presented before the Parliament began its recess. At the time, the deal was good and SAA was able to evade liquidation. The entity was rebuilding and looking to expand its network.

Closing Remarks
The Chairperson apologised that the meeting had run out of time. He urged SAA to conclude the deal because it was impeding its progress.

The Chairperson reviewed the Committee’s schedule for the remainder of the week.

The meeting was adjourned.