SA Express lost R187m in 2011

(Image: Hansueli Krapf, via Wikimedia Commons)

The heavy losses‚ which are understood to have continued in 2011-12‚ will strengthen the argument for SA Express's immediate integration with low-cost carrier Mango and the troubled South African Airways (SAA). Such integration is a pillar of SAA's turnaround strategy‚ which is under consideration by the Department of Public Enterprises.

The annual report highlights the extent of the financial mis-statements - far greater than previously thought - which led to their withdrawal. These related particularly to the values assigned to aircraft‚ reusable parts and consumables.

SA Express's reported pretax loss of R201m was a far cry from the pretax profit of R51m which the airline initially reported in its first round of financial statements. These were withdrawn in November 2011 after accounting errors that dated back several years were uncovered.

Although no fraud was detected‚ financial mismanagement‚ a lack of internal controls and a shortage of expertise had contributed to the malaise at the airline‚ which its former auditor‚ Nkonki Incorporated‚ said was not viable as a going concern without recapitalisation by the state.

Grilling by MPs

The airline's executives are to face a grilling by MPs on Tuesday (30 April) when they appear before the portfolio committee on public enterprises. So far only the board of directors - all but one of whom were dismissed by Public Enterprises Minister Malusi Gigaba last August because of its failure to present audited financial statements - have taken the rap for the financial mess.

"The buck also stops with the chief executive Inati Ntshanga who has not faced action‚" said Democratic Alliance spokeswoman on public airlines Natasha Michael. "He needs to take responsibility for what goes on. A lot of questions need to be answered," she said.

SA Express's losses in 2010-11 came off a 4.4% rise in revenue to R1.64bn‚ but the bottom line was hit by a R61m impairment in the value of its property‚ plant and equipment‚ mainly aircraft.

A statement by Nkonki managing partner Mitesh Patel - included in the SA Express annual report - noted that the airline suffered an unaudited net loss of R78m in 2011-12. In that year‚ he said‚ the airline suffered a negative cash flow of R188m from its operations.

The statements tabled in Parliament are disputed by Nkonki‚ which issued a disclaimer in August last year‚ saying there was insufficient substantiating information to form an opinion on them. It could also not support the "significant adjustments" of about R1bn made to the statements in the absence of sufficient and appropriate audit evidence and claimed the way they were dealt with did not comply with international accounting standards.

However‚ the previous board of directors engaged technical experts from auditing firm Deloitte who agreed with management's treatment of the adjustments‚ the most significant of which related to the over-valuation of the fleet. Former chairman Lilian Boyle said over the weekend that the board was confident that the financial statements it signed off in August were a "true picture" of the finances of SA Express at that point.

Gigaba dismissed Nkonki as the external auditor in August last year opting to use the auditor-general instead.

Source: Business Day via I-Net Bridge