Rhodie
12th Nov 2003, 17:28
I'm trying to figure out if it's a profit or a loss...???
Mail & Guardian Report
ECONOMY & BUSINESS
SAA reduces air turbulence
Thebe Mabanga
11 November 2003 13:59</SPAN< td>
South African Airways’s (SAA) appointment of a new management team last week brings to a close a year of turbulence marked by the departure of key staff. The national carrier had been set on a stable foot-ing in readiness for international competition and eventual privatisation, said SAA’s CEO and president André Viljoen.
The appointments include that of Oyama Mabandla, the airline’s first deputy CEO, and six executive vice-presidents.
The most significant departure was that of chief financial officer Richard Forson, who left abruptly in the wake of a reported R7-billion loss in the foreign exchange market on SAA’s hedging portfolio.
The Mail & Guardian first reported the loss in April, based on a leaked internal report by Trans-net’s group audit services.
However, last week Viljoen dismissed the loss as a major reason for the overhaul. “The restructuring began in November last year. The [loss] was announced in July this year.”
He noted that the new structure reduced the number of executives reporting directly to him from a cumbersome 16 to six.
Viljoen added that “there is no cause for panic” in the wake of the loss, attributing it to accounting conventions rather than a loss incurred through trading conditions. SAA posted an operating profit of R545-million for the year.
Companies hedge to cover risk against currency fluctuations. SAA’s vulnerability arises from expenses, including jet fuel, leasing and purchase of parts, paid in dollars.
A new accounting standard, AC 133, requires financial market instruments to be reported at market value and stated on the balance sheet.
SAA’s loss arose largely because the rand/dollar exchange rate moved from R11,38 to the dollar in March 2002 to R7, 91 exactly a year later. This led to a loss of R4,5-billion on the hedge book.
The airline also had to reverse an unrealised gain of R1,9-billion, which it had previously recorded in the income statement. This also meant a negative change in the dollar value of its assets.
Viljoen takes comfort in the fact that for the loss actually to be realised, the rand/dollar exchange of R7,91 will have to hold for the entire hedging period, parts of which run 10 years into the future. In the short term, the rand has strengthened to about R6,90 to the greenback.
Viljoen noted that the hedge book had to date made an overall profit of R1,3-billion since SAA’s corporatisation, which translated into cash flow for the airline.
A risk management strategist, who declined to be named, confirmed that if the debt was not managed down it would affect SAA’s attractiveness as an investment. He noted that this depended on the structure of the hedge and on which parts fell due during times of rand strength.
The airline is now technically insolvent and requires the government to guarantee its debt.
SAA runs its hedge book through parent company Transnet. Last week Sindi Mabaso, Transnet’s chief financial officer and her colleague, Ria Phiega, could not be reached for comment.
This year SAA lost a number of key staff, including communications and marketing manager Victor Nosi, SAA technical chief executive Vincent Raseroka and human resources director Vusi Dlamini.
The airline also lost one of is most senior female executives, Sazi Mzimela, to its feeder carrier SA Express. Mzimela is to spearhead a competitive drive on dom-estic and regional routes, most notably against low-cost carrier Kulula.com.
She has said she does not plan a price war to win over customers, but will offer superior service with higher frequency flights to business travellers and drive fares down through improved efficiency.
The government’s attempts to privatise SAA yielded an unintended windfall in the form of a R1-billion profit when it bought back the 20% stake sold to Swiss Air in 1999 after the latter ran into financial difficulty in the wake of 9/11.
Department of Public Enterprises spokesperson Miranda Strydom stressed last week that because of tough global trading conditions in the airline industry and depressed equity markets, there were no plans at present to invite an equity partner for SAA or to list the airline through an initial public offering.
Strydom said the department did not believe the R7-billion hedging loss had affected SAA’s attractiveness. However, she implied that part-privatisation would move back on to the agenda once market conditions improved.
Markets are not the only obstacle. The Congress of South African Trade Unions (Cosatu) remains opposed to privatisation, despite the fact that air travel does not constitute an essential service.
Randall Howard, general secretary of the Cosatu-affiliated South African Transport and Allied Workers Union (Satawu) confirmed labour’s continued opposition to privatisation in any form.
He noted that the national carrier was the focus of national pride, and had strategic importance in aiding tourism and economic growth while forging alliances on the continent.
SAA is preparing for international competition through the $3-billion acquisition of an Airbus fleet, the largest civil procurement in South Africa’s history.
SAA spokesperson Rich Mkhondo said the airline “has adopted a cautious approach to route entry to most parts of Africa”. The airline has taken a 49% stake in Tanzania Airline, with plans to use it as its East African hub. It has also been invited to bid to run Nigeria’s national carrier.
Mail & Guardian Report
ECONOMY & BUSINESS
SAA reduces air turbulence
Thebe Mabanga
11 November 2003 13:59</SPAN< td>
South African Airways’s (SAA) appointment of a new management team last week brings to a close a year of turbulence marked by the departure of key staff. The national carrier had been set on a stable foot-ing in readiness for international competition and eventual privatisation, said SAA’s CEO and president André Viljoen.
The appointments include that of Oyama Mabandla, the airline’s first deputy CEO, and six executive vice-presidents.
The most significant departure was that of chief financial officer Richard Forson, who left abruptly in the wake of a reported R7-billion loss in the foreign exchange market on SAA’s hedging portfolio.
The Mail & Guardian first reported the loss in April, based on a leaked internal report by Trans-net’s group audit services.
However, last week Viljoen dismissed the loss as a major reason for the overhaul. “The restructuring began in November last year. The [loss] was announced in July this year.”
He noted that the new structure reduced the number of executives reporting directly to him from a cumbersome 16 to six.
Viljoen added that “there is no cause for panic” in the wake of the loss, attributing it to accounting conventions rather than a loss incurred through trading conditions. SAA posted an operating profit of R545-million for the year.
Companies hedge to cover risk against currency fluctuations. SAA’s vulnerability arises from expenses, including jet fuel, leasing and purchase of parts, paid in dollars.
A new accounting standard, AC 133, requires financial market instruments to be reported at market value and stated on the balance sheet.
SAA’s loss arose largely because the rand/dollar exchange rate moved from R11,38 to the dollar in March 2002 to R7, 91 exactly a year later. This led to a loss of R4,5-billion on the hedge book.
The airline also had to reverse an unrealised gain of R1,9-billion, which it had previously recorded in the income statement. This also meant a negative change in the dollar value of its assets.
Viljoen takes comfort in the fact that for the loss actually to be realised, the rand/dollar exchange of R7,91 will have to hold for the entire hedging period, parts of which run 10 years into the future. In the short term, the rand has strengthened to about R6,90 to the greenback.
Viljoen noted that the hedge book had to date made an overall profit of R1,3-billion since SAA’s corporatisation, which translated into cash flow for the airline.
A risk management strategist, who declined to be named, confirmed that if the debt was not managed down it would affect SAA’s attractiveness as an investment. He noted that this depended on the structure of the hedge and on which parts fell due during times of rand strength.
The airline is now technically insolvent and requires the government to guarantee its debt.
SAA runs its hedge book through parent company Transnet. Last week Sindi Mabaso, Transnet’s chief financial officer and her colleague, Ria Phiega, could not be reached for comment.
This year SAA lost a number of key staff, including communications and marketing manager Victor Nosi, SAA technical chief executive Vincent Raseroka and human resources director Vusi Dlamini.
The airline also lost one of is most senior female executives, Sazi Mzimela, to its feeder carrier SA Express. Mzimela is to spearhead a competitive drive on dom-estic and regional routes, most notably against low-cost carrier Kulula.com.
She has said she does not plan a price war to win over customers, but will offer superior service with higher frequency flights to business travellers and drive fares down through improved efficiency.
The government’s attempts to privatise SAA yielded an unintended windfall in the form of a R1-billion profit when it bought back the 20% stake sold to Swiss Air in 1999 after the latter ran into financial difficulty in the wake of 9/11.
Department of Public Enterprises spokesperson Miranda Strydom stressed last week that because of tough global trading conditions in the airline industry and depressed equity markets, there were no plans at present to invite an equity partner for SAA or to list the airline through an initial public offering.
Strydom said the department did not believe the R7-billion hedging loss had affected SAA’s attractiveness. However, she implied that part-privatisation would move back on to the agenda once market conditions improved.
Markets are not the only obstacle. The Congress of South African Trade Unions (Cosatu) remains opposed to privatisation, despite the fact that air travel does not constitute an essential service.
Randall Howard, general secretary of the Cosatu-affiliated South African Transport and Allied Workers Union (Satawu) confirmed labour’s continued opposition to privatisation in any form.
He noted that the national carrier was the focus of national pride, and had strategic importance in aiding tourism and economic growth while forging alliances on the continent.
SAA is preparing for international competition through the $3-billion acquisition of an Airbus fleet, the largest civil procurement in South Africa’s history.
SAA spokesperson Rich Mkhondo said the airline “has adopted a cautious approach to route entry to most parts of Africa”. The airline has taken a 49% stake in Tanzania Airline, with plans to use it as its East African hub. It has also been invited to bid to run Nigeria’s national carrier.