South African Express annual general meeting appoints new auditors

13 Aug 2012

The Minister of Public Enterprises, Malusi Gigaba and Directors of the Board of South African Express (SAX) held their Annual General Meeting (AGM) at Airways Park, Kempton Park today.

Minister Gigaba was accompanied by his Deputy, Mr Bulelani Magwanishe and senior Departmental officials. The financial year 2011/12 has been a tough and challenging economic year for the global airline industry and SA Express has not been immune from such challenges.

Up until 2011, the SAX had been considered the jewel of the Public Enterprises portfolio, with consistent reported profits. Regrettably, the past year has seen a drastic decline in amongst others, performance, brand and reputation management and internal controls.

The AGM was unanimous in their view that the failure of the company to present Audited Financial Statement at the meeting is irregular. The irregularities relate to non-compliance, miss-statement of financial statements and evidence provided to the Auditors which, in their opinion, did not meet the auditing standards. This has led to an adverse opinion from the Nkonki Auditors. The relationship between all parties has deteriorated to such an extent that it was prudent for the Shareholder to engage both parties to address the impasse that found itself in the public domain.

The appointment of the External Auditors is subject to annual review at the Annual General Meeting by the Shareholder. Similarly the Board is appointed for a three year term subject to the annual review. There is a need for a more hand-on shareholder oversight of the regional airline and it is in lieu of the current challenges that it is prudent to review the Board. The shareholder has therefore announced a new Board of Directors due to the high turnover of the previous Board, which saw a record number of non-executive directors' resignations.

The new Board has been appointed and the Chairperson of the Board is Mr Andile Mabizela who has strategy, aviation and legal background. He will be supported by a multi-skilled Board of Directors and their primary mandate is to turnaround the airline.

The new board comprises of Mr Ezrom Mabyana, Ms Karabo Tshailane-Nondumo, Ms Neo Priscilla Moshimane, Mr Shumani Tshifularo, Ms Nosipho Gxumisa, Mr George Mothemba, Ms Noni Dibate and with Dr. Bridget Ssamula relected on the new board for the purpose of ensuring continuity and institutional memory.

Minister Malusi Gigaba stated that new board would have to comprehend and apply the mandate of the company, which is "to be the regional African carrier of choice" (see text of remarks below). The newly appointed Board is required to address a number of critical dimensions facing the airline; among those being crisis management, stabilising operations and building brand and reputational confidence.

Minister Gigaba also emphasised the importance of strengthening internal controls within the state owned company, stating that "systems within the entity would have to ensure that management is aligned to the shareholders expectations and national objectives'. Minister Gigaba as shareholder representative commended the previous board for their contribution towards SAX.

In support of turning the airline around and navigating through the turbulence, the Auditor-General has been appointed to take over the audit function from Nkonki Auditors and would commence the audit shortly. The Auditor-General would first commence with the audit of the 2011/12 financial year. 

The AGM requests that the Auditor-General be afforded time to review the 2011/12 financial year and make the necessary recommendations to ensure that SA Express adheres to the generally agreed accounting standards and the requisite legislative frameworks. The shareholder will communicate to the public and to Parliament once the process has been concluded.

Minister of Public Enterprises Malusi Gigaba: Ministerial address to the new South African Express Board

13 Aug 2012

Introduction

I would like to express my sincere gratitude to all of you for agreeing to serve on the South African Express Board.

Let me first start by introducing myself and the team, I am Malusi Gigaba, Minister of Public Enterprises and am accompanied by Mr Gratitude Magwanishe, The Deputy Minister of Public Enterprise and Mr Tshediso Matona the Director General of Public Enterprises and he is accompanied by Senior Officials from the department who perform the Shareholder oversight function of the State Owned Companies.

The appointment of a new Board at such challenging times in the history of airline industry and South African Express was a necessary action which we needed to undertake. The Shareholder has selected the new Board based on a diverse skills, expertise and experience. I have confidence as shareholder representative that you have the right intellectual capacity collectively to develop a turnaround strategy that will take the airline out of the financial and institutional woes.

It is also very important to highlight that serving in the State Owned Company's board is a unique opportunity in that you represent not only myself as the Shareholder but the interest of all South Africans. State Owned Companies have clear objective of leveraging on their spending to advance government economic policies and impact on socio-economic development. It is therefore important that as the new Board remain focus in this national objective as it exercise its fiduciary over the airline.

I would like to emphasise that the Board should ensure Shareholder expectation, Financial sustainability; Customer expectations; Internal business processes; and Learning and sustainable growth. It is important that the Board provides decisive direction to Management and not delegate its responsibility either to the management or Board sub-committees. I am confident that as the new Board you will debate and robustly engage with Management and the department on strategic and operational matters of the airine.

SA Express is a domestic and regional air carrier with a mandate to be regional African airline of choice. The Board should ensure that this mandate is met and achieved. At the outset let me point out, there are three critical dimensions facing the airline: crisis management, stabilising operations and building brand and reputational confidence as outlined earlier.

Crisis Management

The financial year 2011/12 has been a challenging economic year for the South African economy, for the global airline industry and for SA Express. The domestic market continues to be affected negatively by the sharp decline in global demand, low commodity prices and harsh financial conditions. The weak consumer spending coupled with low business confidence has negatively impacted revenue streams.

Up until 2010, South African Express Airways had been posting consistent profits each year. Regrettably, the past year has seen a drastic decline in amongst others, performance, brand and reputation management and internal controls. This was aggravated by the withdrawal of the 2010/11 financial statements which raised questions as to the competence of all the parties associated with the management of the company. This casts doubt as to the application of appropriate accounting treatments for the previous years.

The auditors have since issued a disclaimer of opinion with regard to the 2010/11 financial statements. In their report they cite numerous significant adjustments which were not substantiated with the appropriate audit evidence, reportable irregularities and cast doubts about the going concern nature of SAX. In addition, the 2011/12 financial statements have not been audited. These are issues which I would like you to address as a matter of urgency.

Stabilising operations

The Board has the mandate to engage with Management, review the airline's current operations, assess and address internal controls and assess the skills composition within the company in an effort to bring stability to the airline. It is important to undertake this exercise so that we know that the value proposition of the company, is supported by a strong institutional capacity and is able meet the market expectation and better position to recapture its market share. One of the immediate tasks of the new Board will be to appoint a permanent Chief Financial Officer as the airline has not been able to appoint and retain a permanent CFO for the last 3 years.

As Shareholder, I pledge my support to the new Board and impress upon you to focus your much needed attention and expertise in steering the Company though the turbulence. Over the next year, we must work closely together to address the challenges facing the Company and my department will begin by presenting the Shareholder management model. This model will include but not limited to the Strategic Intent Statement which gives strategic direction to the Board and a Shareholder Compact which is the basis for measuring performance.

A Board induction and orientation will be coupled with an induction by management. This will be arranged in due course. Given the institutional inefficiencies of the company, as the shareholder we will certainly watch the developments of the company under your leadership with eagle eyes.

Building brand and reputational confidence

You may be aware of the negative media publicity that the airline is receiving and in our engagement with Management, they had confessed to poor stakeholder management as well decline in reputational confidence. If consumers loose confidence in SAX brand, this means indirectly they lose confidence in the South African ink- confirming the strategic relations of the airline and the country. These reports have raised serious concerns in Parliament and Cabinet.

The well-publicised companies lack of proper financials does not build confidence with investors and means it will not be able to raise capital from the financial markets. Although there is an agreement with Labour to freeze salaries, employee morale is at an all-time low, given the prevailing inefficiencies.

So I expect that over the next few months, the Board must develop a communication strategy aligned to the delivery of key milestones, to build confidence in the airline.

African aviation strategy

The African Aviation Strategy was initiated by the department in response to the pace of liberalisation of markets as well as the major shifts in global air traffic. As the business expansion strategy, the shareholder would like the national carrier to follow trade activities from South Africa to other African airlines. As such, we need to development a common understanding of the notion of "national interest and national assets". SA Express and SAA are both regarded as national assets and therefore their pursuit for new markets is part of advancing national interest.

In our on-going engagement with the Board, we anticipate to allude on these matters in detail. It is necessary and paramount that Government inculcates a vision of a holistic and unified approach as opposed to the fragmented, disjointed and ultimately counter-productive situation that sometimes prevails.

It is necessary that South African Airways (SAA) and South African Express as State Owned Airlines promote both leisure and business tourism sector and the South African economy at large. The role of Government and the strategic reason for owning airlines will be discussed at the African Aviation Strategy workshop which will form part of the induction programme.

Commercial Agreement

The new Board is required to engage with SAA and the department to ensure that the current trend of misalignment of the overall strategic intent of both these entities is resolved. In addition to the failure of the entities to understand the common Shareholder principles, the airlines have a challenge in the current franchise agreement SAA has with the private airline, SA Airlink. Being mindful of competition laws, it is important that SAA and SA Express agree to embark on a process of continuous cooperative scheduling of their scheduled services, cooperative route development and mutual support to the enhancement of Shareholder value.

Conclusion

I encourage the Board to provide leadership on the matters I have alluded to and build the Company to sustainable levels. I am of the view that in accepting to serve on SA Express Board, you will fully apply your minds and hands-on approach that is required. As Shareholder representative I assure you once again of the support of my department and I look forward to further engagement in the best interests of the Company.

The airline needs to regain its reputation in the market and seek to capture new opportunities and markets in the region.

I thank you.

Statement issued by Department of Public Enterprises, August 13 2012

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