South African Airways (SA, Johannesburg O.R. Tambo) has outlined a plan in which renegotiated contracts could help it to cumulatively save ZAR1.8 billion rand (USD122 million), IOL News has reported.

South African Airways has been reviewing its contracts, SAA spokesperson Tlali Tlali revealed on November 18, explaining that some existing agreements had not allowed for maximum value and benefit.

A contract with one of the global distribution systems had already been renegotiated with resulting savings, he said, while SAA Technical had saved ZAR11 million (USD746,000) on another agreement when South Africa's biggest union, the National Union of Metalworkers, intervened on an inflated warehousing contract with logistics giant KWE.

“There are few others that are being renegotiated and are awaiting approvals. All these contracts that are being renegotiated have a contract value of just under ZAR1 billion [USD68 million],” the spokesman explained.

Tlali said that SAA was also undergoing a request for proposal (RFP) tender process for other contracts with a value of around ZAR800 million (USD54.3 million) over 12 months. This includes fuel supply, which SAA interim chief operations officer Deon Fredericks recently revealed absorbed 24% of its turnover. An RFP for ground handling for international and regional operations also recently closed with significant savings, according to Tlali.

A report by Ernst and Young in 2015 showed that 28 out of 48 contracts across South African Airways as well as subsidiaries Air Chefs, SAA Technical, and the low-cost carrier Mango Airlines (JE, Johannesburg O.R. Tambo) had been poorly negotiated.

SAA faces an inquiry by a regulator over a plan to privatise it. Officials from the carrier will be summoned to a meeting with the Air Services Licensing Council (ASLC) in December to discuss details of talks with possible future equity partners, Bloomberg reported.

Mike Mabasa, chairman of the ASLC, said that, in particular, SAA should give assurances that any deal will not violate foreign-ownership laws, which state that the country's airlines must be at least 75% owned by South Africans to operate a domestic service.

South African Airways is widely reported to have lost in excess of ZAR28 billion (USD1.9 billion) over the last 13 years. On November 16, South African Express (EXY, Johannesburg O.R. Tambo) reported a net loss of ZAR590 million (USD40 million) for the financial year ending March 2019 and more than ZAR2 billion (USD135 million) for the last three years. However, South Africa's auditor-general blasted the financial statements saying they cast doubt on the SAA subsidiary's ability to continue as a going concern.

In state-owned regional carrier's financial statements presented for the last three years, South Africa's auditor-general, Kimi Makwetu, criticised the accounts saying that documents on procurement and other transactions were missing.

Among the irregularities raised by the auditor general are a deferred tax asset of ZAR499 million (USD33.93 million) given that the company is not a going concern and a Transnet loan of ZAR222 million (USD15.1 million) that has been deemed irregular in terms of Section 45 of the Companies Act.

The auditor-general also disclaimed every material line item on the airline's balance sheet as well as the directors' going concern assessment.

“This situation indicates that material uncertainties exist that may cast significant doubt on the entity's ability to continue as a going concern,” Makwetu wrote.

The statements will now be tabled before parliamentary committees.