Civil Aviation Authority & Airports Company South Africa on their 2013/14 Annual Reports

Meeting report

South African Civil Aviation Authority (SACAA) presentation on its 2013/14 Annual Report
Ms Poppy Khoza, Director of Civil Aviation at SACAA, explained that SACAA is a regulating body to the civil aviation industry that ensures security and safety by complying with the International Civil Aviation Organisation (ICAO), and taking into consideration the local context. SACAA, according to the Civil Aviation Authority Act of 2009, controls and regulates civil aviation safety and security.

The International Civil Aviation Organisation (ICAO) completed an ICAO Validation Mission ICVM in July 2013 with no Significant Safety Concerns (SSC) raised. Presently, SACAA has submitted about 50% of compliance evidence on the current ICAO Corrective Action Plan (CAP) to ICAO. South Africa’s Safety Performance as indicated by ICAO 2013 Audit Report reflected that SACAA is operating above the world average. However, because the Accident and Incident Investigation Division (AIID) had not yet been audited, hence the reflected underperformance in the report. General accident statistics have been on the decline since 2008, however 2013 was a concern, hence the development of the Cross Functional Accident Reduction Plan (CFARP). This had a positive impact for the six months ending June 2014, with 19 fatalities compared to 23 the previous year.

The statistics for African, Indian and coloured SACAA staff, excluding the cabin crew, is 8%. Efforts have been made to correct the situation and transform the industry under the guidance of the Ministry. SACAA fell below the intended target due to a slowdown in the recruitment of personnel pending organisational structure review. The target set for the recruitment of female Africans was 163, however SACAA was able to achieve 158 of its target, the target set for coloured female was 19 out of which 11 was achieved, the target for female Indians was 22, whilst 17 were achieved and for white females the target was 67 with 63 being achieved. The target for the recruitment of male Africans was 168, however SACAA was able to achieve 164 of its target, the target for coloured males were 23 out of which 13 was achieved, the target for male Indians was 18, whilst 13 was achieved and for white males the target was 30 with 24 being achieved. She hoped that as vacancies are filled, targets would improve. There were 17 performance deliverables for the year ending March 2014, and a revised 15 out of 16 deliverables were achieved, translating to 94% performance.

Mr Asruf Seedat, SACAA Chief Financial Officer, presented the financial performance for 2013/14. The main revenue source for SACAA is the Passenger Safety Charge (PSC), which constitutes 70% of all income. This is currently levied at R16.39 per departing passenger from local airports according to a set criteria. Other sources of revenue include the fuel levy which constitutes 5% of the revenue sources, DoT which is 4%, other sources of income is 4% whilst User fees is 17%. There had been a tapering growth in passenger numbers showing a 1.8% increase. There was also a delay in the approval of the Passenger Safety Charge (PSA). These two factors had a negative impact on organisational revenue as at June 2014 which was R15.2 million. The PSC has since been adjusted to R16.39. On the statement of financial performance, SACAA hopes that with the approved R16.39 Passenger Safety Charge (PSC) increase, it will break-even for the year ending March 2015. The Statement of Financial Position highlighted a decrease in cash and a corresponding increase in Property Plant & Equipment and Intangible Assets, which was due to the implementation of the Enterprise Business System (EBS) project. The audit trends record a consistent decline in audit findings over the past five years and 2013/14 would be the second year in a row that the organisation had received the Auditor General Clean Audit Award.

Ms Poppy Khoza presented the numerous achievements of the organization. Some of which were: the AG Clean Audit Award that was received on 8 October 2014 – 2 years in succession, 94% overall audited organisational performance, efficient EBS Tender, upgrading of the exam system, a successful ICVM Audit, a successful TSA Audit, the development of Cross Functional Accident Reduction Plan, two recognitions: one by the US Transport Security Administration Audit in June 2013 and the second by EU ACC3 in March 2014. The successful hosting of Safety Seminar and the Vice Chairman of ICAO for the 2^nd year running were other notable achievements of the SACAA amongst others. Several partnerships were made with Universities on Avmed, regional assistances were given to countries like Malawi, Botswana, Zambia amongst others, Bursary Awards for Previously Disadvantaged Individuals (PDIs), the organisation achieved the BBBEE Level 2 from 4 to 2 in two years and Career Awareness was embarked upon in the nine provinces.

Some of the challenges encountered were: the stagnation of passenger numbers which impacted on revenue, the establishment of the independence of the Accident and Incident investigation Division (AIID) and the International Civil Aviation Organisation (ICAO Audit), Un-manned Aerial Systems (UAS), the Civil Aviation Act not aligned to Public Finance and Management Act (PFMA) and the yet to be fully transformed Industry. The interventions introduced were the diversification and maximisation of existing revenue streams, AIID Memorandum of Understanding (MOU) signed with the Department of Transport (DoT), engagement on cost implications, the development of Regulations which is still in progress but would be concluded in March 2015, DoT to fast-track the amendment of the Act and organisational Design and Enterprise Business System (EBS) roll-out to address silos.

Discussion
Mr G Radebe (ANC) congratulated SACAA on the Clean Audit Award. He asked if SACAA could give the Committee details of the sponsorships and assistance provided to disadvantaged people that was mentioned in the report. He needed clarification on the capital reserves. Were the reserves really available or is it just on paper? Could the capital reserves be diverted for scholarships instead of being kept as reserves?

Mr L Ramatlakane (ANC) noted one of the objects of the Civil Aviation Authority Act is to oversee the development of the civil aviation industry. What are the expectations of SACAA from the side of the Portfolio Committee that would aid better performance? Are there interventions that the Portfolio Committee must put in place that would assist SACAA in its mandate? When would SACAA align its goals and decisions with the objects of the Civil Aviation Authority Act that had been promulgated in 2009?

Mr K Sithole (IFP) appreciated the presentation. He pointed out that he noticed that there was a gap in the presentation regarding industry transformation. How would SACAA fill the noticeable gap so that the gap is not recurrent in 20 years time?

Mr T Mulaudzi (EFF) applauded the achievements of the SACAA. He noticed however that the presentation did not make any mention of gender or youth empowerment. If possible, the presenter should provide the details of those that had been assisted in the provinces. He reiterated that the objective of SACAA should not be to build up reserves but to assist the populace.

Ms S Boshielo (ANC) commended SACAA for the Clean Audit Award and other achievements of the company. She asked why there was an increasing accidents rate for smaller aircraft. What measures were being put in place to minimize this? How many civil aviation schools does South Africa have? This is crucial as it would assist in referring people that were interested. What assurances can SACAA give that it is safe to fly especially with respect to the prevalence of multiple place crashes around the world? She drew the attention to the exorbitant ticket price for flying. This was a source of concern. She noted that the ticket price was high not because of the flying itself but because of the associated costs.

Mr M Sibande (ANC) congratulated SACAA on its clean audit but encouraged them not to rest on their oars.

The Chairperson asked if SACAA had achieved the architectural transformation of the board and what its expectations were of the board? SACAA must do more in reaching out to the populace especially through the media. How does SACAA partner with other industries that it operates with? What work do they do in line with the transformation discussed? She reiterated that SACAA must not relax due to its clean audit but ensure they do more in transforming the country.

Responding, Ms Khoza appreciated all the commendations from Committee members. The bursaries were distributed to all the provinces except for the Northern Cape. SACAA in partnership with DoT, Tourism and related industries would be hosting a conference between 4-6 November at Midrand. Several issues would be discussed such as ticket prices especially the airport tax that increased the price of the ticket and to see how best to promote the development of the industry. A formal invitation would be sent to the Portfolio Committee. She added that the transformation move must be a collaboration amongst all role players. The Portfolio Committee could assist in breaking down the barriers and to ensure that other players that are involved are brought in to produce the much needed transformation. There had been a reduction in accidents at the beginning of this financial year.
 
The Acting DOT Director General, Mr Mawethu Vilana, replied that the DoT is engaged in looking at the amendment of the Civil Aviation Authority Act to see how best to align it with the mandate of the SACAA. He said that costs are involved in producing transformation; a balance must therefore be struck between diverting the capital reserves into bursaries or for other transformational expenditure.

The DOT Deputy Director General: Civil Aviation, Mr Zakhele Thwala, said that there is first and foremost a need for celebration because this month a new low cost airline has been launched in South Africa. He gave a vivid explanation of happenings in the aviation sector and on transformation. One of the expectations of the DoT is that the Portfolio Committee could assist in rectifying the white dominance of the sector, especially pilots. He pointed out that the airlines were reluctant to employ black pilots. Intervention is therefore needed from the Committee so that equally trained black pilots be given a chance in the aviation sector.

Mr Ramatlakane asked why questions raised on the amendment of legislation were not answered. If the DoT could not give an appropriate response now, then let it do so by means of a written response by close of day the next day. The Chairperson agreed and added that the DoT should include timeframes as the Committee is under pressure to complete legislation.

Mr Thwala replied that the legislation would be ready for the parliamentary process by the last quarter of 2015/16

The Chairperson asked why it would take so long before the alignment of the Act is ready. She emphasised that it must be submitted to the Portfolio Committee as fast as possible. No excuse should be given.

Mr Thwala replied that there had been a meeting in the Ministry where it was decided that there was a tendency to enact too much legislation with the result that DOT had not been able to meet the implementation requirements. It is true that the matter had been with the DoT for quite some time now. There is an MOU between the DoT and the Civil Aviation Authority that we comply with until the Act is amended.

The Chairperson expressed her disapproval at the response. She emphasised that prioritising legislation was not the duty of the DoT. The DoT must with utmost urgency send the legislation to the Portfolio Committee and it would be left to the Committee which one to prioritise. She insisted that the DoT was not in the position to dictate when the legislation should be concluded. They should do their own work and send it to the Committee.

Mr Thwala then restated his stance and said that presently the DoT was drafting three pieces of legislation, which they would try their best to push to the Committee as soon as possible.

Mr Vilana interrupted and informed the Committee that the legislation could not be ready until the last quarter of 2015/16.

This reply by Mr Vilana shocked the Committee members.

Mr Vilana furthermore responded that these processes could not be short-circuited. There were some internal processes that must be followed. He then shifted his stance and said that even if was not as late as 2015/16, it could not be submitted in this current financial year 2014/15. It could be early next year. He would not want to commit to a date that was impossible to meet.

The Chairperson alarmed at the response of the Acting DG asked why the DDG said that they would try to fast track the legislation as best as they could while the Acting DG was saying that it was not possible. Why should that be?

Mr Vilana repeated that there were some internal processes that must be followed which could not be avoided.

Ms Boshielo responded that service delivery is important and the legislation in question would have a great impact on service delivery. As much as a clean audit is good, it is delivery to the people that is important. He reminded the Acting DG that it is the Committee members that meet with the people on the ground and they want answers on why some things are not working as they should.

Mr Sibande voiced his frustration with the Acting Director General's response. As much as process must be followed, this issue could not be left hanging for such a long time. He proposed that the Acting DG fast track the legislation for the purpose of service delivery. What are the things that must be done to fast track it? How can the Portfolio Committee empower the DoT so as to ensure service delivery?

Mr Ramatlakane proposed that the Acting DG should by close of day the next day put in writing to the Committee what were the challenges associated with the delays in the legislative process. This would assist the Committee in making recommendations in this regard. He could not understand why aligning the current legislation with the Act would take so much time.

The Chairperson noted appreciation for the presentation. She requested that the Acting DG sort out the issues discussed as soon as possible.

Airports Company South Africa (ACSA) presentation on its 2013/14 Annual Report
Mr Bongani Maseko, ACSA CEO, said the mandate of the organization is based on the Airports Company Act No. 44 of 1993 which is to undertake the acquisition, establishment, development, provision, maintenance and management of an airport. Its highlights for 2013/14 were:
• The company continues to be resilient despite sluggish economic growth
• Efficient utilization of existing infrastructure enhancing efficiency ratios and profitability
• International passenger growth contributing notable to Aeronautical revenue performance
• Increasing focus to grow non-aeronautical revenue
• Continuous focus on offshore opportunities including in the African continent.

The asset values of ACSA’s India and Brazil investments amounted to R771m and R496m, respectively. Additionally, ACSA achieved 94% of its pre-determined objectives with its financials at ROCE - 10.56%, Net Debt/EBITDA - 2.34X Customer and Stakeholder Perspective, ASQ - 4.02 and Stakeholder assessments at 3.6. The Internal Processes Perspective are Good governance - 100%, B-BBEE - Level 2, Employment equity - 13.77, Economic Viability - 20 977, Job opportunities - 87%, On-time departures - 88%, Aviation Safety Incidents - 0.524. There were no major security breaches.

The Strategic Focus Areas for the financial years 2015 – 2017 were to: deliver shareholder value, finalise the empowerment of shareholders matters, finalise models to secure new business in Africa and other emerging markets, unlock value potential in land at Airports Company South Africa airports, acceleration of sustainability and transformation programmes, facilitation of economic regulatory legislation, funding framework, managing and developing a high performing and engaged team.

Ms Maureen Manyama-Matume, ACSA CFO, presented the financials of the company. The company continued to deliver positive cash flows from operations which were R4.4 billion. The revenue moved up 7.2% to R7.1 billion, EBITDA (earnings before interest, taxes, depreciation, and amortization) moved up by 4.6% up to R4.6 billion, operating profit increased up to 7.1% to R3.2 billion, profit for the year increased by 73% to R1.7 billion, the total assets of the company decreased by 0.5% to R27.9 billion and total liabilities decreased by 10.8% to R15.3 billion.

The revenue for the year ended 31 March 2014 were from two sources: Aeronautical Revenue was 64% of total revenue and Non-Aeronautical Revenue which amounted to R2.57 billion was 36% of total revenue. The Financial Position Overview revealed that the Non-current Asset for the year 2013 was 24 690 and for year 2014 was 24 954 which was a 1.1% increase. Current Asset for the year 2013 was 3 406 and 3 032 for year 2014 which was an 11.0% decrease. Equity and Liabilities which consisted of Equity, Non-Current Liabilities and Current Liabilities was 28 096 for the year 2013 and was 27 986 for year 2014 a 0.4% increase to the previous year.

The Financial Outlook of the company between the FY 2015 – FY 2017 were: Departing Passengers  R17.8 million, R18.4 million and R19.0 million for year 2015, 2016 and 2017 respectively. Aircraft landing R 260 644 million, R 262 434 million, and R 270 513 million for 2015, 2016 and 2017. Tariff increase from previous year was 5.6%, a decrease of 12% and 0% for year 2015, 2016 and 2017. Projected revenue was R 7.6 billion for year 2015, R 7.4 billion for year 2016 and R 7.9 billion for year 2017. Other projected financials, key credit metrics, Cash Flow Statements, evolution of debt and other details had been enumerated in the presentation slides made available by the ACSA.

Discussion
Mr C Hunsinger (DA) asked if there was any plan on the ground by ACSA to accommodate smaller aircraft as a means of attracting new businesses. Why was there only one customer service in each province?

Mr M De Freitas (DA) appreciated the presentation. He raised a few questions on why the modes of transport, cooperation and partnership and joint ventures were not performing as they should.

Ms Boshielo raised concern about smaller airports. Why could ACSA not buy the smaller airports so that they could reform them? She gave a detailed account of how on an occasion, she had missed her flight due to the delay of another flight and how to crown it all, her bag was misplaced and neither the airline or airport staff really bothered about the inconvenience they had put her through. She described another incident where a security man was rude and kept repeating that he did not care who they were and he would say whatever he wanted. These stories and others showed lapses in the South African airport system. She proposed that the company ensure proper service delivery and that the staff be adequately trained as they represented the South African people to the world.

Mr Mulaudzi confirmed Ms Boshielo’s statement as he had encountered similar experiences and had lost an Ipad at an airport. He corroborated the fact that several bags are found open by the time the passenger disembarks. The smaller airports should be improved, by purchasing generators and computerising their systems.

Mr Sithole appreciated the presentation but said something must be done about the haphazard booking system.

Mr Ramatlakane asked if there was anything such as SAA standards. How do you regulate floor space for aircraft? How do you rate your measurable indicators? What was your target for on time departures? There had to be a risk management plan to vet procedures, staff, baggage and customer handling. If the staff were vetted before being employed, it would reduce theft from bags and other anomalies. If these issues were not sorted out, it would reduce the vote of confidence placed on them by people. He gave an example of how he experienced a lack of efficiency from airport staff.

Mr Sibande asked about the governing structure. What is ACSA’s relationship with smaller airports? Why was luggage handling privatised? He pointed out that privatising the luggage system had actually led to the incidence of theft from the bags. Is there any legislation underway that could assist in the mandate of ACSA?

Mr Maseko responded to the questions and allegations raised by saying that security would be revisited. He had taken note of the attitude displayed by security personnel. Such an attitude should always be reported. There is always periodic staff training to bring into the limelight some of the issues raised. He acknowledged that the concerns raised about service delivery are true and would be worked on. ACSA does not have direct control over some of the matters raised because there were many role players when it came to airport matters. ACSA had tried to make contact in the past with some smaller airports but the responses were not positive. The baggage and luggage system was not privatised but commercialised and this was because the airlines complained that they did not want a monopoly on the system. 

The Chairperson noted that since the Committee members are the ones that people complain to, it is important that they be kept abreast on all the concerns raised. ACSA is the image of the South African people and it is important that such an image must be rightly projected.

The meeting was adjourned.