Antoinette Slabbert
3 minute read
11 Aug 2017
7:28 am

Mango pays double bonuses as Treasury bails out SAA

Antoinette Slabbert

Low-cost subsidiary surprisingly exceeds profit target.

Staff at low-cost airline Mango received bonuses of up to 15% of their annual salaries despite the dire financial position of the South African Airways (SAA) group it is part of.

Finance minister Malusi Gigaba announced early in July that treasury had to urgently step in with a R2.2 billion cheque to prevent SAA from defaulting on maturing debt with Standard and Chartered. SAA was unsuccessful in its attempt to refinance the amount.

The group recorded a R1.46 billion loss in the first quarter, has R6.7 billion debt maturing at the end of September and is in need of a further R13 billion capital injection from government over the next three years.

Mango acting CEO Nic Vlok confirmed the bonus payments to Moneyweb. He said the airline’s remuneration structure consists of guaranteed pay as well as variable pay. “Variable pay was paid to employees based on over-performance on targeted net profit,” Vlok said.

He said variable pay applies to all Mango employees. They were awarded between 10% and 15% of their annual pay subject to the performance of both the airline and the individual employee.

That means Mango staff members might have received a bonus almost equal to two months’ salary.

“When the Company performance outperforms set targets after provision for variable pay, variable pay is due and payable in line with the remuneration philosophy,” Vlok said.

Sources with intimate knowledge of Mango are however surprised that the airline recorded a profit at the end of its 2016/17 financial year.

An internal document Moneyweb has seen shows the airline at a R31.5 million loss a month earlier at the end of February. Curiously SAA reports to parliament in March put the Mango loss at the end of February at R23 million.

The same report to parliament shows a further discrepancy. It states that Mango’s result “has showed significant improvement from the previous year, though still incurring a loss of R23 million compared to the prior year loss of R87 million.”

In November last year parliament was however told that Mango showed a R36.9 million loss for 2015/16.

Vlok would not confirm Mango’s loss at the end of February this year and would not respond to any further questions about the reason for Mango’s change of fortunes shortly before year-end, including the total staff complement and total amount spent on bonuses.

Following a second set of questions from Moneyweb, Vlok said via email: “The Annual Financial Statements will become a matter of public record in due course, and will contain all the information that you require below.

“Unfortunately Mango will not be answering any further questions at this time.”

In the previous financial year (2015/16) Mango’s employee cost amounted to R232 million. Based on that, Moneyweb has calculated that the bonuses could have cost Mango well more than R30 million.

One of the questions that remains unanswered is why Mango’s income statement for February shows that provision for “return conditions” was R94.2 million, which was R37 million below budget. Moneyweb also asked what the balance of the provision was at year end.

“Return conditions” refers to an airline’s obligations to return a leased aircraft in a specified conditions at the end of the lease. This may include repainting the aircraft, repairs to a specified level and removing the seats. It can amount to considerable cost and airlines provide for the expense during the lifetime of the lease.

Sources have suggested that reversing this or other provisions might explain a sudden and unexpected return to profitability.

DA shadow minister of finance Alf Lees points out that the aircraft leases were granted on favourable conditions by SAA to Mango and are currently the subject of an investigation by the Competition Authorities.

He says the performance targets are set by the very people who stand to benefit from it. It is immoral and unethical for a subsidiary like Mango to award bonuses while tax payers have to make great sacrifices to keep the group afloat.

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