SOUTH AFRICAN CIVIL AVIATION AUTHORITY

ANNUAL FINANCIAL STATEMENTS

31 March 1999

CONTENTS

Report of the independent auditors
Report of the directors
Income statement
Balance sheet
Cash flow statement
Notes to the cash flow statement
Accounting policies
Notes to the annual financial statements

The six months financial statements set out on pages 2 to 15 were approved by the board of directors on 7 July 1999, and are signed on its behalf by:

REPORT OF THE INDEPENDENT AUDITORS
TO THE MEMBERS OF SOUTH AFRICAN CIVIL AVIATION AUTHORITY (Back to content)

Introduction

We have audited the annual financial statements of South African Civil Aviation Authority set out on pages 2 to 15 for the six months ended 31 March 1999. These annual financial statements are the responsibility of the authority‘s directors. Our responsibility is to express an opinion on these financial statements based on our audit.

Scope

We conducted our audit in accordance with statements of South African Auditing Standards and the South African Civil Aviation Act, Act 41 of 1998. The South African Auditing Standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes:

• examining, on a test basis, evidence supporting the amounts and disclosures included in the financial statements,
• assessing the accounting principles used and significant estimates made by management, and
• evaluating the overall financial statement presentation.

We believe that our audit provides a reasonable basis for our opinion.

Audit opinion

In our opinion, the financial statements fairly present, in all material respects, the financial position of the authority at 31 March 1999 and the results of its operations and cash flows for the six months then ended in accordance with generally accepted accounting practice.

7 July 1999

REPORT OF THE DIRECTORS
For the six months ended 31 March 1999 (Back to content)

Introduction

The directors present their first report for the period 1 October 1998 to 31 March 1999.

This report, in terms of the Civil Aviation Authority Act 41 of 1998 and the Reporting by Public Entities Act, Act 93 of 1992, addresses the performance of the South African Civil Aviation Authority and the results of its operations and cash flow information for the six months then ended.

It is the directors’ responsibility to prepare annual financial statements and related financial information that fairly present the state of affairs of the Authority. The external auditors are responsible for independently auditing and reporting on the financial statements in conformity with generally accepted auditing practice.

The six months financial statements set out in this report have been prepared by management in accordance with generally accepted accounting practice as far as they are applicable. They include full and responsible disclosure and are based on appropriate accounting policies which have been consistently applied and which are supported by the reasonable and prudent judgements and estimates.

As far as applicable, and given that the Authority has only been established for six months, the Authority has complied with the major recommendations of the King Report. The consultants who were contracted by the National Department of Transport to assist in the establishment of the CAA had not highlighted the need to contract an internal auditor at the time of the establishment of the CAA on 1 October 1998. The Board of Directors at their first meeting after this date, did however, initiate a process of contracting an internal auditor. This process included discussions with the Auditor General, evaluating tender submissions and seeking approval from the Minister of Transport. This process was concluded in March 1999 and their mandate was hence directed at the 1999 – 2000 financial year.

The South African Civil Aviation Authority has identified the management of information as a strategic issue. To this effect considerable expenditure has been invested in information technology initiatives. The most significant information technology initiative being :

1. The replacement of all non-year 2000 compliant computer hardware inherited from the National Department of Transport.
2. Review of software systems inherited from the National Department of Transport to ensure they are all year 2000 compliant.
3. Implementation and replacement of all the disintegrated and standalone systems to ensure that all the sectional systems are integrated to enhance management information for decision making.

It is anticipated that all hardware and software systems will be 100% year 2000 compliant by September 1999.

New systems implemented since October 1998 are already year 2000 compliant.

Nature of business

The South African Civil Aviation Authority is the regulator of all aviation activities in South Africa. Its primary function is to control and regulate civil aviation in the Republic and to oversee the functioning and development of the civil aviation industry, and in particular, to control, regulate and promote civil aviation safety and security.

General review

The South African Civil Aviation Authority (CAA) was established as a juristic body in terms of Act 41 of 1998. At the same time the South African Civil Aviation Authority Levies Act, Act No 41 of 1998 was promulgated to enable the Authority to levy either a passenger levy, fuel levy or any other levy, to enable it to raise funding from the aviation industry.

Funding

The Authority is to be funded on a sliding scale from government on a subsidy basis. The first six months funding from the government was R19 986 000 compared to the total turnover of R31 932 692. The subsidy for subsequent years will be R6 000 000 and R2 000 000 respectively. This subsidy will be replaced with user fees which should be on full cost recovery basis by the third year. These user fees are expected to account for 60% of the funding and the other 40% will be generated from the levies.

CAA continues to carry out the full accident and incident responsibilities on behalf of the National Department of Transport and CAA should, on an annual basis, provide an estimate of what this service would cost the government.

However, should there be a major accident, the government would carry that cost as an extra-ordinary item.

Degree to which objectives have been met

The first six months of operation were predominantly spent on establishing internal control systems and policies. Manuals of procedures were developed for the first time and workshopped with the main industry participants. It is also in this period that the performance contract with the Minister of Transport was developed and signed. Section 5 of the South African Civil Aviation Act requires a performance agreement to be entered into between the Minister of Transport and the Authority. This would enable the Authority to meet requirements of section 7 of the Public Entities Act. An interim Memorandum of Understanding (MOU) was signed on 23 November 1998 to govern the relationship between the Minister of Transport and the Authority. This document noted that the parties would negotiate a performance agreement to monitor and measure the performance of the Authority in the carrying out of its function and achievements of its objectives. It was intended that the performance agreement would be negotiated before 1 April 1999. The CAA has complied with the requirements of the MOU and a performance agreement was signed on 31 March 1999 which provides for specific targets and measurements for the 1999 – 2000 financial year.

This performance contract will be used as the basis for measuring the extent to which the organisation’s objectives are being achieved.

The main achievement in this period was the successful launch of CAA in October 1998. Despite all staff members in Corporate Services division being new, most of the financial, human resources, information technology and administrative systems were operational. Fine-tuning of these systems is an ongoing process.

Financial results

CAA is a non-profit making organisation which should only cover its operational and capital expenditure needs. In terms of the Act, CAA cannot distribute any of its surplus, but should such a surplus be unreasonably high, CAA would be expected to adjust its user fees accordingly.

The financial results of CAA appear on pages 6 to 15 which include the income statement, the balance sheet, the cash flow statement and the notes to the financial statements.

Funds received from government

Directors

All the Directors except T Abrahams are non-executive directors.

Board Sub-Committees

1. Financial and Audit Committee

P van Hoven
C Mashengete
N Maharajh
T Abrahams

2. Human Resource/Remuneration Committee

I B Skosana
P M Matlala
N R Mlonzi
T Abrahams

3. Accident and Incident Committee

N R Mlonzi
G B Conlyn
T Abrahams

4. Aviation Safety Committee

G B Conlyn
P van Hoven
T Abrahams
P M Matlala

Dividends

In terms of the South African Civil Aviation Authority Act no dividends are payable now or in future.

Fixed assets

Five aircraft were transferred from the National Department of Transport at no consideration. These have, however, been valued in terms of the aircrafts blue book and brought into the accounting records at valuation.

The bulk of the other assets transferred, which included old office equipment, old furniture and old computer hardware, have been brought into the accounting records at zero value as most of them are not usable.

Post balance sheet events

1. Rentworks

The financing deal with Stannic for the financing of the computer hardware and software was refinanced through Rentworks on a sale and lease-back agreement. Rentworks therefore paid off the outstanding liability to Stannic on 31 March 1999. The effective date of the lease is 1 April 1999. This operating lease facility with Rentworks is payable quarterly in advance which started on 1 April 1999. The lease period is 36 months.

2. Foreign airlines dispute

The aviation safety charge will be applied to all foreign airlines covered by the bilateral air services agreements. It will be applied in addition to current ATNS charges along the lines of the Eurocontrol air traffic formula and would thus obviate the need for any additional charge agreements with IATA. An amount totalling US$ 1.3 m will be collected over a seven month period based on an implementation starting date of 1 September 1999. A total of US$ 1.4m will be collected in the next financial year.

INCOME STATEMENT

for the year ended 31 March 1999 (Back to content)

BALANCE SHEET

31 March 1999 (Back to content)

CASH FLOW STATEMENT

for the six months ended 31 March 1999 (Back to content)

NOTES TO THE CASH FLOW STATEMENT

for the six months ended 31 March 1999 (Back to content)

ACCOUNTING POLICIES

31 March 1999 (Back to content)

The financial statements are prepared on the historical cost basis, and incorporate the following principal accounting policies, which have been consistently applied in all material respects.

Fixed assets

Fixed assets, with the exception of aircraft are stated at historical cost to the organisation, less accumulated depreciation.

Depreciation is calculated on historical cost using the straight line method over the estimated useful lives of the assets. The method and rates used are determined by the relevant conditions in the industry.

Aircraft are stated at valuation less accumulated depreciation.

Inventories

Inventories are stated at cost. Cost is determined on the weighted average basis.

Redundant and slow moving stocks are identified and written down with regard to their estimated economic or realisable values.

Foreign currency transactions

Transactions in foreign currencies are accounted for at the rate of exchange ruling on the date of the transaction.

The invoiced value of sales and services rendered, excluding value added tax, in respect of trading operations is recognised at the date services are provided.

Revenue from licence fees and state transfer payments are recognised on a cash basis.

The organisation participates in a defined contribution fund, which is governed by the Pension Fund Act, and in which all employees participate.

Periodic valuations of the fund will be carried out by independent actuaries at intervals not exceeding three years.

Retirement benefit costs are charged to the income statement in the period incurred.

NOTES TO THE ANNUAL FINANCIAL STATEMENTS

For the six months ended 31 March 1999 (Back to content)