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Aug 22, 2011

Acsa takes regulatory-linked knock despite rise in volumes

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Outgoing executive director Priscillah Mabelane discusses the impacts of the economic regulatory regime and its current financial performance and outlook for the industry. Camera Work: Nicholas Boyd. Editing: Shane Williams.
Acsa outgoing MD Monhla Hlahla and Outgoing executive director Priscillah Mabelane discuss the King Shaka International Airport.
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Aviation|DURBAN|Engineering|Africa|Airports Company South Africa|Road|Transnet|Africa|Durban Airport|King Shaka International Airport|Energy|Finance|Transport|George Mahlalela|Infrastructure|Priscillah Mabelane|2010 FIFA World Cup
Aviation|Engineering|Africa|Road|Transnet|Africa||Energy|Transport|Infrastructure||
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Airports Company South Africa (Acsa) posted a net loss of R220.5-million for the twelve months ending March 2011, despite higher volumes and revenue.

The decline was mainly attributed to finance costs that increased by 124%, from R673-million in the previous financial year to R1.5-billion in the period under review. Depreciation also increased by 34% to R1.4-billion.

Acsa attributed the loss primarily to the manner in which the economic regulatory regime had been applied.

But outgoing executive director for finance Priscillah Mabelane told Engineering News Online on Monday that a more predictable and balanced regulatory framework was on the cards, which should enable the company to significantly improve its future financial performance.

The Department of Transport (DoT) has developed a proposed road map to address shortcomings in the current economic regulatory framework necessitated by the different interpretations of both Airports Company South Africa Act, No 44 of 1993, and Air Traffic and Navigation Services Company Act, No 45 of 1993.

The process is expected to be complete by the end of December, in support of the next permission cycle to start in 2012.

Mabelane said it was a “first” for Acsa that regulatory hurdles had resulted in a loss for the State-owned enterprise.

In 2007, she explained, the company’s asset base was at R9-billion. At that point, tariffs were reduced by 23% notwithstanding the development of new infrastructure that was under way. This meant that Acsa had to finance R16-billion of that development out of its own reserves.

The regulatory regime was premised on remunerate assets when they were going to be operationalised in 2010/11.

“The current process [road map] started by the DoT is a good one and would enable Acsa to improve returns. Over the past three years, we have posted returns to shareholders at below inflation, because we were not remunerated for the investments we were making."

“We hope for more clarity in terms of ensuring that the framework and regulation will give more certainty when embarking on more investments in terms of remuneration, and to ensure there are prudent investments so we don’t excessively invest.

“In line with this, we hope Acsa’s cash reserves would significantly improve and that when the next phase of investment does come, we should be able to cater for it in a  smoother and systematic manner,” Mabelane said.

Such an economic framework would also enable a viable aviation industry and would be a key enabler to deliver infrastructure into the future, Acsa outgoing MD Monhla Hlahla said.

DoT director-general George Mahlalela concurred that a predictable, transparent and balanced economic regulatory framework would play a critical role in the facilitation of the implementation of the integrated transport master plan.

CHALLENGING ENVIRONMENT

Acsa’s loss was a 124% negative turnaround from its net profit of R901-million reported last year.

Operating costs increased by 22% to R2.1-billion, while earnings before interest, tax, depreciation and amortisation increased from R 1.8-billion to R2.6-billion for the 2011 financial year.

During 2010, the South African economy grew by 2.8%, which together with 2010 FIFA World Cup traffic, resulted in Acsa’s passenger traffic growing by 6.1%, reversing the previous year’s 1.7% reduction.

Hlahla said the results remained “satisfactory” on the back of a 32% increase in revenue to R4.7-billion, as well as achieving growth in almost all areas of business, most notably a 50 % increase in advertising revenue and a 31 % increase in property.

KING SHAKA: FROM BURDEN TO JOY?

It was also this property space that Acsa hoped to more fully exploit at the nascent King Shaka International Airport (KSIA), north of Durban.

Acsa had been criticised for the R6.7-billion investment in the new Durban airport, but Hlahla said the KSIA was not a “mistake” but a “reality”.

“We have to try and find ways to generate value from that asset, such as how we use the terminal, use less energy and save where we can, so that our costs don’t grow fast. "Most companies face this challenge,” she said.

The KSIA remained largely a domestic airport in terms of traffic, but Hlahla said it did not mean that Acsa could not look at ways to optimise its operation.

“Hopefully, we continue to use the asset well such that it becomes a joy and not a burden on Acsa for too long, and reduce the amount of time to get into profitable mode,” she said.

What was also key said Mabelane was that the KSIA has met its traffic profile targets despite the effects of the recession.

“There is a lot of interest commercially, particularly in property and we hope to accelerate opportunities for growth in Durban.”

Negotiations were ongoing between State-owned Transnet and Acsa regarding the old Durban Airport. Acsa also indicated that there were talks with other potential buyers for peripheral areas surrounding the old airport.

Edited by: Terence Creamer
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