“Bringing the World to Africa and taking Africa to the World” 1 Simplify, rightsize, re-skill and incentivise Presentation to Portfolio Committee on Public Enterprises October 2007

“Bringing the World to Africa and taking Africa to the World” 2 1.Opening Review by ChairmanJakes Gerwel 2.Performance Overview by CEOKhaya Ngqula 3.Financial OverviewClive Else 4.Industry & Strategic Overview Khaya Ngqula 5.Restructuring Overview Khaya Ngqula 6.Conclusion and way forward Khaya Ngqula Agenda

“Bringing the World to Africa and taking Africa to the World” 3 Opening Review by Chairman The compact with the Shareholder sets out: SAA’s mandate. The strategic objectives to be attained by SAA. The Key Performance Areas and Indicators to measure SAA’s performance for the period.

“Bringing the World to Africa and taking Africa to the World” 4 Shareholders Compact: Mandate To engager in passenger airline and cargo transport services, air charter services and other related services. Be an African airline with global reach. In so doing, SAA may serve a wide range of routes by focusing on a limited number of profitable routes into each of the major continents, linking to key cities and their airports. SAA is expected to increase its African routes and only serve the heavily traded routes in South Africa, in particular the “Golden Triangle” of Johannesburg, Cape Town and Durban.

“Bringing the World to Africa and taking Africa to the World” 5 Shareholders Compact: Strategic Objectives

“Bringing the World to Africa and taking Africa to the World” 6 Shareholders Compact: Strategic Objectives

“Bringing the World to Africa and taking Africa to the World” 7 Shareholders Compact: Strategic Objectives

“Bringing the World to Africa and taking Africa to the World” 8 Shareholders Compact: Strategic Objectives

“Bringing the World to Africa and taking Africa to the World” 9 Shareholders Compact: Strategic KPI’s

“Bringing the World to Africa and taking Africa to the World” 10 Shareholders Compact: Strategic KPI’s

“Bringing the World to Africa and taking Africa to the World” 11 Shareholders Compact: Strategic KPI’s

“Bringing the World to Africa and taking Africa to the World” 12 Conclusion Challenges include: IATA predicts that the airline industry is moving into a period of slower revenue growth. Revenue growth predicted to halve from 10% to 5%. Open skies policies introduce further competitive challenges. African bilateral restrictions remain problematic. Volatility in fuel prices and currencies will remain. Opportunities include: Expected growth in African and domestic markets. Cost reductions through new technologies Major events, e.g World Cup

“Bringing the World to Africa and taking Africa to the World” 13 Conclusion 2007/08 financial year will be extremely challenging, requiring painful initiatives to turn the company around, with the expectation of profits coming in later years.

“Bringing the World to Africa and taking Africa to the World” 14 1.Opening Review by ChairmanJakes Gerwel 2.Performance Overview by CEOKhaya Ngqula 3.Financial OverviewClive Else 4.Industry & Strategic Overview Khaya Ngqula 5.Restructuring Overview Khaya Ngqula 6.Conclusion and way forward Khaya Ngqula Agenda

“Bringing the World to Africa and taking Africa to the World” 15 CEO Review 2007/08 financial year will be extremely challenging. Restructuring always a painful and difficult process. SAA current initiative extremely broad and all-encompassing. Ultimate objectives: Simplify Rightsize Re-skill Incentivise Leading to: Sustainable profitability An airline to be proud of A Profit before Tax margin of 7.5%

“Bringing the World to Africa and taking Africa to the World” 16 CEO Review Challenges Negotiations for new standardised conditions of employment Reduction in administration costs Seamless service to customers We aim to deliver our shareholder mandate: To be a profitable African airline with a global reach.

“Bringing the World to Africa and taking Africa to the World” 17 1.Opening Review by ChairmanJakes Gerwel 2.Performance Overview by CEOKhaya Ngqula 3.Financial OverviewClive Else 4.Industry & Strategic Overview Khaya Ngqula 5.Restructuring Overview Khaya Ngqula 6.Conclusion and way forward Khaya Ngqula Agenda

“Bringing the World to Africa and taking Africa to the World” 18 Financial overview: 2006/7 Context:Financial results relate to Financial Year ended 31 March 2007 Number of passengers flown up 7,9% to 7,7 million Load factors rose 5% to 75% Yield (Fares) rose 6,5% on average Domestic share grow by 2%, International and Africa fall by 1% each

“Bringing the World to Africa and taking Africa to the World” 19 Passenger numbers Passenger numbers 7,9% Capacity 4,3% Average yield 6,5% % 15% 59% InternationalRegionalDomestic % 16% 57% InternationalRegionalDomestic Passenger numbers 's

“Bringing the World to Africa and taking Africa to the World” 20 Financial overview Airline income up 7,8% to R20,6 billion Operating costs up 13,4% to R21,3 billion Aircraft lease costs up 32,5%, Depreciation down 11.6% Fuel and energy costs up 16,4% (Brent fuel price up 12,3%) Rand weakness (average rand/dollar exchange rate rose 7,8%) Loss from airline operations: R643 million Attributable loss: R883 million Capital and reserves: R1,57 billion (Includes R1.3bn recap) Cash position: R2,36 billion

“Bringing the World to Africa and taking Africa to the World” 21 Airline income Increase 7,8% R20 609m % 9% 22% Passenger revenueCargoOther R19 128m % 8% 25% Passenger revenueCargoOther Total airline income Rm

“Bringing the World to Africa and taking Africa to the World” 22 Income statement – Rm 2007% change2006 Total airline income Operating costs(21 252)(13.4)(18 733) (Loss) Profit from airline operations(643)>(100)395 Fair value movement Operating (loss) profit(603)>(100)425 Net finance cost(280)7.0(301) (Loss) Profit before taxation(883)>(100)124 Taxation(42)>(100)(12) (Loss) Profit from continuing operations(925)>(100)112 Profit (Loss) from discontinuing operations42>100(47) (Loss) Profit for the year(883)>(100)65

“Bringing the World to Africa and taking Africa to the World” 23 Balance sheet – Rm Non-current assets Current assets Total assets Capital and reserves Non-current liabilities Current liabilities Total equity and liabilities

“Bringing the World to Africa and taking Africa to the World” 24 Cash flow statement – Rm Cash generated from operations Net finance costs and derivatives(79)(9) Net cash inflow from operating activities Cash (outflow)/inflow from investing activities(162)1 456 Cash inflow/(outflow) from financing activities731(3 043) Increase/(decrease) in cash806(1 260) Foreign exchange effect on cash11786 Cash at the beginning of the year Cash at the end of the year

“Bringing the World to Africa and taking Africa to the World” 25 EBITDAR margins 2007 % change2006 Airline income Operating costs before depreciation, amortisation and rentals (12.5) EBITDAR EBITDAR margin12.7%16.4% Depreciation, amortisation and rentals3 258(18.9)2 739 (LBIT)/EBIT (before fair value movements)(643)(32.0)395 (LBIT)/EBIT margin(3.1%)2.1%

“Bringing the World to Africa and taking Africa to the World” 26 Other airline revenue – Rm 2007% change2006 Fuel levies and other recoveries2 3687, Release of air traffic liability693(32,5)1 028 Other527(2,9)543 TOTAL3 588(5,1)3 781

“Bringing the World to Africa and taking Africa to the World” 27 Operating costs analysis – Rm 2007% change2006 Aircraft lease costs , Accommodation and refreshments6528,8599 Depreciation and amortisation744(11,6)842 Distribution costs , Electronic data costs472(10,8)529 Energy , Labour3 3823, Material , Navigation, landing and parking fees1 0568,1977 Loss/(profit) – sale/scrapping of fixed assets 3>(100)(257) Other operating costs , Total ,

“Bringing the World to Africa and taking Africa to the World” 28 In summary Operating profit margin % ,8% increase in total revenues. Airline revenue up 10,9% 7,9% more passengers flown. Average load factor increases from 70% to 75%. (LBIT)/EBIT margin weakened due to increase in all major cost areas – 13,4% increase in operating costs. Restructure and turnaround strategy introduced.

“Bringing the World to Africa and taking Africa to the World” 29 In summary Net profit Rm Net loss due to high cost structures and adverse exchange rates. Cash utilised by operations was off-set by favourable working capital.

“Bringing the World to Africa and taking Africa to the World” 30 In summary The net asset value increased marginally following a partial R1,3 billion recapitalisation at year-end

“Bringing the World to Africa and taking Africa to the World” 31 Key financial focus areas To deliver on a sustainable restructure and turnaround strategy going forward –Manage Cash and Balance Sheet –Reduce and contain operating costs –Margin and yield enhancement –This will result in an PBT margin of 7,5%

“Bringing the World to Africa and taking Africa to the World” 32 PFMA, Procurement and Corporate Governance Procurement –Some Legacy contracts entered into before 1 April 2006 do not comply with PFMA. Whilst these historical issues have not been fully resolved all contracts are now managed within the DOA Framework and a fully automated tracking and monitoring system has been implemented. –No external audit queries arose for current financial year Irregular, fruitless and wasteful expenditure –There has been no reported or identified expenditure which falls within such classification Shareholders’ compact –A compact has been signed subsequent to year-end. Legislation –Monitoring plan being implemented Internal Control –Substantial progress made. The key focus areas going forward is Procurement, Payroll and Revenue Management. This major focus will be the embedding of the final controls and eradicating the exposure to fraud. Financial Overview

“Bringing the World to Africa and taking Africa to the World” 33 Agenda 1.Opening Review by ChairmanJakes Gerwel 2.Performance Overview by CEOKhaya Ngqula 3.Financial OverviewClive Else 4.Industry & Strategic Overview Khaya Ngqula 5.Restructuring Overview Khaya Ngqula 6.Conclusion and way forward Khaya Ngqula

“Bringing the World to Africa and taking Africa to the World” 34 Key themes - Global After five years of turmoil since 9/11 attacks on the US, the global airline industry moved to the brink of profitability in 2006 IATA estimates that net losses for the global airline industry stood at $0.5 billion in 2006, well down from the $6 billion in 2005 The oil price continues to rise, wreaking havoc on carriers across the globe, with the oil price spiking to more than $70 per barrel Industry Overview

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“Bringing the World to Africa and taking Africa to the World” 38 Mandated Network SAA’s mandate is to be a profitable African airline with global reach Concentrated operations key African business markets with limited number of profitable routes into each major continent

“Bringing the World to Africa and taking Africa to the World” 39 Network strategy Strategic Overview Domestic/SADC- Launch low cost offering for leisure and new travellers - Premium offering for business passengers Africa- Partner with African carriers – Ghana, Nigeria - Increase point-to-point flying International- Consolidate network in partnership with Star Alliance - Lie flat seats - Focus on tourists - Increase direct services - Reduce costs

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“Bringing the World to Africa and taking Africa to the World” 42 Strategic Objectives: Alliances The alliance strategy has 2 objectives: provide feed for SAA’s network and provide an attractive network for SAA customers

“Bringing the World to Africa and taking Africa to the World” 43 Strategic overview – Alliances SAA is expanding its route network through additional partnerships (Code Shares) without having to fly itself. Partnerships have been forged with Cathay Pacific, Quantas, Air Mauritius, Saudi Arabian Airlines, Egypt Air and Rwandair Express We have also formed relationships with Star Alliance partners such as United Airlines in the US and Singapore Airlines and ANA in Asia

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“Bringing the World to Africa and taking Africa to the World” 47 Star Alliance Average 74 (+3) Star Alliance  During May 07 a STAR alliance customer satisfaction survey for long haul, in which SAA participated, was completed with SAA scoring above the STAR average.  These benchmarks are valuable tools to enhance our service offering to the clients All Classes Shift From Q –5 0 – –14 +3 – –1 – All figures are top-two-box ratings –4 –5 – Strategic Overview

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“Bringing the World to Africa and taking Africa to the World” 49 Strategy – Low Cost Carriers The airline industry has seen passenger growth of more than 50% in the past five years In South Africa, less than 5% of the population uses air travel and it is clear there is room for more development in the low-cost arena The response by SAA to the growth of low-cost carriers was the launch of Mango in November Mango has seen good growth since its launch, capturing approximately 10% of the domestic market

“Bringing the World to Africa and taking Africa to the World” 50 Strategy – Cargo and Technical SAA’s Cargo and Technical divisions focused strongly on growing new business opportunities and diversifying their revenue streams SAA Technical made good progress towards growing its client base, sourcing yet more work from other airlines Cargo increased revenue by 14%, a strong performance in an increasingly competitive environment

“Bringing the World to Africa and taking Africa to the World” 51 Agenda 1.Opening Review by ChairmanJakes Gerwel 2.Performance Overview by CEOKhaya Ngqula 3.Financial OverviewClive Else 4.Industry & Strategic Overview Khaya Ngqula 5.Restructuring Overview Khaya Ngqula 6.Conclusion and way forward Khaya Ngqula

“Bringing the World to Africa and taking Africa to the World” 52 Restructuring Overview: Summary Background The Transformation Strategy Projected Profitability Monitoring by DPE/ National Treasury Top 10 Initiatives Update Restructuring Income Statement for 2007/8 Actual Results April to September 2007 Key Risks and Consequences

“Bringing the World to Africa and taking Africa to the World” 53 History and Forecast SAA has experienced significant losses in recent years with only one year of modest profitability *Unusual items include impairments, restructuring costs, insurance recoveries, loss on disposition of equipment/ aircraft, loss from discontinuing operations and minority interest(s) and other unusual items identified by management Historical Profitability Source: Seabury analysis (6.0) (8.6) 0.1 (0.8) (0.9) (0.8) (0.9) (6.0) (4.9) (1.0) (10.0) (8.0) (6.0) (4.0) (2.0) Mar-03Mar-04Mar-05Mar-06Mar-07Mar-08 Projected ZAR (billions) Profit (Loss) Profit (Loss) Excluding Unusual Items*

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“Bringing the World to Africa and taking Africa to the World” 55 Restructuring Rationale Based on the above results and forecast, it became evident that a deep, fundamental and sustainable restructuring was required. The plan to simplify and rightsize the business as well as to reskill and incentivise SAA’s employees was approved by the board in May, and publicly launched on 4 June The plan envisages the airline returning to profitability within 18 months. It involves a complete overhaul of SAA’s entire business model. Restructuring revolves around group-wide operational, revenue improvement and cost- cutting initiatives to achieve an PBT margin of 7,5% over the coming 12 to 18 months. Restructuring plan is driven by the need to reduce costs, improve revenue and transform SAA into a profitable, world-class organisation capable of achieving a satisfactory return to its shareholder. The end result is to offer our customers a truly remarkable service that will allow SAA to compete with the best in the world.

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“Bringing the World to Africa and taking Africa to the World” 58 Monitoring by DPE/National Treasury Inter departmental co-ordination Monthly restructuring SAA reporting format agreed; highlighting Performance Progress of main restructuring initiatives Monthly reports to DPE and National Treasury Meetings June, July, August and September Monthly meetings scheduled October and November Board sub-committee minutes provided to shareholder

“Bringing the World to Africa and taking Africa to the World” 59 Top 10 Initiatives Update DescriptionAnnualised Saving TimingSAA Status Labour - management.. 62% Nov 07Yellow Labour – gap..Jan 08Green B747 grounding..Aug 07Yellow Regional partnership revenues..17%Mar 08Red GDS contract renegotiation..Sep 07Green Advertising and promotions.. 16% Jun 07Blue Market share revenue gap - Europe and domestic..Jan 08Green Additional revenue in lieu of sponsorships..Jun 07Yellow Engine renegotiations..5%Nov 07Green Operational performance..Mar 08Green Top 10 initiatives 91% of full restructuring100% CompletedBlue On trackGreen On track but issues to be addressedYellow Behind or unable to generate monetary valueRed

“Bringing the World to Africa and taking Africa to the World” 60 Labour Gap 1 With the restructuring business plan on track, the final phase of the labour negotiations have now begun. It should be noted that the business plan reflects a gap of R638m which must be filled after all the other initiatives. The company must therefore still close this gap in order to achieve the 7.5% profit margin which is essential for our survival..

“Bringing the World to Africa and taking Africa to the World” 61 Labour Gap 2 LABOUR COMMITMENT R638M MANAGEMENT HEADCOUNT R110M + Excluding other Initiatives e.g. 711 Employees

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“Bringing the World to Africa and taking Africa to the World” 63 Initiatives e.g. 711 Employees Initiatives e.g. 711 Employees The following initiatives are being implemented by the responsible GMs:  One Stop Shop - Airports  Closure of Durban Base  Reduction of crew compliments on A340’s  Reduction of the SCCM on A340’s  Exiting of the B744 from the fleet  Combining Call Centres The following categories of employees are affected by the abovementioned initiatives:  Pilots  Cabin Crew  Ground staff VSPs have been offered. This will be an evolving process as initiatives are rolled out and implemented.

“Bringing the World to Africa and taking Africa to the World” 64 Next Steps Section189 Letters were served to the respective trade unions on 5 September The company now has until 5 November to consult with trade unions in order to come up with solutions to the R638m gap. The aim is to find alternatives to retrenchments.

“Bringing the World to Africa and taking Africa to the World” 65 Next steps The overriding aim in negotiating with trade unions is to standardise and simplify all conditions of employment and labour agreements. The standardisation of service conditions will be across the board, including management, pilots, crew members and junior employees. This will help reduce SAA’s underlying operating cost base. It will help lay the platform for SAA to return to profitability on a sustainable basis.

“Bringing the World to Africa and taking Africa to the World” 66 Next steps At the end of the 60 days (5 th November), if there is no viable alternative on the table SAA will unfortunately have to retrench employees and/or shrink the airline. The current estimate is that if there are no savings through negotiations on conditions of employment and labour agreements, 2232 employees will be retrenched. The more we save through renegotiated service conditions and labour agreements, the fewer retrenchments will be required. After November 5, SAA will announce the extent of the retrenchments as well as the process and timing thereof..

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“Bringing the World to Africa and taking Africa to the World” 71 Progress on all the other 67 initiatives are on track with the following being completed: Initiative07/08 value Commercial Advertising & Promotion Reduction 53.5m Discontinue Platinum Gifts 0.3m Restructure Voyager Mailings/Communications 2.4 Replacement of Platinum Box with an Envelope (Voyager) 0.1m Competitive Pricing - Economy34.5m Business Class Pricing21.1m Charge Service Fees at CTO8.2m Excess Sales Force/Facilities5m The initiatives are completed and the flow through of the monetary value are now being monitored to determine successful implementation..

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“Bringing the World to Africa and taking Africa to the World” 74 Restructuring Income Statement SAA Holdings Values in ZAR (000,000) Total Revenues20,58221,220 Total Operating Costs18,00517,436 EBITDAR2,5773,784 EBITDAR Margin12.5%17.8% Aircraft Leases2,5142,377 EBITDA631,407 EBITDA Margin0.3%6.6% Depreciation and Amortisation EBIT(681)695 EBIT Margin-3.3%3.3% Total Other Income / Expenses3979 Profit (Loss) From Airline Operations(642)774 Total Fair Value Movements (For-Ex)135(222) Operating Profit (Loss) Excluding Restructuring Charges(507)552 Net Interest Expense(376)(336) Profit (Loss) Before Taxation Excluding Restructuring Charges(883)215 Taxation (42)(19) Profit (Loss) After Taxation Excluding Restructuring Charges(925)197 Net Profit (Loss) from Discontinued Operations420 Preferred Coupon Payments0(149) Net Profit (Loss) from Ongoing Operations(883)47 One-Time Restructuring Costs0(2,479) One-Time Impairment Charges0(804) Net Profit After One-Time Restructuring Charges & Impairment(883)(3,235) REVISED TRANSFORMATION FORECAST Projected Year Ending 31 March (actuals through May 2007)

“Bringing the World to Africa and taking Africa to the World” 75 SAA Financial Results: April – Sept ‘07

“Bringing the World to Africa and taking Africa to the World” 76 Key Risks and Consequences Additional competition from Emirates Expect revenue impact once Emirates commence services (31 extra frequencies) Uncertainties Worldwide credit market crisis High oil prices Labour concessions from Pilots and Staff

“Bringing the World to Africa and taking Africa to the World” 77 Summary The restructuring plan is on track. The process is not risk free but we are monitoring the risks closely. It is heartening to see that our people are identifying additional ways to save money. We all need to stay focused on the delivery of the plan. Together we will be able to return to profitability as planned.

“Bringing the World to Africa and taking Africa to the World” 78 Agenda 1.Opening Review by ChairmanJakes Gerwel 2.Performance Overview by CEOKhaya Ngqula 3.Financial OverviewClive Else 4.Industry & Strategic Overview Khaya Ngqula 5.Restructuring Overview Khaya Ngqula 6.Conclusion and way forward Khaya Ngqula

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“Bringing the World to Africa and taking Africa to the World” Thank you Q & A