CORPORATE PRESENTATION TEMPLATE

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SAA Financial Results 2007/08Restructuring
Towards Profitability
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Agenda

• Industry and strategic overview CEO Khaya
  Ngqula
• Financial overview CFO Kaushik Patel
• Conclusion and way forward Dr Ngqula

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Industry overview

• For the first time since 2000, the global
  aviation industry turned a profit in 2007 of
  approximately US5,6-billion
• However, the relentless rise of the oil price has
  wreaked havoc on carriers across the globe, with
  the oil price settling at 138 per barrel last
  night after reaching a high of 147 per barrel on
  Friday
• Global airlines are seeking to cut costs by
  grounding aircraft, scrapping unprofitable routes
  and merging
• Further casualties are expected in the airline
  industry if the oil price remains high, and a
  decline in industry profitability is predicted
  for 2008

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Industry overview

• The airline market in Africa is still highly
  regulated with restricted entry
• Nevertheless, there remains significant
  opportunity for growth in Africa, with an
  increasing number of passengers traveling on the
  continent, particularly from Southern Africa to
  East and West Africa
• Despite a relatively small market, South Africas
  airline industry remains highly competitive
• Competition from low cost carriers in particular
  continues unabated

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Strategic overview strategic direction

• SAAs strategic vision is to be a profitable
  African airline with global reach
• The vision goes hand-in-hand with our mission of
  delivering sustainable profits and growing our
  market share by offering world class service to
  our customers
• SAA will thus continue to focus on its operations
  in Africa, expanding where there are
  opportunities
• Domestically, we will continue to service our
  high density routes and internationally, the
  focus is on ensuring that our routes are
  profitable and sustainable

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Strategic overview Restructuring 2007/08

• SAAs deep and fundamental restructuring
  programme, launched in May 2007, had four main
  pillars simplify and rightsize the business as
  well as reskill and incentivise management and
  staff
• The first year was largely financial in nature
  and delivered good results, coming in 3 above
  target
• The programme has resulted in costs being reduced
  by almost R1- billion, as well as revenue growth
  of 9
• This was achieved despite a tough operating
  environment and less capacity due to grounding
  the Boeing 747 fleet and closing Paris and Zurich

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Key Performance Indicators
excluding restructuring costs
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Strategic overview Restructuring 2007/08

• Restructuring is now in its second year, where
  the focus is on improving customer service and
  operational performance while building on
  financial gains
• New initiatives have been identified, including
• - Establishing a customer service charter to
  achieve service excellence across the board
• - Establishing management performance standards
  to improve employee engagement and operational
  excellence
• - Improving the customer experience at key
  touch points from booking a ticket to arriving
  safely at a destination
• - Improving on-time departures

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Strategic overview Restructuring 2007/08

• New initiatives (cont)
• - Enhancing baggage systems via new technology
  and regular scrutiny of key problem areas
• - Promoting the use of self service check-in
  kiosks to reduce congestion at counters
• - In-flight entertainment on flights to be
  upgraded
• - Voyager, the frequent flyer programme, has
  upgraded its membership relations office and
  plans to add new services such as luxury
  transport to and from the airport
• - Business Class departure lounge at OR Tambo
  International Airport will move to a new venue
  early next year and receive a facelift

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Strategic overview Low-cost competition

• The high oil price has equally challenged the low
  cost industry worldwide, including in SA
• Mango, launched in November 2006, has kept costs
  low by using aircraft efficiently and boosting
  productivity amongst employees
• Mango carried its 2 millionth passenger in March
  2008, and is on track to achieve its business
  goals

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Strategic overview SAA Cargo and SAA Technical

• SAA Cargo focused on protecting and growing its
  market share, particularly in key markets such as
  Lagos, Luanda, DRC, Accra and Kinshasa
• Two Boeing 737-300 freighters were introduced on
  domestic routes and into the rest of Africa
• SAA Technical (SAAT) grew its client base and
  further diversified its revenue base. This
  included reaching agreement to maintain 22 of
  Comairs Boeing 737s
• The high skills level of SAAT technicians make
  them marketable, resulting in the loss of a high
  level of staff
• SAAT has made good progress towards restoring the
  skills base, reflected in the Federal Aviation
  Authoritys decision to renew SAATs certificate
  for 2008

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Strategic overview

• The rising oil price poses a huge challenge to
  SAA and is a threat to the airline achieving its
  restructuring profit target
• When the restructuring plan was devised in
  2006/07, a profit target of 7,5 was set for
  2008/09 when oil was trading at 50 - 60 per
  barrel. The profit target was set on the
  assumption that oil would average 65 per barrel
• Oil is trading at more than double this original
  assumption, which has placed significant pressure
  on our margins
• However, the grounding of aircraft, focus on
  profitable routes and cost cutting has left SAA
  more streamlined and efficient

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Agenda

• Industry and strategic overview CEO Khaya
  Ngqula
• Financial overview CFO Kaushik Patel
• Conclusion and way forward Dr Ngqula

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Financial Results 2007/08

• SAA posted strong growth in revenue to
  R22,51-billion for 2007/08 from R20,65-billion
  previously, a 9 increase
• SAA posted a net profit of R123-million,
  excluding restructuring costs, for 2007/08 from a
  loss of R883-million the previous year
• Restructuring costs amounted to R1,34-billion
  against an original estimate of R3-billion
• This is a significant turnaround, which was made
  possible due to the efforts of all SAA employees

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SAA Group Income Statement
Note Net Profit before restructuring of R123m
compares with Corporate Plan targeted profit of
R47m
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Revenue

• Revenue Passenger numbers were 1.3 down on last
  year, but this was nowhere near the reduction in
  capacity with Available Seat Kilometres (ASKs)
  falling 7.9
• Average fares increased 14.8, including currency
  benefit of R584-million
• Cargo Mail revenue declined from R1,82-billion
  to R1,76-billion
• Fuel levy recoveries were R414-million higher
  than previous year and increased as a of gross
  fuel cost from 22 in 2007 to 26 in 2008
• Releases from Air Traffic liability provision
  were lower in 2008 by R317-million

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Operating costs

• Employees played a big role in keeping operating
  costs low which was painful and was only achieved
  through commitment and tenacity
• Fuel uplifts in barrels were 5 less than 2007
  due to fleet and route rationalisation
• The underlying Brent price per barrel increased
  from an average of 64.72 to 78.78. The currency
  impact on fuel costs, excluding Forex hedging,
  was an adverse R113-million
• The labour bill was steady although savings did
  not fully materialise due to the later than
  anticipated exits of voluntary severance packages
  
• Restructuring costs of R1,34 billion consisted
  mainly of provision for aircraft leases and
  impairments with associated maintenance costs in
  respect of grounded Boeing 747-400s and
  redundancy payouts

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SAA Group Balance Sheet
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Balance Sheet

• In 2006/07, SAA was recapitalised by a total of
  R1,3 billion and an additional R1,56-billion was
  secured in 2007/08 to assist with restructuring
  costs
• The funding was received in the form of a
  subordinated loan with a guarantee provided by
  our shareholder, the Public Enterprises
  Department
• The loan has been classified as an equity
  instrument and any interest SAA elects to pay is
  classified as dividends
• SAA paid dividends of R137-million in 2007/08
  relating to the subordinated loan which is
  classified as equity. SAA is not ideally
  capitalised and consideration is being given to
  converting the subordinated loan to equity

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Cash cash equivalents

• Cash flow from operating activities was much
  stronger at R1,39-billion versus previous year of
  R316-million
• Debtor levels were in line with previous year and
  the number of days outstanding was reduced from
  70 days in 2007 to 60 days in 2008
• Accounts payable increased by R1,47-billion with
  the bulk of the movement attributable to the
  provision of R900-million for the Boeing 747-400
  write off and accelerated year end catch up
  accruals
• External borrowings of R1,56-billion were raised
  against a government guarantee to assist in
  recapitalisation after restructuring on top of
  the previous R1,3-billion
• An injection of R653-million was also received
  from National Treasury to fund certain
  restructuring costs (treated as equity)

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Key financial focus areas

• To deliver on a sustainable restructuring and
  turnaround strategy
• Reduce and contain operating costs
• Margin and yield enhancement
• Focus on ensuring SAA is profitable for 2008/09
• Recapitalisation
• SAA will require further recapitalisation in
  order to
• lower its cost of capital
• improve gearing
• mitigate currency risks
• position SAA for future growth and expansion

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Agenda

• Industry and strategic overview CEO Khaya
  Ngqula
• Financial overview CFO Kaushik Patel
• Conclusion and way forward Dr Ngqula

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Conclusion and way forward

• SAA achieved a R2-billion turnaround in 2007/08
  the oil price added more than R950-million in
  unbudgeted costs and R1-billion in costs were
  removed through restructuring
• The focus of restructuring now is on improving
  customer service and the operational performance,
  re-engineering the business, building on our
  financial gains and reshaping SAA into a new
  corporate structure
• Africa will remain a strong focus in terms of
  growth
• The soaring oil price poses major challenges
  which has forced SAA to renew its focus on
  cutting cost.
• Depending on the oil price, SA is on track to be
  profitable in 2008/09, but will not reach the
  7,5 profit target.

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Thank you