Simplify rightsize reskill and incentivise Presentation to Portfolio

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

Agenda 2 1. Opening Review by Chairman Jakes Gerwel 2. Performance Overview by CEO Khaya Ngqula 3. Financial Overview Clive 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”

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. 3 “Bringing the World to Africa and taking Africa to the World”

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. 4 “Bringing the World to Africa and taking Africa to the World”

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

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

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

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

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

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

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

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. 2010 World Cup 12 “Bringing the World to Africa and taking Africa to the World”

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. 13 “Bringing the World to Africa and taking Africa to the World”

Agenda 14 1. Opening Review by Chairman Jakes Gerwel 2. Performance Overview by CEO Khaya Ngqula 3. Financial Overview Clive 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”

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% 15 “Bringing the World to Africa and taking Africa to the World”

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. 16 “Bringing the World to Africa and taking Africa to the World”

Agenda 17 1. Opening Review by Chairman Jakes Gerwel 2. Performance Overview by CEO Khaya Ngqula 3. Financial Overview Clive 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”

Financial overview: 2006/7 • Context: Financial results relate to Financial Year ended 31 March 2007 • • 18 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”

Passenger numbers 7, 9% 2004 2005 2006 26% 27% 15% 16% 2007 19 2007 57% 59% International 7 727 7 158 2003 6 851 6 510 Average yield 6, 5% 7 400 7 200 7 000 6 800 6 600 6 400 6 200 6 000 5 800 5 600 6 520 000's Capacity 4, 3% Passenger numbers Regional 2006 Domestic International Regional “Bringing the World to Africa and taking Africa to the World” Domestic

Financial overview • • Airline income up 7, 8% to R 20, 6 billion Operating costs up 13, 4% to R 21, 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: R 643 million Attributable loss: R 883 million • Capital and reserves: R 1, 57 billion (Includes R 1. 3 bn recap) • Cash position: R 2, 36 billion 20 “Bringing the World to Africa and taking Africa to the World”

Airline income Total airline income 20 000 Increase 7, 8% 2004 2005 20 609 17 186 2003 5 000 19 128 16 339 10 000 17 342 Rm 15 000 2006 2007 0 R 20 609 m R 19 128 m 22% 25% 9% 8% 67% 69% 2007 Passenger revenue 21 2006 Cargo Other Passenger revenue Cargo “Bringing the World to Africa and taking Africa to the World” Other

Income statement – Rm 2007 % change 2006 20 609 7. 8 19 128 (21 252) (13. 4) (18 733) (643) >(100) 395 Fair value movement 40 33. 3 30 Operating (loss) profit (603) >(100) 425 Net finance cost (280) 7. 0 (301) (Loss) Profit before taxation (883) >(100) 124 (42) >(100) (12) (925) >(100) 112 42 >100 (47) (883) >(100) 65 Total airline income Operating costs (Loss) Profit from airline operations Taxation (Loss) Profit from continuing operations Profit (Loss) from discontinuing operations (Loss) Profit for the year 22 “Bringing the World to Africa and taking Africa to the World”

Balance sheet – Rm 2007 2006 Non-current assets 8 384 8 749 Current assets 6 792 5 240 15 176 13 989 Capital and reserves 1 570 1 179 Non-current liabilities 5 042 4 593 Current liabilities 8 564 8 217 15 176 13 989 Total assets Total equity and liabilities 23 “Bringing the World to Africa and taking Africa to the World”

Cash flow statement – Rm 2007 2006 Cash generated from operations 316 336 Net finance costs and derivatives (79) (9) Net cash inflow from operating activities 237 327 Cash (outflow)/inflow from investing activities (162) 1 456 Cash inflow/(outflow) from financing activities 731 (3 043) Increase/(decrease) in cash 806 (1 260) Foreign exchange effect on cash 117 86 Cash at the beginning of the year 1 440 2 614 Cash at the end of the year 2 363 1 440 24 “Bringing the World to Africa and taking Africa to the World”

EBITDAR margins 2007 % change 2006 Airline income 20 609 7. 8 19 128 Operating costs before depreciation, amortisation and rentals 17 994 (12. 5) 15 994 2 615 11. 9 3 134 EBITDAR margin 12. 7% 16. 4% Depreciation, amortisation and rentals 3 258 (18. 9) 2 739 (LBIT)/EBIT (before fair value movements) (643) (32. 0) 395 (LBIT)/EBIT margin 25 (3. 1%) “Bringing the World to Africa and taking Africa to the World” 2. 1%

Other airline revenue – Rm 2007 % change 2006 2 368 7, 1 2 210 Release of air traffic liability 693 (32, 5) 1 028 Other 527 (2, 9) 543 3 588 (5, 1) 3 781 Fuel levies and other recoveries TOTAL 26 “Bringing the World to Africa and taking Africa to the World”

Operating costs analysis – Rm 2007 2 514 % change 32, 5 2006 1 897 Accommodation and refreshments 652 8, 8 599 Depreciation and amortisation 744 (11, 6) 842 1 409 12, 2 1 256 472 (10, 8) 529 Energy 5 740 16, 4 4 933 Labour 3 382 3, 0 3 282 Material 1 654 12, 8 1 466 Navigation, landing and parking fees 1 056 8, 1 977 3 >(100) (257) 3 626 13, 0 3 209 21 252 13, 4 18 733 Aircraft lease costs Distribution costs Electronic data costs Loss/(profit) – sale/scrapping of fixed assets Other operating costs Total 27 “Bringing the World to Africa and taking Africa to the World”

In summary Operating profit margin % 2 0 1 2 • 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. 4 5 7, 8% increase in total revenues. • 6 2 • -3 -2 -4 28 2003 2004 “Bringing 2005 the 2006 World to 2007 Africa and taking Africa to the World”

In summary Net profit 648 65 5 000 2005 2006 • Net loss due to high cost structures and adverse exchange rates. -883 -8 610 -5 000 -5 977 Rm 0 -10 000 2003 2004 2007 • 29 “Bringing the World to Africa and taking Africa to the World” Cash utilised by operations was off-set by favourable working capital.

In summary • 2003 30 2004 2005 2006 2007 “Bringing the World to Africa and taking Africa to the World” The net asset value increased marginally following a partial R 1, 3 billion recapitalisation at year-end.

Key financial focus areas • To deliver on a sustainable restructure and turnaround strategy going forward – – 31 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”

Financial Overview 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. 32 “Bringing the World to Africa and taking Africa to the World”

Agenda 33 1. Opening Review by Chairman Jakes Gerwel 2. Performance Overview by CEO Khaya Ngqula 3. Financial Overview Clive 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”

Industry Overview 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 34 “Bringing the World to Africa and taking Africa to the World”

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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 38 “Bringing the World to Africa and taking Africa to the World”

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

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 43 “Bringing the World to Africa and taking Africa to the World”

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Strategic Overview Star Alliance All Classes Star Alliance Average 74 (+3) Shift From Q 1 -2006 +2 – 5 – 0 – – +2 +3 +1 +4 § 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 – +8 – 1 – 4 – 5 – 14 47 “Bringing the World to Africa and taking Africa to the World” All figures are top-two-box ratings

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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 2006. Mango has seen good growth since its launch, capturing approximately 10% of the domestic market 49 “Bringing the World to Africa and taking Africa to the World”

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 50 “Bringing the World to Africa and taking Africa to the World”

Agenda 51 1. Opening Review by Chairman Jakes Gerwel 2. Performance Overview by CEO Khaya Ngqula 3. Financial Overview Clive 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”

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 52 “Bringing the World to Africa and taking Africa to the World”

History and Forecast SAA has experienced significant losses in recent years with only one year of modest profitability Historical Profitability 2. 0 0. 6 0. 7 ZAR (billions) 0. 0 0. 1 (1. 0) (2. 0) (0. 8) (0. 9) Mar-07 Mar-08 Projected (4. 0) (6. 0) (4. 9) (6. 0) (8. 6) (10. 0) Mar-03 Source: Seabury analysis Mar-04 Mar-05 Mar-06 Profit (Loss) Excluding Unusual Items* * 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 53 “Bringing the World to Africa and taking Africa to the World”

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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 2007. • 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 costcutting 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. 55 “Bringing the World to Africa and taking Africa to the World”

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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 58 “Bringing the World to Africa and taking Africa to the World”

Top 10 Initiatives Update Description Annualised Saving Timing SAA Status Nov 07 Yellow Jan 08 Green Aug 07 Yellow Mar 08 Red GDS contract renegotiation. Sep 07 Green Advertising and promotions. Jun 07 Blue Jan 08 Green Jun 07 Yellow Nov 07 Green Mar 08 Green Labour - management. 62% Labour – gap. B 747 grounding. Regional partnership revenues. 17% Market share revenue gap - Europe and domestic. 16% Additional revenue in lieu of sponsorships. Engine renegotiations. 5% Operational performance. Top 10 initiatives 91% of full restructuring 59 100% Completed Blue On track but issues to be addressed Yellow On track Green Behind or unable to generate monetary value Red “Bringing the World to Africa and taking Africa to the World”

Labour Gap 1 n With the restructuring business plan on track, the final phase of the labour negotiations have now begun. n It should be noted that the business plan reflects a gap of R 638 m 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. 60 “Bringing the World to Africa and taking Africa to the World”

Labour Gap 2 LABOUR COMMITMENT MANAGEMENT HEADCOUNT + R 638 M R 110 M Excluding other Initiatives e. g. 711 Employees 61 “Bringing the World to Africa and taking Africa to the World”

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Initiatives e. g. 711 Employees 63 n The following initiatives are being implemented by the responsible GMs: § One Stop Shop - Airports § Closure of Durban Base § Reduction of crew compliments on A 340’s § Reduction of the SCCM on A 340’s § Exiting of the B 744 from the fleet § Combining Call Centres n The following categories of employees are affected by the abovementioned initiatives: § Pilots § Cabin Crew § Ground staff n 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”

Next Steps n Section 189 Letters were served to the respective trade unions on 5 September 2007. n The company now has until 5 November to consult with trade unions in order to come up with solutions to the R 638 m gap. n The aim is to find alternatives to retrenchments. 64 “Bringing the World to Africa and taking Africa to the World”

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. 65 “Bringing the World to Africa and taking Africa to the World”

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. 66 “Bringing the World to Africa and taking Africa to the World”

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Progress on all the other 67 initiatives are on track with the following being completed: The initiatives are completed and the flow through of the monetary value are now being monitored to determine successful implementation. Initiative 07/08 value Commercial 71 Advertising & Promotion Reduction 53. 5 m Discontinue Platinum Gifts 0. 3 m Restructure Voyager Mailings/Communications 2. 4 Replacement of Platinum Box with an Envelope (Voyager) 0. 1 m Competitive Pricing - Economy 34. 5 m Business Class Pricing 21. 1 m Charge Service Fees at CTO 8. 2 m Excess Sales Force/Facilities 5 m “Bringing the World to Africa and taking Africa to the World”

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Restructuring Income Statement SAA Holdings Values in ZAR (000, 000) REVISED TRANSFORMATION FORECAST (actuals through May 2007) Projected Year Ending 31 March Total Revenues 2007 20, 582 2008 21, 220 Total Operating Costs 18, 005 17, 436 EBITDAR Margin 2, 577 12. 5% 3, 784 17. 8% 2, 514 2, 377 63 0. 3% 1, 407 6. 6% 744 713 (681) -3. 3% 695 3. 3% 39 79 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 (42) (19) (925) 197 42 0 0 (149) (883) 47 0 0 (2, 479) (804) (883) (3, 235) Aircraft Leases EBITDA Margin Depreciation and Amortisation EBIT Margin Total Other Income / Expenses Taxation Profit (Loss) After Taxation Excluding Restructuring Charges Net Profit (Loss) from Discontinued Operations Preferred Coupon Payments Net Profit (Loss) from Ongoing Operations One-Time Restructuring Costs One-Time Impairment Charges Net Profit After One-Time Restructuring Charges & Impairment 74 “Bringing the World to Africa and taking Africa to the World”

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

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

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. 77 “Bringing the World to Africa and taking Africa to the World”

Agenda 78 1. Opening Review by Chairman Jakes Gerwel 2. Performance Overview by CEO Khaya Ngqula 3. Financial Overview Clive 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”

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Thank you Q&A 80 “Bringing the World to to. Africa and taking to the World” the World Africa and taking Africa to. Africa the World”