Audit reveals threat on future of Airline

An audit of the sole shareholder of Samoa Airways has raised questions about its accounts, warning that a major outlays of more than $26 million could have threatened the future viability of the business. 

The Audit of the Government-owned Polynesian Airlines (Investments) accounts is for the 2016-2017 Financial Year, the same time the business established a new corporate entity, the national carrier: Samoa Airways.

Controller and Chief Auditor, Fuimaono Camillo Afele previously expressed concerns over the disclosure of two major purchases a $1.65 million "jet operations" task force and $26.6 "jet implementation costs".

The costs were approved at a Board Meeting in March 2016, the year before Samoa Airways was incorporated by the company. 

"With the realization of jet operations, implications on the “Going Concern” concept [of this company] now exist," the Auditor's report reads.

In accounting terms, a "going concern" refers to a business with enough assets and liquidity to continue its operations for the foreseeable future. 

The Auditor noted that discussions with the C.E.O. indicated a number of issues over the company's future revenue remained unresolved but that it remained hopeful of a positive outcome. 

In an official response to the audit the company stated: "There has been revenue issues however there have also been a number of major milestones achieved by the company."

The Samoa Observer previously reported that Fuimaono criticised the lack of disclosure of the expenditure to Cabinet and in financial statements. 

With the realization of jet operations, implications on the “Going Concern” concept now exist. Discussions with the CEO indicate a number of revenue issues are yet to be finalized and factored in for hopefully favourable results.

The Samoa Airways company was only established in May 2017 and took to the air in December the same year. Polynesian Airlines (Investments) is a Government-held company incorporated in the early 1980s and the 100 per cent owner of Samoa Airways.

Efforts to get direct comments from the C.E.O, Seiuli Alvin Tuala, and the responsible Minister, Lautafi Selafi Purcell, Chairman of the Board, Muagututia Lafaele Ngau Chun have been unsuccessful as of press time.  

The Auditor noted the confusion arising from the co-existence and interrelationship of separate legal entities Samoa Airways Limited and Polynesian Airlines (Investments) Limited and a third entity Polynesian Limited.  

“Despite having the same Directors, there are now three separate legal entities, with a significant tax implication. The shareholder name is also open ended and ambiguous from a legal perspective," the Auditor wrote. 

In response the Samoa Airways noted it structured its ownership on advice about protecting the corporation and stated: “In principle, Polynesian Ltd is going to be trading as Samoa “Airways and Samoa Airways Ltd’s role is to protect the trademark name, Samoa Airways. In many ways, it is a shelf company. 

“This was to prevent any third party from incorporating a company with the same name."

3.13 Polynesian Airlines (Investments) Limited & Polynesian Limited Financial Year Audited 1 July 2016 to 30 June 2017

1. Given the historical losses still being carried forward by Polynesian Ltd and Polynesian Airlines (Investments) Limited, the need to declare a dividend is negated notwithstanding the “Solvency test” provision of the Companies Act 2001 (as amended by the Companies Act 2006) until such time as the entirety of the accumulated losses are fully absorbed (recouped) as per IFR.

2. The audit discovered and recorded different views in relation to the engagement by PAL of a Private Law Firm in Samoa. PAL is of the opinion that the arrangement is cheaper than recruiting an In-House counsel.

3. The company has registered a new private company “SAMOA AIRWAYS LTD” on the 17th May 2017 with POLYNESIAN AIRLINES as sole shareholder of 100 shares. Despite having the same Directors, there are now three separate legal entities, with a significant tax implication. The shareholder name is also open ended and ambiguous from a legal perspective given that the two entities’ legal names are different (PAIL and PL). Ideally the name “Samoa Airways” should have been registered as a trademark or trading name under one of the Polynesian companies.

Management Response: Concerns are noted. In principle, Polynesian Ltd is going to be trading as Samoa Airways and Samoa Airways Ltd’s role is to protect the trademark name, Samoa Airways. In many ways, it is a shelf company. This was to prevent any third party from incorporating a company with the same name. The advice and recommendation from MCIL was to register Samoa Airways to be able to keep the name. The company extract reflecting that legally it is still Polynesian Ltd trading as Samoa Airways/Polynesian Airlines was provided.

4. Board resolutions approved a budget for Jet Operations Taskforce of $1,657,373.83 and Jet Implementation Costs totaling $26,630,542.90. With the realization of jet operations, implications on the “Going Concern” concept now exist. Discussions with the CEO indicate a number of revenue issues are yet to be finalized and factored in for hopefully favourable results.

Management Response: There has been revenue issues however there have also been a number of major milestones achieved by the company.

5. Some dishonored cheques remained in the accounting system for an unduly long period without any remedial action.

Management Response: Recommendation is duly noted. Long outstanding cheques will be submitted to Board for write-off in an appropriate timely manner. A rigorous collection follow-up including legal action

if deemed cost beneficial will be enacted for specific dishonored cheques that somehow arise despite the vetting process.

 

 

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