Leaked memo: SAA’s ‘reckless’ board on ‘insolvent’ path

Former South African Airways board member Russell Loubser recently reflected on his decision to step away from the group in a hard hitting interview with Biznews.com’s Alec Hogg. In the interview former JSE CEO Loubser said everything that’s happened to the state-owned airline was entirely predictable, and in his view the chairperson and directors had long since lost any pretense at running it like a business. Given the judgement today that granted media houses permission to publish a secret memo, the words of Loubser are bearing the ugly truth. It also comes at a time when global airlines are profitable with the main input cost, oil, trading at below $40 a barrel. The leaked memorandum said the airline was insolvent, while the board was declared ‘reckless’. If you’d read Loubser’s interview, then this wouldn’t come as a surprise. – Stuart Lowman

By Wim Pretorius

Dudu Myeni
Dudu Myeni, SAA chairperson

Johannesburg – The South Gauteng High Court on Thursday dismissed South African Airways’ urgent application to get an interdict prohibiting Media24, Business Day and Moneyweb from publishing a secret internal memorandum.

This now allows the media to publish the memorandum.

SAA boss Dudu Myeni didn’t want the South African public to know that SAA was “insolvent” and that they are described as “reckless” in the memorandum.

The main aspect addressed in the memorandum is the deal SAA made with Airbus with regards to new aircrafts which SAA is not able to pay for as agreed in the Purchase Agreement.

SAA and Airbus concluded a Purchase Agreement in 2002, where they initially wanted to buy 15 A320-200 aircrafts.

During 2007-2008, the Purchase Agreement was amended to include an extra five A320-200 aircrafts, thus bringing the total to 20, and to add the leasing of other aircraft types.

Read also: Hawks probe SAA: Corruption, irregular route closures on charge sheet

Some of the important points mentioned in the memorandum include the following:

The former Chief Financial Officer (CFO), Wolf Meyer, said that it would not be possible for SAA to complete their Airbus transaction and pay all of their creditors.

“The CFO has advised that SAA will be unable to pay its debts as and when they become due should SAA pay the PdP’s (Predetermined Payment). SAA does not have money to pay both.”

Meyer has since resigned.

Further, the memorandum states that SAA is trading under insolvent circumstances.

Read also: Poisoned chalice: SAA gets 7th CEO in 4yrs. HR turnaround, not strategy.

“Based on a reliance on a going concern and the inability of the auditors to sign off on the annual financial statements, SAA has been and remains technically insolvent. Accordingly, SAA is financially distressed and trading under insolvent circumstances.”

It is also stated that Myeni’s decision to continue with the Airbus-transaction worsens SAA’s already weak financial position.

According to the Companies Act, the Board “is required to file for business rescue and liquidations”.

Alternatively, creditors or employees may apply to court to place SAA under business rescue.

Should Myeni and the council not comply with the Companies Act, it can result in “statutory sanctions and a possible fine or imprisonment against a person found guilty of an offence to defraud a creditor, employee or shareholder”.

SAA Leaked Memorandum

News24

Source: http://www.fin24.com/Companies/Industrial/saa-memo-what-they-didnt-want-you-to-know-20151217