To rent or buy? SAA, Airbus deal still on the table. Deadline 21 Dec.

The Airbus leasing agreement has been a cause for concern amongst ordinary South Africans as many believe it was part of the reason Finance Minister Nhlahla Nene was sacked by President Jacob Zuma. The introduction of a middle man, and renegotiation of the deal, by chairperson Dudu Myeni was seen as a money-making racket that would have required more taxpayer funds, Nene refused. Following his reappointment, new Finance Minister Pravin Gordhan said all deals that Nene signed off on would stay as is, for now, but he was going to meet with Myeni at some point. In his speech he spoke about the importance of SAA to the country but he also said time was running out for those using SOE’s as money-making toys. Wonder how that applies to Myeni? A deal will most likely go ahead one way or another, with taxpayers once again flogging a dead horse, after the leaked memo highlighted the company’s insolvency was being run by a reckless board.While Russell Loubser, former SAA board member, says the result of this malevolent incompetence will force taxpayers to keep pumping in billions of rand annually. No updates have been released from Treasury on SAA but Airbus says its willing to proceed with the initial leasing agreement but the deadline is December 21, Monday next week. One must also question the Airbus decision, given the airlines insolvency concerns. It looks like it’s going to be a long weekend for National Treasury and SAA. There is also an in-depth timeline showing the partnership between SAA and Airbus going back to 2002, interesting stuff. – Stuart Lowman

By John Bowker and Andrea Rothman

(Bloomberg) — Airbus Group SE is willing to proceed with a government-approved deal to lease five A330 wide-body planes to South African Airways, even after the state-owned carrier’s chairwoman sought to renegotiate the deal in defiance of the country’s National Treasury, according to a person familiar with the situation.

SAA_Airbus

SAA would need to send a legally-binding letter of agreement signed by both the airline and the Treasury by a Dec. 21 deadline to secure the lease arrangement, said the person, who asked not to be identified as the matter is private. That would remove the possibility that payments related to an earlier deal to buy 10 A320 planes from Airbus would be due from SAA, threatening the financial stability of the unprofitable carrier.

“There is no planned announcement on this matter at this stage,” SAA spokesman Tlali Tlali said by text message on Thursday. “Should there be any significant or material change, we will advise accordingly.”

The Treasury will comment next week, spokesman Phumza Macanda said by e-mail. Airbus didn’t respond to phone calls seeking comment.

Legal Opinion

Dudu Myeni
Dudu Myeni, SAA chairperson

A legal opinion from SAA’s internal legal counsel to the board, which the High Court in Johannesburg on Thursday ruled was entitled to be made public, advised the board to secure an equity injection from the state or apply for business rescue, Johannesburg-based Business Day newspaper reported Friday, citing the memo. The airline earlier obtained an interim interdict against Media24, Moneyweb and BDFM Publishers, seeking to prevent the publications from publishing the memo.

The opinion from SAA’s internal legal counsel, Ursula Fikelepi, warned that to continue trading under current circumstances was “reckless,” and recommended the board abandon attempts to renegotiate the leasing of the five A330 aircraft and revert to an old deal structure that was negotiated in March.

SAA, which has been cutting costs to ease a dependence on government-guaranteed loans, agreed to the A330 leasing arrangement earlier this year in a move that was forecast to save about 1.4 billion rand ($93 million). The deal was approved by then Finance Minister Nhlanhla Nene, but thrown into doubt by SAA Chairwoman Dudu Myeni, who wanted the planes sold to a third party in South Africawhich would then lease them to the airline.

Staff Exodus

Nene ordered SAA to proceed with the leasing arrangement on Dec. 3, but was fired six days later by President Jacob Zuma — whose personal foundation is run by Myeni. Nene’s eventual replacement Pravin Gordhan said Dec. 14 that Nene’s decision stood and he would talk to Myeni about the deal this week.

Read also: SAA pilots vs Myeni: Insight alters after assuming “brace position” for real.

SAA last month appointed Musa Zwane as its seventh acting or permanent chief executive officer in less than four years. Other changes amid the uncertainty about the Airbus deal include the departure last month of Chief Financial Officer Wolf Meyer.

From News24

TIMELINE: The controversial SAA-Airbus deal

Cape Town – The R6bn Airbus aircraft deal has continuously been placed under the microscope. Here’s a timeline of the controversial deal.

2002 – SAA and DPE (Department of Public Enterprises) award a contract to Airbus to modernise SAA’s long-haul and regional/domestic fleet, replacing much older aircraft over a 12-year period from 2003 – 2015.

Under the contract, SAA would acquire the following aircraft:

6 x A340-600s purchased from Airbus plus
3 x A340-600s leased from a leasing company
6 x A340-300s purchased from Airbus
11 x A319s purchased from Airbus
15 x A320s purchased from Airbus
plus 6 x A340-200s leased from Airbus

The 6 x A340-200s were later replaced with new A330-200s leased from AirCastle

2009 – SAA renegotiates the A320 element of the contract, increasing the number of A320s to be acquired from 15 to 20. The additional capacity was required to meet envisaged growth on existing domestic and regional flights, but also to meet demand on the airline’s new intra-Africa route network, which was the core of its new business strategy.

2012-2014 – The first 10 A320s are delivered to SAA

2012 – 2013 – Facing cost pressures linked to the high oil and jet fuel prices, SAA launches a tender for the supply of new, cost efficient long-haul aircraft. The tender process is stopped by the then Minister of Public Enterprises, Malusi Gigaba after the Department of Trade and Industry publishes revised rules for the National Industrial Participation Programme (the statutory offset mechanism applied to all procurements of goods or services by the State or SoEs with a contract value exceeding $10m).

2014-2015 – SAA launches its Long Term Turnaround Strategy, which addresses some changes to the airline’s Africa route network strategy. At the same time, SAA’s financial performance comes under pressure due to the deterioration of South Africa’s economy, and the depreciation of the rand.

As a result, SAA (under the stewardship of acting CEO, Nico Bezuidenhout) approached Airbus to discuss a renegotiation of the 2009 terms for the A320s and also possible swap of the A320s for a smaller number of modern long-haul planes.

2015 – SAA and Airbus agree to an arrangement where the purchase of the remaining 10 A320s would be converted to a lease of 5 x long-haul A330s from Airbus. At the same time, Airbus would refund to SAA the pre-delivery payments it has made on the outstanding A320s and it would also absolve the airline of any future pre-delivery payments in respect of these aircraft. This would immediately put SAA back into a cash-positive position.

Treasury approves the proposal, but SAA’s board and chairperson, Dudu Myeni, refuse to sign off on it.

Oct 2015 – SAA’s chairperson proposes that Airbus sell the A330s to an African leasing company, which would then lease the aircraft to SAA. Airbus rejects the proposal as it fails to meet its internal compliance standards.

Oct/Nov 2015 – SAA chairperson announces a variation of the proposal in briefings to Parliament’s Joint Standing Committee on Finance and Public Enterprises and says the airline wants a rand-denominated lease as this would have lower forex risks for SAA.

Nov 2015 – SAA applies for an urgent gag order to prohibit the media from publishing the contents of an internal memorandum which would show SAA’s precarious financial position relating to the Airbus swap deal.

02 Dec 2015 – Treasury issues a news release in which the (then) Finance Minister Nhlanhla Nene tells SAA’s chair and board to proceed with the fleet swap/pre-delivery payment refund arrangement it had signed off on earlier in the year.

Treasury says SAA has failed to produce any evidence to demonstrate SAA would be in a better off financial position if it pursued the arrangement proposed by the SAA Chair and board.

02 Dec 2015 – Police start probe into SAA

09 Dec 2015 – President Jacob Zuma sacks Nene as Finance Minister.

09 Dec 2015 – As things currently stand, the 2009 revisions to the 2002 contract are still enforceable, that is for SAA to purchase a total of 20 A320s, 10 of which are due for delivery from 2016.

17 Dec 2015 – Media scores huge victory when the High Court sets aside the gag order on the secret internal memo.

21 Dec 2015 – Deadline for the payment of the next round of pre-delivery payments on the 10 x A320s

Fin24

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