JOHANNESBURG Dec 21 (Reuters and CNBC Africa) – South African Airways will lease five Airbus jets under a deal originally signed off in July, the Treasury said on Monday, scuppering plans by airline Chairwoman Dudu Myeni for a sale and leaseback arrangement via a third party.
Former Finance Minister Nhlanhla Nene tried to block the deal proposed by Myeni, a close associate of President Jacob Zuma. South African media have speculated that Nene’s clash with Myeni was the reason for his shock sacking by Zuma this month.
The new transaction also means that cash-strapped SAA, one of several state-owned companies in Africa’s most advanced economy with financial troubles, will no longer be purchasing planes from Airbus.
“The transaction will see SAA swap the purchase of ten A320 aircraft for a lease of five A330-300 aircraft from Airbus,” the Treasury said in a statement.
The Treasury said the deal’s structure now meant that SAA would not have to pay $40 million in pre-delivery payments to Airbus and would be refunded by Airbus for $100 million already paid.
“SAA will not be required to recognise impairments, as it will no longer be acquiring aircraft. It had been estimated that such impairments could have totaled in excess of 1 billion rand ($66.20 million),” the Treasury said.
“The implementation of the transaction will therefore, improve the airline’s financial position by alleviating the cash flow pressure and improving its profitability. Further measures will be taken next year to stabilise the airline,” it said.
The Treasury was concerned that SAA would not have the cash to honour its side, a situation that could have seen it default on its obligations, including its government guaranteed debt obligations.
“This would have severe negative consequences for SAA and for the country as a whole,” the Treasury said.
According to a memorandum published by various media houses, the airline, which has been surviving on government-guaranteed loans, needs to apply for business rescue as it is in financial distress.
The Helen Suzman Foundation in Johannesburg, which was concerned about SAA’s attempts to revise the National Treasury’s deal with Airbus, welcomed the announcement, saying it now has confidence in Gordhan to rebuild the country’s financial structure.
The foundation added: “These developments are part of a useful programme to stabilise the South African economy and public finances in the wake of recent instability in Cabinet appointments. Much more needs to be done to stabilise state-owned enterprises, in particular SAA, in order to prevent them from becoming a burden on state resources in difficult times.”
In 2002, SAA and Airbus concluded a deal to purchase 15 A320-200 aircraft. The purchase was revised between 2007 and 2008 to increase the number to 20.
Between 2013 and 2015 Airbus delivered 10 of the 20, A320-200s. On April 21, the board engaged in talks with Airbus to swap the ten remaining aircraft for the lease of five A330s.
In October, Myeni, allegedly tried to renegotiate the swap transaction deal, introducing an unnamed third party, an aircraft leasing company, into the funding and leasing arrangements.
This controversial deal spawned negative reaction for the airline.
Former Finance Minister Nene rejected the proposal by the board to amend the standing contract with Airbus.
Nene argued that if a third party were to be introduced into the financing arrangements a procurement process would need to take place, but there was little time for this to happen before the set deadline.
He then told SAA to stick to the agreement to swap the purchase of ten A320s for the lease of five A330s. The airline had wanted to buy the A330s and lease them locally so the transaction could be processed in rands.
Days, after Nene’s decision, he was redeployed and replaced with David Van Rooyen – a former mayor of Merafong in the west of Gauteng. Van Rooyen was finance minister for a mere four days. The rand hit a record low breaching 16 to the dollar and the JSE lost R169.6 billion ($11 billion) in market value. Following a public outcry and a meeting with business heads between the ANC, Zuma replaced Van Rooyen with Gordhan.
SAA Chairwoman Dudu Myeni
SA Flyer mag, Editor and publisher, Guy Leitch says the state should sack Myeni as chair of the board.
Tlali Tali, SAA spokesperson. told CNBC Africa that “the appointment of board members, their performance and possible termination of their services is a prerogative of the shareholder representative as a state-owned company. The National Treasury and the Minister of Finance are competent authorities to evaluate the performance of the board against set targets”.
(Reporting by Ed Stoddard and Yonela Mgwali)