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SAA, Airbus R6bn deal under scrutiny

OCTOBER 20, 2015
SAA, Airbus R6bn deal under scrutiny

 A R6bn aircraft deal has come under the microscope after South African Airways (SAA) board members were allegedly put under pressure into approving “an unaffordable” deal with French aircraft manufacturer, Airbus.  

The deal has now become the subject of an Ernst and Young investigation.Its spokesperson Fathima Naidoo said, however, “due to client confidentiality obligations, we are unable to assist with your request.” Naidoo referred all queries to SAA.

News24 understands that in 2002, SAA ordered 40 aircraft from Airbus. The arrival of the aircraft was staggered, with 30 delivered by 2013. From the original deal, there were about 10 A320-200 aircraft still outstanding.

In 2014, SAA took a decision to amend the original contract by wanting to swap the remaining ten with aircraft that had bigger engines and were more fuel efficient.

“The issue here was that the [original] planes we ordered were small and had old engines. We wanted to swap them for new generation engines which are A330 or A350…” said a reliable source, who has intimate details about the deal, but asked not to be named.  

“We wanted fuel efficient planes and we thought we could change the remaining 10. SAA management was tasked with dealing with the manufacturer [Airbus] to swap the remaining order.”

The source said SAA management was at first reluctant, but eventually engaged the manufacturer.

“They started engaging with Airbus last year and the beginning of this year. Airbus was happy to make the swap. The problem is that we received five aircraft and the board was pressured by management to approve five A330s by April 2015,” said the source.

Due to the dollar and rand exchange, SAA could only secure five aircraft for the initial amount that had been paid.

Five new aircrafts

News24 is in possession of a board resolution where the board stated that it was not happy with the decision to sign for five new aircraft. The board is understood to have signed as it was supporting management because an urgent approval of a corporate plan needed to be tabled in Parliament in April.

The source said the board was not happy because the deal was supposed to secure a local manufacturer. News24 has seen a document where the board requested clarity on certain matters with which it was not satisfied.

A board member, who also asked not to be named, said the swap was not supported, but was approved with conditions.

“It was a three man show and the board was pressurised to approve the co-operate plans. The deal is too expensive for SAA in the sense that this is an operating lease… We wanted to revert back to the old deal or get a better deal…

“This lease means that SAA was going to lease it to an outside company, which meant that we would have been subjected to currency fluctuation…and it would become more expensive…”

Having understood what this meant for SAA, the board took a decision to look for a local funder.

“We have always wanted a local funder. The government should give us R6bn to buy the five aircraft or we need to get a local leasing company instead of leasing it to an international company.

“The deal should be interrogated further...Because it is not fair in a sense that we were going to pay the same amount for bigger engines but less aircraft.”

In the interest of the public

SAA chairperson of the board Dudu Myeni said: “We do not discuss matters of the board in public. The board will go all out to ensure that everything it approves is in the best interest of the airline.”

When probed further about the deal she said: “It remains a serious concern that documents of the board are leaked to the media.

“When the board met with Airbus on September 24, I was not part of that meeting, but I was informed that it was clear that SAA was not getting a good deal,” said Myeni.

She said for SAA it made sense to find a local leasing company.

“At the end of the day we must create jobs, localise business and transform the economy, so that SAA is inclusive in opportunities that previously benefited foreign owned leasing companies. SAA continues to lease its own aircrafts from foreign lessors.”

She referred News24 to SAA spokesperson Tlali Tlali for further comment. When contacted, Tlali refused to comment. Airbus spokesperson Sara Ricci also refused to comment.