In a statement issued late on Thursday afternoon, the treasury put its foot down on a proposed restructuring of a transaction with aircraft manufacturer Airbus, saying that it presented too high a risk of leaving SAA in a materially worse off financial position and triggering payments under government guarantees.
“Although possible benefits may be realised through allowing the airline to continue to pursue an alternative transaction, these were far outweighed by the high probability of a default on the government guarantees and the severe consequences thereof,” treasury said. “Consequently, the minister of finance has not approved the proposed amendment to the transaction structure and has instructed SAA that they must implement the transaction structure in line with the approval that had already been granted.”
As the Mail & Guardian reported last week, SAA was seemingly being steered towards a debt mountain by SAA chairperson Dudu Myeni’s insistence on overturning a R9-billion deal with Airbus that the treasury had already checked and approved.
Finance Minister Nhlanhla Nene last year took over responsibility for the state-owned airline and his handling of Myeni – who is considered to be close to President Jacob Zuma – has drawn a great deal of interest.
As M&G reported, the A320 contract, first negotiated in 2002, lumped SAA with an obligation to buy 10 outdated aircraft it doesn’t need.
The contract also made provision for predelivery payments, some of which SAA has paid, whereas others – including the $17-million – are overdue.
The swap deal would have entailed swapping out the existing contract for one where SAA would instead enter into operating leases on five A330-300s. These aircraft would be deployed to phase out an inefficient and costly fleet and was expected to result in cost savings.
In addition, Airbus would have paid back unspent predelivery payments to SAA and waived the new ones. Nene confirmed his approval of the transaction in September.
But then in November the SAA’s barely functional board, headed by Myeni, moved the goal posts, seeking to amend the transaction structure even further.
“The transaction proposed entailed SAA purchasing the A330 aircraft and entering into a sale and leaseback of the aircraft with a local lessor so that the lease would be denominated in ZAR [the lease with Airbus would have been denominated in USD],” treasury said.
Meanwhile, Airbus agreed to defer the obligation to settle the predelivery payments until 21 December.
Because this transaction could have a material impact on SAA’s financial position, failure to conclude it was preventing the finalisation of SAA’s 2014-2015 financial statements, the holding of the annual general meeting and the tabling of SAA’s financial statements in Parliament.
The national treasury said in its statement that assessments indeed indicated that possible benefits may be realised through entering into a rand-denominated lease. However, the lease rates were speculative given that SAA would still have to go through the tendering process for a prospective lessor.
“There was a risk that once finalised, the terms may prove to be more onerous than assumed by SAA in the submission.”
SAA indicated that the revised transaction would include an arrangement that the local leasing company be expected to pay the $100-million in predelivery payments due to Airbus.
But given that the tender process still had to be initiated, “there was considerable risk that no such arrangement would be in place by the time that the contract with Airbus must be concluded”.
With no lessor identified and payment becoming due, SAA would be expected to make the payments. If it were unable to do so, cross-defaults would be triggered on SAA’s guaranteed debt obligations as well as other leasing arrangements.
“A default by SAA would have severe negative consequences for SAA and could have spillover consequences for the country as a whole. Specifically, it would negatively impact on government’s capacity to deliver on its social and developmental objectives,” treasury said.
Much has been speculated in the media about who stood to benefit from the last-minute new deal.
Last week the M&G cited an insider who said Myeni’s claims that she wants localisation and transformation are a “smokescreen”. In a letter to the board, seen by investigative journalism centre amaBhungane, Myeni said: “There has been a development in which a South African third party has indicated that it wishes to make a funding proposal … This consortium comprises both private and state-controlled financial institutions … The board needs to determine whether this might be in the best interests of SAA, and how best we can reduce costs with the current proposal.”
Treasury ended its statement with a warning that, should SAA conclude a significant transaction with Airbus or any other party for which the airline has not received approval, this would constitute an act of financial misconduct that could be grounds for sanctions against the board.