Aviation News

Corruption and mismanagement at SAA under the spotlight


A total of 84 South African Airways (SA, Johannesburg O.R. Tambo) contracts and 44 of its aircraft leases involving millions of dollars are being investigated by South Africa’s Special Investigating Unit (SIU) which probes corruption, fraud, and maladministration in state institutions.

The anti-corruption watchdog is also assisting with civil litigation on eight other cases being investigated by the country’s National Prosecution Authority (NPA) and Hawks directorate, an independent unit within the South African Police Service (SAPS) that investigates serious organised crime and corruption.

This was revealed on May 14, 2021, during an online briefing by SAA and its shareholder representative, the Department of Public Enterprises (DPE), to Parliament’s Standing Committee on Appropriations. A senior counsel has been appointed to deal with these matters. The SIU investigations have unearthed contractual irregularities such as inflated pricing; fronting; conflicts of interest on the part of SAA staff; fictitious vendors, work orders, and bank accounts; over-payments; non-delivery; and non-performance.

Amongst 12 high-priority cases under the spotlight is the procurement of Airbus aircraft, for which more evidence is being collected at this stage. The SIU in March told Parliament its investigations focused on allegations that SAA had entered into an agreement with Airbus for the purchase of 15 airframes for which payments had been delayed. Further new A320 narrowbodies were leased. However, due to the conduct of key officials involved, the delivery was delayed by four months and this had had a negative financial impact on the airline.

In 2015, former SAA chairperson Dudu Myeni – since declared a delinquent director – tried to introduce a third-party African leasing company in a Treasury-sanctioned deal between SAA and Airbus, to swop ten A320-200s, ordered in 2002, with five leased A330-300s. When then Finance Minister Nhlanhla Nene intervened, it famously led to his sacking by then-president Jacob Zuma in what became known as “Nene Gate”, events also since probed by South Africa’s Zondo Commission into state capture.

Another investigation involves the repayment of ZAR10 million rands (USD707,405) in fees plus interest by consultancy firm McKinsey & Company relating to a 2014 Working Capital Optimisation project it did for SAA with Regiments Capital, a firm owned by the Gupta family that was intricately involved in state capture. The case has also featured at the state capture hearings.

Other cases being investigated by the SIU include the recovery of ZAR78 million (USD5.5 million) relating to irregular processes in appointing service providers for the implementation of SAA’s turnaround plan; investigations into payments made to SAA vendors between 2016 and March 2018 (a total of 99 invoices exceeded the approved purchase order amount); the abuse of travel rebate benefits totaling ZAR600 million (USD42.4 million) in 2018/19; irregular aircraft tyre and paint contracts; the dodgy sale of ground power units; the suspension of a senior legal official following investigations over procurement processes for legal services; and the implementation of a 30% black empowerment supplier initiative for the supply and delivery of jet fuel.

The senior counsel is also looking to the civil recovery of ZAR300 million (USD21.2 million) and the setting aside of a lease contract which SAA in 2016 had entered into with start-up Flyfofa Airways for second-hand cargo charters. According to the SIU, irregular procurement processes were followed involving ZAR172.2 million (USD12.1 million).

“There has been a lot of mismanagement of certain procurement processes. We need to tighten them up and make sure that we monitor them adequately and hold those responsible accountable,” SAA’s new interim chief executive Thomas Kgokolo told lawmakers during the briefing. “SAA is putting mechanisms in place internally to ensure that we are clear about what costs we are incurring, that we hold people accountable for their spending, and for those who transgress policies there must be consequence management.”

In one of the first insights into SAA’s restart plan, Kgokolo said management was looking at “doing more with less”. “The key is to make sure that cash burn is kept to a minimum,” he stressed. Instead of getting into fixed-term aircraft leases, SAA was seeking “pay-as-you-use” arrangements. The airline would review its fleet and aircraft configurations to maximise market potential, he added.

He said the airline would look at leveraging the SAA brand and expertise to develop cargo routes in Africa. On the passenger side, the plan was to only fly domestically and regionally in the first two years, before considering international operations. He said SAA would only engage on profitable routes. A staff complement (reduced from 4,000 to less than 1,000) would be retrained to become multi-skilled.

SAA’s interim board chairperson, Geoff Qhena, said the airline was working towards a restart in July/August 2021, but this could be delayed further by a possible third COVID infection wave due to a slow vaccine roll-out in South Africa and delays in labour negotiations with SAA pilots.

Qhena appealed to the Appropriation Committee to release funds as soon as possible for SAA subsidiaries Mango Airlines (JE, Johannesburg O.R. Tambo), SAA Technical, and Air Chefs, warning “the state of our subsidiaries needs urgent attention”. He said the financial position of Mango was “very, very worrisome”.

A sum of ZAR2.7 billion (USD191 million), diverted from ZAR10.5 billion (USD743 million) set aside by the government for the restructuring of SAA, is to be allocated to the subsidiaries through a proposed 2021 Special Appropriations Bill. Of this, ZAR819 million (USD57 million) is earmarked for Mango, which Qhena said was insufficient to cover the airline’s liabilities. He said both boards of SAA and Mango were engaging with the shareholder on the best way forward.

Meanwhile, a new financial challenge facing SAA was the need to provide about ZAR1 billion (USD70.7 million) in cash guarantees to provide consumer protection across several jurisdictions. This was putting pressure on the ZAR2 billion (USD141.4 million) which had been ringfenced for working capital once the airline started flying again. This quandary resulted from the fact that SAA’s funding was concluded before National Treasury announced it would no longer provide guarantees to state-owned companies.

Acknowledging that securing a strategic equity partner for SAA was critical for its long-term sustainability, DPE Acting Deputy Director-General (Legal, Governance and Risk) Melanchton Makobe said the DPE was confident it would finalise discussions with an equity partner “in the next month”.


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