In South Africa, fired finance minister has the last laugh

South African Airways (SAA) chairperson Dudu Myeni has officially lost her battle to reconfigure the airline’s Airbus swap deal, which could have threatened the financial stability of SAA.


SAA Airbus swap deal goes Nene’s way
South African Airways (SAA) chairperson Dudu Myeni has officially lost her battle to reconfigure the airline’s Airbus swap deal, which could have threatened the financial stability of SAA.

SAA informed the Treasury that the board approved the execution of the transaction as directed and a process is under way to conclude it within the next few days, Treasury said in a statement late on Monday.

READ: Treasury’s full SAA statement

Sticking to former minister Nhlanhla Nene’s approved plan from July this year, the transaction will see SAA swap the purchase of ten A320 aircraft for a lease of five A330-300 aircraft from Airbus.

The implementation of the deal in this manner will mean that SAA will no longer be required to pay additional pre-delivery payments to Airbus, which would have amounted to about R603m.

The SAA board conceded defeat to Treasury on Monday after Finance Minister Pravin Gordhan directed it to conclude the swap transaction with Airbus in line with approval granted by Nene.

After his appointment, Gordhan gave SAA an opportunity to make further representation, following which he decided that the airline must go ahead with executing the A320/A330 swap as had been approved by Nene, Treasury said.

Treasury in contact with Airbus

Treasury has also been in direct contact with Airbus to ensure that all the required actions are executed smoothly to conclude the deal, it said on Monday.

“Airbus has indicated that they are amenable to the implementation of the transaction and have required that all legal documentation be in place by 28 December 2015,” said Treasury. “The National Treasury will work closely with Airbus and SAA to finalise the swap transaction.”

“Also, as the airline takes delivery of each of the A330s, the pre-delivery payments that have already been paid, which total just more than $100m, will be refunded by Airbus.

“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 totalled in excess of R1bn.”

“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,” Treasury said.

Fallout from Airbus deal

Nene fell out with Myeni over the deal, with the former minister adamant that the deal continue as approved in July. Myeni and the SAA board wanted to amend the transaction to allow SAA to purchase the A330-300 aircraft and enter into a sale and lease back deal with a local lessor/s.

Having studied SAA’s proposal on the matter, Nene told SAA on December 3 to implement the transaction structure in line with the approval that had already been granted.

The SAA board allegedly ignored this request and on December 9, President Jacob Zuma – Myeni’s close friend – fired Nene and replaced him with the somewhat unknown MP David van Rooyen. Four days later, that changed too, with Gordhan rescuing Zuma from an economic crisis.

The Airbus deal was the first major test for Gordhan since returning to Treasury last week.

The deal, which was originally struck in 2002 and renegotiated in 2009, required SAA to make pre-delivery payments of $40m (R603m) on new Airbus aircraft by Monday.

SAA would have been relieved of this obligation under the “swap transaction” negotiated by Treasury during former minister Nhlanhla Nene’s tenure.

But after the SAA board failed to ratify the deal (until Monday), and Myeni proposed a new structure, SAA was once again liable for the $40m.

Nene’s axing is widely believed to be connected to the Airbus deal – a claim the presidency denies – after he rejected Myeni’s proposal and issued a stern instruction to SAA to go ahead with the “swap transaction”.

Last Monday, Gordhan promised to “stabilise SAA”, and said he would call Myeni within 24 hours as one of his first orders of business.