Nene’s decision on SAA stands

A DEAL to rescue South African Airways from having to pay more than R600-million in penalties and a further R1-billion in future was announced late last night by the national Treasury. The agreement to lease five Airbus jets under a deal originally signed off in July, scuppered plans by airline chairwoman Dudu Myeni for a sale and leaseback arrangement via a third party. Former finance minister Nhlanhla Nene fell out with Myeni over the deal‚ with Nene adamant that the deal continue as approved in July. He was fired by President Jacob Zuma – Myeni’s close friend – amid the turmoil, with grave economic and political consequences. The final undertaking was concluded only hours before penalty clauses totalling many millions, would have come into effect late last night. The transaction will see SAA swap the purchase of 10 A320 aircraft for the lease of five A330-300 aircraft from Airbus. According to the Treasury, Airbus had requested that all the required legal documentation be in place by December 28. The Treasury said: “The implementation of the deal in this manner will mean that SAA will no longer be required to pay additional pre-delivery payments [PDPs] to Airbus, which would have amounted to about $40-million [R604-million].

“Also, as the airline takes delivery of each of the A330s, the PDPs that have already been paid, which total just more than $100-million [R1.5billion], 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 R1-billion. “The implementation of the transaction will therefore, improve the airline’s financial position by alleviating the cash flow pressure and improving its profitability,” the Treasury said. “Further measures will be taken next year to stabilise the airline.” The saga went back to 2002 when SAA entered into a purchase agreement with Airbus to acquire A320s, observers said last night. But the agreement proved financially onerous to the airline. In April this year, the SAA board applied for approval from Nene to cancel the purchase of the 10 A320 aircraft from Airbus and, instead, enter into an operating lease on five A330-300 aircraft with Airbus. In July, Nene approved this request. Then, last month, SAA applied for permission 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.

But on December 3, Nene decided not to approve the amendment asked for by Myeni. Nene stressed that the terms of the leasing transaction remained speculative.

Further, there was considerable risk that the leasing arrangement would not be in place by the time the A330 purchase contract was concluded with Airbus, at which point SAA would be required to pay $100-million (R1.5-billion) in PDPs. SAA was instructed to implement the transaction structure in line with the original approval. After Nene was fired by Zuma – believed by many to be as a direct consequence of his refusal to amend the deal backed by Myeni – new Finance Minister Pravin Gordhan decided the airline must go ahead with executing the A320/A330 swap as had been approved in July.