R10bn contract behind the dogfight at SAA

A huge South African Airways tender, worth at least R10-billion, appears to be at the heart of the destructive battle to control the airline's board and executive.

And questions have been raised about how an extraordinary meeting held in Johannesburg at the Saxonwold compound of the Gupta family – involving the airline's acting chief executive as well as the special adviser to Minister of Public Enterprises Malusi Gigaba – fed into that battle.

SAA's management has been wracked by instability since September 2012, when the majority of the board, led by former chair Cheryl Carolus, resigned over a breakdown in its relationship with Gigaba. Chief executive Siza Mzimela and some of her key lieutenants followed in early October.

The Mail & Guardian can reveal that SAA's fleet committee selected the new Airbus A350 over Boeing's long-haul offering in a recommendation to the SAA board in late August – and that the outgoing board gave a nod to the choice.

SAA insiders say it is this decision that appears to have precipitated events that blocked the Airbus bid – and have left SAA's top structure in disarray.

"The previous board accepted the recommendation from the fleet committee," said one well-placed source. "That's when events started melting down – after the shareholder [the minister] was advised of SAA's view on the bids. There was a sense that the minister's office was quite shocked the process had progressed so far."

If the minister was surprised, he should not have been. The new fuel-efficient long-haul fleet was central to a detailed turnaround plan that Carolus's board had prepared.

High fuel costs are punishing SAA, especially in relation to the older generation Airbus A340-600s it has on an expensive long lease.


                                                                     Graphic: John McCann

Securing the right aircraft quickly  was key to the turnaround strategy.

According to an aviation source, the delay created by SAA's board upheaval means SAA has lost the production slot offered by Airbus during its bid. Now any new decision about the bids may be influenced by the consideration that delivery by Airbus could be up to a year later than initially planned.

Said an SAA manager: "If you look at what's happened, you have to ask yourself if we would have had such big problems if the ministry had concurred with the choice of Airbus."

The minister's version
Department of public enterprises spokesperson Mayihlome Tshwete said the "reality" was that the Carolus board "only met 30% of its key performance indicators, the most important of those being financial management".

He said the department had not seen a "detailed turnaround" plan.

Tshwete confirmed that the fleet committee had made a recommendation to the board to procure from Airbus, but denied that the minister was aware of this preference.

"The department was concerned that there was no long-term strategy that had been shared with it that informed the fleet renewal programme," he said.

"This is the reason that the programme is being revised: to be aligned with the long-term strategy that is being developed."

But the ministry's explanation why the procurement process was placed on hold is called into question by allegations of a disturbing pattern of interference in procurement matters – and by the events surrounding the arrival and sudden departure of acting chief executive Vuyisile Kona.

The Gupta factor
The Sunday Times this week revealed detailed allegations about the meeting held at the Saxonwold compound on October 29.

Kona, who had previously left SAA under a cloud but had been enthusiastically endorsed by Gigaba and brought back as chair of the board when Carolus left, attended the meeting. At the time of the meeting Kona was in a very powerful position because, as both board chairperson and acting chief executive, the separation of powers at the airline had in effect disappeared.

Siyabonga Mahlangu, the special legal counsel to Gigaba, had invited Kona to the Gupta meeting.

Gigaba's friendship with the Guptas is well known, but according to a source familiar with the ministry, Mahlangu is a power broker who is also close to the family.

Responding to a question about the frequency of the special adviser's meetings with the Gupta family, Tshwete answered with a question: "Mahlangu wouldn't be able to provide you the number of times he meets other business people, why is this different?"

Also present on October 29 were Rajesh "Tony" Gupta, the most unctuous of the Gupta brothers, as well as President Jacob Zuma's son Duduzane and the son of Free State Premier Ace Magashule, Tshepiso.


The Airbus A350 was selected by SAA's fleet committee over Boeing's long-haul offering in a recommendation to the national airline’s board in late August. (Stephane Mahe, Reuters)

Tony and Duduzane are directors of Mabengela Investments, and Tshepiso lists Mabengela as his employer.

Empowerment deal
Mabengela appears to be the vehicle for the Zuma family's empowerment by the Gupta family.

Mabengela was to have been the vehicle for Duduzane's share in the aborted R9-billion ArcelorMittal empowerment deal and it owns the R4-million Saxonwold house where Duduzane reportedly lives.

Another Gupta company, Confident Concept, owns a Saxonwold home worth R3.2-million, where Magashule lives.

Neither Duduzane nor Tshepiso could be reached for comment this week.

According to the Sunday Times Tony made an offer to make R100 000 available to Kona and then upped it to R500 000. The report didn't specify what the money was for, but said Kona refused and later spoke to board colleague Dudu Myeni about the meeting.

Both Mahlangu and a spokesperson for the Gupta family said the meeting was about how various companies that the Gupta family controlled could switch their corporate travel business to SAA and that nothing unlawful was discussed.

Gupta group spokesperson Gary Naidoo said they had issued a demand to the Sunday Times for a retraction and apology.

Given that the Guptas' Oakbay Investments owns just under 5% of SAA's rival Comair this explanation is barely credible.

A senior source at Comair confirmed that Atul Gupta was still on the board and that if there was any intention to transfer business away from Comair "we would have heard about it".

Stranger still was a text message that Mahlangu sent to Kona on November 27 last year in which he reportedly told Kona: "Uyangithengisa [you are selling me out]. Why did you let her know that u knew where she was going. U will compromise the mission."

Mahlangu, through Tshwete, told the M&G: "The attempt by the Sunday Times to draw a connection between this text message and their story about the Guptas is regrettable. It has no relationship whatsoever with such meeting."

He declined to answer questions about who "she" was, where she was going and what "the mission" might be.

However, this appears likely to be a reference to Kona's discussion with Myeni, who was appointed chairperson of SAA a week later.

Myeni did not respond to M&G questions, but an SAA source who has seen Mahlangu in action was in no doubt about a common sense interpretation of the message: "The 'mission' was clearly this contract, all of these contracts."

Shareholder interference
A range of sources with insight into the top structures at SAA said the relationship with the ministry became increasingly fraught over shareholder interference in procurement, though the ministry denies this. The same sources said that Kona acted like he was a man on "a mission" and demanded access to information about key, large contracts almost immediately after he arrived, in particular, the file on the fleet bids from Airbus and Boeing.

"He acted like an executive chair from day one," said one source.

That all ground to a halt not long after Mahlangu's November 27 text message.

By January 8 this year, Myeni, who is close to Zuma and chairs his charitable foundation, was installed as chair.

According to a report in Business Day, the SAA security department had also begun spying on Kona and would later send its reports to Myeni.

The board began overruling Kona over his negotiations with a minority union and over the appointment of two consultants.

On February 11, the SAA board announced a "cautionary suspension" of Kona as acting chief executive, pending an investigation into alleged contraventions of financial regulations.

Tipped off
The airline has declined to detail the nature of the investigation but, according to a source who has had insight into the dispute, the initial reason given was concerning a consultancy contract he had entered into with German airline Lufthansa.

Kona challenged the board after he was tipped off that a legal opinion on the Lufthansa contract had been doctored to justify his suspension.

On March 11, Gigaba removed Kona from the board, citing a breakdown in trust.

A source close to the process said SAA had offered Kona a settlement but had tried to insist the payment be held in trust for six months to make sure he did not talk to the media.

Kona is out of the country and could not be reached. His lawyer, Tando Ngeno, confirmed there had been settlement negotiations but would not disclose any details.

SAA has consistently refused to comment on the dispute.

This week, Naidoo declined to answer questions about whether there had been any contact with either Airbus or Boeing.

He said: "Oakbay and other companies owned by the Gupta family are private companies. Their dealings with other business entities are private for obvious reasons."

* Got a tip-off for us about this story? Email [email protected]

The M&G Centre for Investigative Journalism (amaBhungane) produced this story. All views are ours. See www.amabhungane.co.za for our stories, activities and funding sources.

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Sam Sole Author
Guest Author
Sam Sole
Sam Sole works from South Africa. Journalist and managing partner of the amaBhungane Centre for Investigative Journalism. Digging dirt, fertilising democracy. Sam Sole has over 17731 followers on Twitter.

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