Will Captain Gordhan steer SAA back on course?
AmaBhungane recently described how SAA chairperson Dudu Myeni grabbed the company’s metaphorical throttle, sending it hurtling toward a debt mountain.
The description was inspired by her 11th-hour attempt to restructure an aircraft deal with Airbus, risking a landslide of financial hell for SAA.
Former finance minister Nhlanhla Nene then tried to wrest control but was thrown from the plane by President Jacob Zuma, who hustled a new finance minister, Des van Rooyen, into the cockpit. Disastrous market turbulence ensued, and Zuma hauled out Van Rooyen and rushed in Pravin Gordhan, known for his firm economic hand. What has since gone on behind the cockpit door is not known – even as potentially disastrous deadlines loom.
Were Gordhan and Myeni locked in a frantic physical battle for SAA’s joystick? Was the minister trying to gently persuade the chairperson to let go? Will he succeed?
SAA did not respond to questions for this article, but a treasury spokesperson confirmed that Gordhan was in discussions with Myeni.
A woman in the French office of Hadi Akoum, Airbus’s head of African sales, told amaBhungane on Wednesday: “No, he is meeting with clients in South Africa. He is going to be very, very busy so you cannot disturb him today.”
Steering the airline through risky landscapes
Even if SAA can be steered off its current collision course, Gordhan and whoever remains in the cockpit must manoeuvre the airline through a treacherous financial landscape.
This was made clear in a devastating November memorandum, drafted by SAA legal head Ursula Fikelepi. It set out the company’s parlous financial position.
Business Day, Moneyweb and Media24 published the memo last month, but SAA obtained a court order forcing them to remove online stories. On Thursday the high court in Johannesburg set aside the order, freeing the media to publish.
The memo was drafted in the aftermath of Myeni’s October intervention in the Airbus transaction.
In 2017, SAA had been due to take delivery of 10 A320 narrow-body aircraft from Airbus, part of a legacy contract dating back to 2002, the memo explained. SAA had to make predelivery payments to Airbus in advance of delivery. More than a decade later, the terms had become onerous. Price escalations meant SAA was being forced to buy the planes at higher than market rates, fast eroding its already weak balance sheet, according to other SAA documents.
As SAA ran out of cash this year, it could not afford to make the payments to Airbus, some of which were already overdue. And for every month it was overdue, Airbus could set back the delivery date and charge interest.
The contract was one of the key factors driving the airline to bankruptcy. Arresting the situation was critical, sources close to management explained to amaBhungane.
“Worsening SAA’s going concern status”
So, in what managers thought was a coup, SAA renegotiated its Airbus deal. Instead of buying 10 A320s, SAA would lease five wide-body A330s from Airbus to service its African network. SAA would no longer have to buy a fleet it could not afford. More immediately, it would not have to pay outstanding predelivery payments, and Airbus would reimburse it for payments already made on planes not delivered.
The new deal was reviewed by the treasury, which was advised by Deloitte. Nene approved it in September. All that was needed was ratification by Myeni’s board. Instead, Myeni proposed an 11th-hour change. Thus the old deal remained in effect, and Airbus wrote twice in October to demand outstanding payment. It was these letters that precipitated the devastating conclusions contained in Fikelepi’s memo.
Airbus required SAA to pay $17?million immediately, and another $100-million within 30 days of signing any new agreement. But, Fikelepi wrote, the airline was running out of cash and could not meet the demand.
Even if it did not pay Airbus, SAA was in trouble. The airline still expected to be out of cash come November 30, and it could not pay its debts until it had raised further operational funds. She said: “There are also delays regarding the current funding process for SAA and worsening SAA’s going concern status.” Its latest financial statements had not been signed off by external auditors.
This was the financial disaster zone into which Myeni had blundered, forcing SAA into crisis.
Should Airbus issue a notice of default or seek to terminate the purchase agreement, it would trigger cross-default clauses on SAA’s debt obligations and other leasing deals, Fikelepi said. “If any one party takes action to enforce its rights, that could lead to action by other parties – and once such action starts, it can be very difficult to halt things and restore order.”
“I will not entertain any further discussions or applications relating to amending the transactions structure”
In a subsequent press statement, the treasury reminded SAA that its debt obligations were guaranteed by the South African government. So a cascading financial disaster at SAA posed a systemic risk.
Consequently, Nene turned down Myeni’s proposed new deal. Business Report quoted his letter to Myeni: “I will not entertain any further discussions or applications relating to amending the transactions structure.”
Zuma sacked him a week later and then sacked Van Rooyen too, after which Gordhan gave an assurance that Nene’s decision stood and promised to phone Myeni to begin talks.
He said individuals should stop “playing” with state-owned entities as if they were “toys”. He appears to be hoping to convince Myeni to abandon her fascination with toy aeroplanes.
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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.