Business 14.7.2016 03:39 pm

SAA poised to tighten its grip on Mango

President Jacob Zuma with executive chairperson of the Jacob Zuma Foundation as well as chairperson of SAA Dudu Myeni. Picture: GCIS

President Jacob Zuma with executive chairperson of the Jacob Zuma Foundation as well as chairperson of SAA Dudu Myeni. Picture: GCIS

Procurement decisions to be referred to SAA committee.

Moneyweb has learnt that the South African Airways (SAA) board, under chairperson Dudu Myeni, has taken a decision that will see it tighten its grip on its low-cost subsidiary Mango and take charge of all large procurement decisions.

SAA failed to respond to questions Moneyweb posed to it on the matter and Mango responded: “at this time we would like to decline further comment”.

According to sources with knowledge of the matter, the SAA board in May decided to “discontinue the treatment of Mango as if it wasn’t part of the SAA group”.

This is a departure from previous practice that was based on a review by the Competition Commission (CompCom) prior to the inception of Mango, to guard against offending the Competition Act.

In a press release in 2012 that addressed allegations of uncompetitive conduct, then public enterprises minister Malusi Gigaba described Mango as “from day one, an entity operating independently from its Shareholder (South African Airways)”.

The SAA board allegedly resolved in May that all SAA members, including acting CEO Musa Zwane and interim CFO Phumeza Nhantsi, should be invited to attend the next Mango board meeting, scheduled for the end of this month.

It further resolved that all procurement transactions above the delegated authority of the Mango CEO (believed to be R25 million) should be referred to the investment committee at SAA for consideration and recommendation to the Mango board.

The SAA board further decided to have all policies, including the procurement policy, updated to reflect the new course of action.

Corporate governance expert of Ratings Afrika, Charl Kocks, says the question is why the SAA board has now decided to break with previous practice in this way. He says SAA directors attending Mango board meetings won’t have voting rights unless they become Mango directors as well. Their presence could however inhibit free debate and there is a risk of disclosure of sensitive information given that both airlines operate in markets that have some overlap, Kocks says.

Mango-SAA relationship

The SAA board decision comes as Mango founder CEO Nico Bezuidenhout leaves the low-cost airline after more than a decade, to join regional airline fastjet.

Bezuidenhout was earlier seconded to SAA as acting CEO and under his leadership substantial progress was made with the airline’s Long-term Turnaround Strategy. His relationship with Myeni apparently soured as she interfered with the plan and he was sent back to Mango almost a year ago.

Mango has been seen as successful – in sharp contrast with SAA that has been unable to publish its financial statements for the last two financial years, due to going concern issues.

Mango has been profitable in all but two years since it commenced operations in 2006.

Moneyweb has learnt that assets representing between R450 million and R500 million of its retained earnings are being held in the central SAA National Treasury-controlled account, while an additional R300 million is held in a separate Mango bank account to which SAA does not currently have access.

It is unclear whether the SAA board will allow Mango to retain this R300 million in its own account and SAA did not respond to specific questions in this regard.

The CompCom recently embarked on an investigation of the relationship between SAA and Mango and its impact on the market. This followed after SAA stated in June that “SAA materially contributed to the much celebrated financial performance of Mango Airlines and will continue to support the airline should the need so arise”. This, it said, was done through subsidised aircraft sub-leases to Mango.

SAA later back-tracked, but the Democratic Alliance nevertheless laid a complaint at the CompCom, that prompted the investigation.

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