Gordhan gets his way

National Treasury says the board of South African Airways (SAA) has approved the implementation of the so-called “swap transaction” with aircraft manufacturer Airbus. This means the board will implement the transaction by December 28, thereby averting a financial catastrophe that could have forced SAA into business rescue or even liquidation.

The swap transaction was approved by National Treasury in July and signed by SAA officials, but in August the board decided against ratifying it. Under the leadership of board chairperson Dudu Myeni the board proposed to rather buy the aircraft and then sell and lease them back from a local supplier. Airbus in October notified SAA that in the absence of the conclusion of the swap transaction – that would have replaced an earlier aircraft purchase agreement – it would be held to the obligations of the original purchase agreement.

In a legal opinion, SAA head of legal matters Ursula Fikelepi stated that it could force SAA into business rescue or even liquidation. On December 3 former finance minister Nhlanhla Nene instructed SAA to revert to the Treasury-approved swap transaction. Days later President Jacob Zuma removed him from Cabinet – a step widely seen as a reaction to his decision on SAA. Zuma is close to Myeni, who is the chairperson of the Jacob Zuma Foundation.

After extreme market and currency movement in the wake of Nene’s removal, Zuma replaced the newly-appointed finance minister (relatively unknown ANC MP Des van Rooyen) with Nene’s predecessor, Pravin Gordhan. Airbus gave SAA until December 21 to revert to the swap transaction.

While Gordhan after his appointment stated that Nene’s SAA decision stands, all eyes were on the board to see if it accepted Gordhan’s authority. On Monday night National Treasury said: “SAA has informed the National Treasury that the board has approved the execution of the transaction as directed and a process is under way to conclude it within the next few days. The transaction will see SAA swap the purchase of 10 A320 aircraft for a lease of five A330-300 aircraft from Airbus.”

National Treasury said the implementation of the deal “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.

“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, 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 … 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.”