South African Airways Corporate Plan & Turnaround Strategy with Finance Deputy Minister

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Finance Standing Committee

17 May 2017
Chairperson: Mr Y Carrim (ANC)
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Meeting Summary

The Deputy Minister of Finance, Mr Sifiso Buthelezi, spoke of the challenges at SAA, but that there was a belief that the airline could be returned to profitability. National Treasury had had to give a guarantee of R4.72 billion to ensure that the challenge of SAA remaining a going concern was attended to in the 2015/6 annual financial statements. SAA had now R19.1 billion in accumulated guarantees by government.

He had not previously known, and it was a worry to the Ministry and National Treasury, that SAA had R1.5 billion cash trapped in several countries that it was unable to repatriate to South Africa. This impacted negatively on its cash flow. Amongst the countries holding cash were Angola, Senegal, Nigeria and Zimbabwe. He confirmed that National Treasury was looking for an equity partner for SAA, looking at both private and public investors, so that Treasury could deal with the financial state of the company. The Public Investment Corporation (PIC) was an option as an investor. There was also the question of the merger of SAA and SA Express. SAA had a cash burn rate of R250 million per month. The loss was bigger with each financial report. The latest was a R4.8 billion loss after tax compared to a R1.68 billion loss after tax the previous year.

The SAA Acting CEO said the Board had engaged with various stakeholders, including the lenders, and had held a two-day strategic planning session in December where they defined five strategic pillars. They had appointed a Chief Restructuring Officer to assist executives with the development of the Turnaround Plan. SAA's financial rescue plan includes the merger of SA Express and SAA, the recapitalisation of SAA and finding an equity partner.  The Acting Chief Financial Officer of the past 15 months had been appointed as CFO and they were interviewing for a CEO.

The Committee asked exactly what the Board was “doing differently” that would bring about a different result. They commented that there seemed to have been improvements but the results were worse. They asked about the cost of consultation fees for the turnaround strategy.

The DA took issue with the prospect of the PIC, the asset manager for the Government Employees Pension Fund, investing in a loss-making company. They were terrified at the idea of pensioners’ money being put into SAA which was increasing its losses. The ANC supported the potential investment by PIC, but noted that the SAA had to become profitable or the unions would be up in arms.

A discussion on black economic empowerment revealed that only two percent of the SAA R24 billion procurement budget went to black business. The SAA Board revealed that most aircraft in the SAA fleet were sold to international companies and leased back to SAA. The Board wanted black industrialists to form a consortium in South Africa to buy aircraft and lease to SAA as SAA needed to move from trading mostly in dollars to trading more in rands.

The Committee adopted its report on National Treasury’s Annual Performance Plan and Budget.

Meeting report

Opening remarks
The Chairperson suggested that some aspects of the Shareholder’s Compact with SAA had to be made public. The Committee wanted to know what the criteria in the Shareholder Compact were so that the Committee could hold SAA to account for the targets that they had set. What was the corporate strategy and where was the turnaround strategy?

Deputy Minister of Finance comments
The Deputy Minister of Finance, Mr Sifiso Buthelezi, made opening remarks, noting, jokingly, that the report should have been presented while he was still sitting on the other side of the floor as an MP, as it was a difficult report.

He introduced Mr Dondo Mogajane as the Acting Director General at National Treasury. Treasury was in the process of holding interviews to fill the DG position as a matter of urgency. When the new political heads had arrived, it had been a very soft landing as the Acting DG was there to give them a complete understanding of the issues, particularly with the national carrier. They had also had interaction with the former Minister, Mr Pravin Gordhan, to ensure that there was a smooth transition. The Ministry and the Portfolio Committee on Finance had been saying that the appointment of a CEO was a matter of urgency in any department so they were leading by example, as they did not want a vacancy at senior level at National Treasury. It was important for the markets to know who they were dealing with. They had conducted the interviews for the DG the previous day and would make the appointment by the end of June. It was important for everyone to know that they were dealing with very good and competent candidates who knew exactly what had to be done.

To touch on key issues, the Committee knew that the SAA 2014/15 and 2015/16 annual financial statements had now been finalised. There had been a question about SAA being able to continue as a going concern. National Treasury had had to give a guarantee of R4.72 billion to ensure that the going concern matter was attended to.

Broadly speaking, the Ministry knew that there were challenges at SAA but National Treasury was determined to get the company back to a sustainable situation with its long-term strategy. There were a whole lot of other issues but Deputy Minister Buthelezi had to say that there was no finalisation on any of them. Amongst others was the question of the merger of SAA and SA Express. They were also looking at an equity partner to get some money into the company. There was commitment from the shareholder, that is, National Treasury, to recapitalise SAA. He had not known, and it was a worry to the Ministry and National Treasury, that SAA had cash of R1.5 billion, at the current exchange rate, trapped in many countries which they were unable to repatriate back to South Africa. Amongst the countries were Angola, Senegal and Nigeria and Zimbabwe. The money trapped there had affected the cash flow of SAA. The Ministry had asked Treasury and the SAA team to come up with a comprehensive way of how the money could be unlocked. The Minister of Finance would need to lead that process. As it might need a political process, they had tried to get help from the Department of International Relations and Co-operation (DIRCO). There were political considerations but they could not stop their attempts to get the money back. When the time was right, National Treasury would brief the Committee.

SAA Shareholder Compact, Corporate Plan and Turnaround Strategy
SAA Board chairperson, Ms Dudu Myeni, informed the Committee that the presentation would be made by Mr Musa Zwane, acting CEO at SAA.

The Chairperson of the Committee requested that Mr Zwane begin with the Shareholder Compact, the Corporate Plan and the Turnaround Strategy

Mr Musa Zwane, SAA Acting CEO, said the Board had engaged with various stakeholders, including the lenders, and had held a two-day strategic planning session in December where they defined five strategic pillars. They had appointed a Chief Restructuring Officer to assist executives with the development of the Turnaround Plan. The Chief Financial Officer had been appointed and they were interviewing for a CEO.

The five pillars were: liquidity, balance sheet restructuring, revenue enhancement, cost optimisation and strategy. With this they believed that SAA could reach financial stability. The long-term strategy was in place and it was sound. The Corporate Plan was intended to fill in the gaps and regain liquidity.

The CFO, Ms Phumeza Nhantsi, presented the need for cash management, management of macro variables, renegotiation of existing funding agreements, a contingency reserve and management of overheads. SAA had instated a cash conservation office to analyse all cash that the company was going to commit to. R4.7 billion had been approved for loan and they had been seeking funders and attempting to extend loans that were expiring in the short-term. However, the company could not focus only on finding funds from lenders, but should focus on revenue enhancement.

The five-year turnaround plan had been completed and was going through internal processes. It would be presented to the Board at the end of May. The plan would include how much funding the company needed to be sustainable.

The growth of revenue and root profitability lay in reviewing the network, scheduling and the fleet. The strategy looked at cancelling loss-making routes but they had to analyse past and future activity on the route. SAA was also looking at optimising revenue from cargo.

Ms T Tobias (ANC) was worried about the CFO’s presentation on liquidity. That was the key issue. If SAA was only curbing the cash burning, that was not a strategy. The CFO was presenting only what she had curbed. SAA could not depend only on lenders. The Committee was giving an early warning sign. There were other strategies beside cargo. However, the Committee did not want to micromanage with suggestions. She could not give suggestions as the limitation was that SAA would blame the Committee if those strategies did not work. The CFO did not need to bother about the balance sheet or profitability as that would correct itself over time. They needed to look at the routes. How was SAA going to create revenue growth? She wanted to know the main thing that SAA was going to do. Capital had been eroded, so what were they going to do to assist this, and not only by relying on lenders? The CFO had to focus on the role of SA Express. If it became a burden on their revenue stream, they would have to deal with it immediately. The repatriation of funds needed to be escalated, even by lobbying the President, if need be. Those countries were holding funds for which they were getting interest from a bank. Those countries would not release the funds until they had made the interest they needed to make. She felt there was “some movement” at SAA, albeit not at the pace that the Committee had wanted.

Mr A Lees (DA) noted that when the Board had been re-constituted in September 2016, the board chairperson had been kept on for 12 months to provide stability. Could National Treasury confirm that the plan remained unchanged and that the term of office of the board chairperson would end and that she would not be re-appointed to the board? He congratulated Ms Nhantsi on her appointment but as she had been acting for 18 months since November 2015, she was not new to the job. During her tenure as acting CFO, there had been the Airbus debacle that cost the then Minister of Finance Nene, his job. That Airbus deal had been justified by the Board at the time by a reference to the exchange rate. During that time, SAA had gone through the ill-fated BNP Capital which, it was reputed, cost SAA R50 million in cancellation fees. The question was why had Ms Nhantsi not argued forcibly against the Airbus deal and, if she had, why had she not told the Committee, and why had she participated in the BNP deal and left it to someone else to raise the alarm and get the deal overturned. Why had National Treasury decided to appoint Ms Nantsi given her history of involvement in the shady financial deals of SAA and the huge losses?

Ms Tobias raised an objection to the question as it was not on the topic that they were dealing with.

Mr Lees replied that the SAA board chairperson had raised the CFO’s appointment.

The Chairperson agreed and said that he could not stop Mr Lees from asking questions but felt that they should look where SAA had been and where they were at the present time. The presentation seemed more concrete than previously and there were glimmers of hope for the first time.

Mr Lees agreed to consider the Chairperson’s advice. In the presentation, he noted, the Committee was informed about the guarantees and the cash burn. The airline was insolvent as the liabilities exceeded its assets by R15.5 billion. It was continuing to run at massive losses. Of the accumulated total of R19.14 billion in guarantees thus far, R17.228 billion had been used to borrow and to keep the company afloat. What exactly were the details of what the Board was doing differently that would bring about a different result? There may have been improvement but the results were worse. The loss was bigger with each financial report and the latest was a R4.8 billion loss.

Ms Tobias interrupted saying that questions were to be confined to the corporate plan and the turnaround strategy. Members could not be allowed to ask other questions.


The Chairperson said that he had no right to stop Mr Lees asking questions. He was only the Chairperson of a Committee. He had not decided on the Rules but under his watch, the Committee would abide by the Rules. In an open democracy, one could not stop the opposition from doing its job, even if he did not agree with the subtext. He ruled that figures could only be dealt with under the Quarterly Report.

Mr Lees continued by asking if the Committee could have some indications of the consultants’ work, i.e. the scope of their work. What was the cost of the consultants, bearing in mind the concern when the Board was appointed that there was not an aviation expert on the Board? That became a problem if a missing expert on the Board was going to be replaced by consultants. Was there a deadline for when the consultants would finish their work? In the National Assembly on 10 May 2017, Minister Gigaba had pointed out that the equity partner for SAA could be a public partner, not necessarily a private partner. National Treasury had made it clear that there would be a re-capitalisation of SAA. He had the impression that the GEPF (Government Employees Pension Fund), through the Public Investment Corporation (PIC), would be investing pensioners’ money into the loss-making SAA. He wanted to know whether any investment of the GEPF funds, through the PIC, had been proposed. Had it been considered and, if so, what were the details? Could National Treasury confirm that if such a proposal was made by the SAA Board, that they would ensure that it did not succeed, and ensure that the money of pensioners was protected?

Mr D Maynier (DA) had a question about cost reduction. It was well-known that SAA was bloated, especially looking at the ratio of the number of aircraft to the number of employees. How many staff did SAA intend to reduce each financial year for the next three financial years? How many would be retrenched? This could not be dodged and the corporate plan had to deal with it.

The Chairperson asked if there were any deadlines for when the SAA merger would take place. Did SAA have a deadline for the equity partnership? He agreed there was a need for an aviation expert on the Board and the previous Minister had said that was to be done. He was not clear about the difference between the one-year corporate plan and the long-term strategy? What was the work of the restructuring officer?

The Deputy Minister replied that he would deal with questions relating to National Treasury. The decision to appoint Ms Nhantsi was a Cabinet decision. The Minister was not aware of the CFO’s “shady deals” but they were looking at people acting so when the Board recommended her, the Minister wanted to create certainty rather than have people in acting positions. He asked the Committee not to pre-judge her but to judge her on her KPIs. He pleaded with the Committee to give her a chance. The organisation was extremely challenged and he did not expect a perfect person but expected her to commit 100%, and the Board had to support her.

Mr Lees stated that at no stage had he accused the CFO of shady deals but she had been acting CFO when SAA was involved in shady deals.

The Deputy Minister said that he withdrew that part of his input. He had experienced long serving CFOs acting in a delinquent way and so he could not guarantee her conduct in the future but expected her to be alert to those things. The Minister agreed that there needed to be an aviation expert on the Board and that would be expedited. The sooner he got on board, the better.

Mr Dondo Mogajane, Acting Director General: Treasury, responded to other questions directed to National Treasury. On Treasury’s commitment to recapitalisation, he stated that National Treasury had made that clear. In the February 2017 Budget, the then Minister of Finance had made a commitment but had not put a number to it as it would unfold and numbers would come through the Adjustment Budget. Lenders were waiting to hear about government’s commitment. National Treasury would put a proposal to parliament and would consider injecting in the next financial year. Treasury had chosen to take a long-term view on SAA and where it should be going. Treasury’s response was to appoint Bain & Company to come up with a study that they could understand. Also, they supported getting Seabury Consulting on board to advise on the airline. Treasury believed that SAA was strategic. Treasury remained committed to the sustainability and viability of public companies. The five pillars presented a model of what sustainability looked like. Currently, they were looking into the right areas. Treasury was comforted. There was currently a Seabury report that talked to sustainability and other issues. Treasury did not have that report but they had the Bain report and they saw some green shoots. Once the Seabury report came through they could talk about the numbers for re-capitalisation. The report was to be presented on 30 May to the SAA Board.

Mr Mogajane said that the Minister had committed to having options for an equity partner, including a public partner. They needed to know what was available to SAA, including what options and possibilities there were. When he had talked to the seven lenders as a consortium or individually, he had told them that SAA was in for a long-term haul. But people were distracted by short-term issues. However, options were available, including the PIC, other lenders taking over the current debt, or repatriation of funds and a cost compression strategy. There was also the fact that it was a bloated airline. There might not be an opportunity to re-capitalise according to the quantum that they had as their approach was larger, including debt levels and reconsolidation. It had to happen. In terms of steps and processes, they could have a different conversation as it would be clearer and Seabury would have given options. He requested that the Committee support Treasury and the SAA Board in terms of the long-term view that had been taken to ensure that the airline was sustainable. If it was necessary to put money in, they would do so.

Deputy Minister Buthelezi confirmed about the repatriation of funds, they would go to the President if need be. They were talking about the Minister speaking to his counterparts in the countries where money was held. They need a comprehensive strategy. He did not want SAA to withdraw services, so he hoped that diplomacy would succeed. In the Ministry’s discussions with SAA, the matter had been escalated to the Board so that there could be reliability on payments and repayments. If someone came to SAA, they would be investing in SAA. Companies would take a look at their own investment strategy. Investors could be private or public or a combination, but they did not want to pre-empt the decision.

Ms Dudu Myeni, SAA board chairperson, welcomed the suggestions of Ms Tobias. The liquidity issue was troubling the Board. As the Board, they were continually looking to find sustainable ways to reduce the financial losses. The cost of doing business was too high and it had been analysed. They never seemed to get it right in respect of the questions that would be posed by the Committee. They could not rely on guarantors or on lenders who instructed SAA to do certain things by laying down certain conditions.

As the Board, what they were doing differently to bring the airline to stability was to look at the whole business to see what could be done. Even the turn-around strategy that had been done internally, was validated by the renowned aviation consultants, Seabury, and was approved by Cabinet. Seabury believed that the strategy was sound but they would fill in the gaps. Bringing in consultants was a cost, but no one had ever asked why SAA was continually losing money? Was it a norm? If they pulled out of a route, did the replacement airline also make a loss or did the replacement airline make a profit? Were routes the basis of the company’s losses? The answer was in the negative. SAA had pulled out of Beijing but had kept their slot in case the situation changed and they wished to return. They were continuously assessing the route performance. Liquidity really hinged on where they were losing money. SAA now knew where SAA was losing money and why. SAA had to take the recommendations of the consultants and apply the recommendations. She would be able to come back and say what they are doing. They had to know if non-repatriation affected other airlines globally, and if not, did SAA have the right agreements with IATA. SAA had appointed General Sales Agencies (GSAs) and SAA was asking for a list of the GSAs in various countries, including those to which SAA did not fly. How did they know that the GSAs were paying over the revenue from sales that they had made? What the Board was doing differently, was checking on the staff in countries where routes were cancelled. SAA had cancelled over 25 routes since 1994. Did SAA still have staff in places where routes had been cancelled? Did they have GSAs there?

Deputy Minister Buthelezi explained that the SAA board chairperson was giving an example of how the airline was leaking money.

Ms Myeni said that should there be any issue in relation to the CFO, the Board would deal with it. The Committee had dealt with the Airbus deal in the previous meeting so she was not going to discuss that. In 2015/16 SAA had embarked on a staff reduction process and many took packages. Seabury was part of the consultants that had recommended staff reduction the previous time in 2007, so SAA was handling it very sensitively. The merger of SAA and SA Express was a shareholder matter. Seabury was the SAA consultant but Bain had been engaged by Treasury.

The Chairperson said he had given the SAA board chairperson some latitude because of the importance of the strategy. There were too many questions from Committee members and answers were very vague. An answer had not been received to the question from the Committee about what was being done differently as a Board to change things. As Chairperson he was going to do his job and insist that SAA and Treasury answer each and every question specifically when they next came. At the next meeting, Treasury had to give five things that the SAA Board was doing differently. Compared with what the situation had looked like, there was a glimmer of hope but the Chairperson needed an answer to the question: how was it that the financial losses were greater in the current financials while it seemed that things were getting better?

Ms Tobias said that the five pillars seemed to be taking them forward but the next meeting was too soon for there to have been progress. She noted that other parties in the Committee had not focussed their questions on the key issues. They only asked about side issues. The only real issues were the five pillars and SAA needed to stop making a loss.

The Chairperson understood that the turnaround would not be overnight. That was a state-owned company and the ANC and the Communist Party had an ideological interest in getting a state-owned business to work. He required specific answers. He wanted a much more focussed approach. It was in the interest of the SAA board chairperson to co-operate. The questioning was done in a friendly, paternal spirit.

Mr Zwane, SAA Acting CEO, responded to the questions on the contract with Seabury. It would come to an end in July and had cost US$4.5 million. The Board had done things differently in that they had met, decided on a strategy, made appointments and they had not filled more than 500 positions in the last quarter as a step towards reducing the bloated labour, and they had made a dent in the finances.

The Chairperson agreed that cost containment was crucial but he did not buy that the first thing should be to fire people and to add to the unemployment rate, but to utilise them better. He informed the CFO that they wished her well but that she had to work ethically and should refuse to sign off anything that was not ethical. He agreed that the DA members were right in that the CFO had been part of the management team when certain shady deals were undertaken. However, they were moving on and she would be judged according to the standards and ethics of any CFO.

Mr Maynier asked them to confirm that the PIC was a bail-out option for SAA. If that is what they are saying, he was horrified that Treasury would consider using pensioners’ money to invest in SAA, which had no prospect of becoming profitable. He found the prospect terrifying. Did the Corporate Plan contain a downsizing strategy over the next three years? If it did, by how much would staff be reduced and if not, why not?

Mr Lees asked for the cost of the Bain consultancy. Where did Abacus Advisory come from as it was mentioned in the Minister’s speech the previous day? He assumed that there had been a normal process for advertising for the CFO post. Treasury was to be congratulated on the changes that had been brought about.

Ms Tobias stated that in the corporate governance environment, a shareholder did not tell anyone who was going to be an investor and she was worried that certain Committee members misunderstood the role of accountability and where it was blatant fiddling by Parliament as to who could invest; it was not the Committee’s business. It was not the Committee’s role. She was subtly saying that she did not want to hear the other members of the Committee asking questions about the investors and the Chairperson should stop them asking the questions. She told the SAA Board in Sesotho that they were not to listen to those who wanted to tell them who could invest and who could not.

Ms D Mahlangu (ANC) asked whether the strategy would have job losses. The Committee did not want to see job losses but wanted the institution to be stable and feasible. Mr Maynier had not been in the Committee long enough to know that retrenchment had caused terrible problems in Minister Fraser-Moleketi’s time.

Mr Derek Hanekom (ANC) appreciated the presentation. He appreciated the glimmer of hope and comfort. He assumed that the details of each area would be elaborated upon. To identify the details of the strategy took time and it was a major step ahead. He asked that members did not interrupt when he spoke. He said that they had heard of progress at SAA, although they had not seen the Seabury report. He believed that getting in an investor was a good consideration. Despite Mr Maynier’s statement, he thought that the PIC might be a good investor. He could not work on the assumption that the SAA would always be a loss-making concern. Recapitalisation would come a lot easier once there was a coherent plan and strategy. The main intention of the national carrier was not intended to be making a profit. The national carrier had a significant purpose. Certain routes may be loss-making but there might be other benefits to the country, such as tourism from Beijing, and it was necessary to look at routes in a more nuanced approach. The modelling had to be more sophisticated. A turnaround was necessary and the losses could not continue but there needed to be a broader view. Downsizing should be avoided and the only way to avoid downsizing was to do more business so that they could keep the staff and use them more fully, and even bring on board more staff. It was necessary to see the situation as an opportunity.

Deputy Minister Buthelezi said that the crispness of answers required was welcomed but they were working towards perfection. SAA had taken an approach of natural attrition. They had already not filled 500 jobs. They were not going to chop the heads off the workers who were soft targets. If SAA did that, Parliament would need to increase the social welfare budget, stability would be negated and investors wanted stability, as did travellers on the airline. He asked Mr Maynier to agree that they would cut the fat, where necessary, but to take a holistic approach. Other cost saving measures had been taken, but to take an economic approach, too many job losses affected the ability to deliver, PAYE decreased and consumption decreased. Job losses could have a very long-term impact on the airlines but more so on Treasury. Regarding keeping routes, they did not want other objectives to distract them from their strategy and to use something such as the retention of a loss-making route for strategic purposes to become an excuse for not reaching a better financial standing. He was aware that that they had to balance the value to the economy, even if a route was loss-making.

Mr Mogajane, Acting DG, explained that Abacus was part of the Bain consultancy. A draft report had been presented. They had spent R10 million on the consultants. They had met the previous night to start looking at the strategy and how it would be presented in the report.

Ms Myeni, SAA board chairperson, responded to Mr Hanekom. It was necessary to grow the business. In previous meetings, they had discussed the need for SAA to make a profit. She appreciated him talking about policy decision issues. SAA was taken out of Transnet but why was it put in a particular space? Was it for strategic purposes or just to make a profit? Other airlines were taking SAA’s space. With the growth in the country, other airlines were taking the profitable routes. A policy discussion was required about giving away routes that were benefiting their opponents. What were other airlines doing better? What were the reasons for other airlines having cheaper tickets? Was it the number of people involved or was there a government subsidy? For example, in Ethiopia, a flight could not fly beyond the hub unless the airplane was the national airline. She would like to see SAA performing better and they were working towards it. The CFO had been appointed via the internal policies and advertising, and the current CFO had applied. There was no automatic elevation.

The SAA Acting CEO stated that the process of downsizing required consultation and they could not give numbers until after analysis.

The Chairperson indicated that they would not go through questions for which written answers had been received. Committee Members could not only ask question but also give suggestions. He was acutely aware about how long it took for officials to write answers. Members had to make suggestions and not just ask questions. The DA should not carp on and on. The Committee needed help on equity and partnerships and getting numbers. The DA had more research staff than the ANC. Privatisation of SAA was not going to happen, at least not until after 2019, so the DA members should use their skills to help the Committee to put things right in SAA.

SAA Financial Performance for the Year ending March 2017 Group Income Statement.
The CFO, Ms Phumeza Nhantsi, presented the report. The company had posted a loss of R1.6 billion in 2016/17 compared to a loss of R523 million in the previous year. After tax, the company had posted a loss of R4.7 billion compared to a loss after tax of R1.68 billion the previous year. The poor results were a consequence of a decline in revenue, an increase in costs, increased finance costs and an accounting anomaly stemming from the foreign assets as a result of the Rand strengthening. SAA had more foreign assets than liabilities.

Growth in revenue had been 1 percent in the past three years but domestic revenues had gone down as a result of the direct flights by external airlines to Durban and Cape Town. Passenger numbers had declined by 2% (7% compared to budget). Costs had increased. Major contributing costs were jet fuel, labour and aircraft maintenance, and navigation and landing. The numbers were not yet audited.

Mr Lees wanted to know about the guarantees as SAA was not making a profit but trading at a loss. Loans to an amount of R8.9 billion were due for renewal. He understood that the lenders were being asked to extend loans but the four SA banks were getting edgy about the general financial situation in the country. Calling in those loans could put a demand of R9 billion on the fiscus of South Africa. He had been unable to get copies of the 16 or 17 controversial reports that the previous Deputy Minister had committed himself to provide. He had submitted an application to Treasury but the day before Treasury had stated that the reports would not be given to him. He could only conclude that there was something sinister and that they contained something controversial.

The Chairperson asked if there were some reports that could be released as they were not too controversial. The Constitution gave people rights to see information. He asked what could be so controversial that they could not be released. He asked SAA to release the documents as it would be too costly to go to court over something that should be made available, at least to the Committee.

The Deputy Minister agreed that he had previously supported the release of the report so he would check why Treasury had not released the reports.

Mr Maynier welcomed the decision about the investigative report. He had also been informed that there was an investigation by the Hawks into the profitability of SAA. He asked the Board if the report was correct.

Ms Myeni, SAA board chairperson, said that the Hawks had written to the Board and asked about certain cases that had been reported to the Hawks. She did not know who had reported the cases to them. It was not at the behest of the chairperson as the SAA board was considering the losses of the company, not the behaviour of individuals. She did not know who had requested the Hawks to investigate.

The Chairperson spoke of the two percent paid to black suppliers. He was told two percentage of the total procurement budget could be misleading because of the procurement of Airbus and other aircraft and so on, from international companies and which probably could not be supplied by black people. What percentage of the remainder of procurement went to black-owned suppliers?

Ms Tobias spoke about not needing to sing the song that South Africa had only four banks, and so on. Perhaps in 40 years South Africa might have such intellectual property as they had had with the Rooivalk. In the future, it may be that South African blacks could produce frigates using their own intellectual property. Transformation should not be about who supplied ‘vetkoek and koeldrank’ on the flights. When SAA responded with their 30-year plan, that should look at starting to manufacture small jets such as De Havilland building up to large planes like the Boeings. It would be a contested terrain and people would be told that they could not do it.

The Chairperson wanted a focus on the matter of black procurement in its third quarter meeting with the Committee. To what extent was transformation part of the strategy for SAA?

Deputy Minister Buthelezi asked SAA to report on how much they had spent on empowerment. They could explain about the percentage that could not go to black suppliers. It would be hypocrisy for government to want private businesses to transform while state entities did not support blacks.

Ms Myeni, SAA board chairperson, stated that two percent of the R24 billion procurement budget went to black business; 98% of that went to large business or historically advantaged persons. In May 2015, they had embarked on a plan to increase the procurement from black business but they had not made significant impact. When they embarked on the process of engaging with potential suppliers from black business, SAA had explained to black businesses how they could tap into the SAA supply chain. The Board had determined that they would not put new money into transformation. They would use the very same R24 billion, but include new suppliers. They wanted to include people who had not been participating. Aircraft were sold to international companies and leased back to SAA. SAA was locked into that, but it could change.

She said the Board wanted black industrialists to form a consortium in South Africa to buy aircraft and lease to SAA. SAA needed to move from trading in dollars to trading more in rands. Most contracts were extended and not advertised. That needed to change. The Board did not deal with procurement but provided general policies and stating what was expected in transformation. The first move to black empowerment was the supply of jet fuel as SAA spent R10 billion on jet fuel per annum. They had attracted some suppliers that were currently supplying small aircraft, airlines or entities. They were well received when they asked oil majors to give 15% of the business to black businesses.

Ms Tobias suggested a joint meeting with the Portfolio Committee for Trade and Industry because they could help to facilitate this process

Ms Myeni, SAA board chairperson, said there was a delay in transformation because it was not possible to transform an ailing airline as they could not add additional funds to involve additional people in the supply chain. She did not know why transformation was not happening. SAA had simplified the form for suppliers to get into the database, while keeping it within the rules of aviation. They had small consumables supplied by blacks, but they have not found black people doing baggage handling, or black suppliers of tyres, of which they use many, many. All contracts were month-to-month or extended on a month-to-month basis. They needed to do an analysis of what it was costing to have contracts like that.

The Chairperson indicated that the Committee would discuss black empowerment at the next meeting, but have a full focus on black empowerment in the third quarter as the Committee needed an update on the corporate plan and the turnaround strategy. The majority of the Committee did not believe that SAA should be privatised, but the company had to balance profit with national interest. Profitability only was not the criteria they should use. There was a need for an equity partner. Those were complex matters but it had been on the agenda and needed to be moved forward rapidly. The Committee needed a report on the equity partner at each meeting. The merger also required quarterly reports. The PIC was a good option for the majority party but they had to be prudent or the unions would be up in arms; but as SAA became stronger it would become a better investment opportunity. The Committee required regular reports on the corporate plan, the turnaround strategy and the shareholder compact. The majority party in the Committee - the DA did not agree fully– was that there was a long way to go for SAA but the problem was also that of the Minister as the stakeholder, as well as the Committee, which had to give input, preferably of a technical nature. The Chairperson believed that it was the best report he had ever received.

The CFO asked the Committee to note that they were engaging with lenders on a weekly basis and that it was going well.

Committee Report on National Treasury Annual Performance Plan and Budget

The Committee considered its draft report on Budget Vote 7 for National Treasury the previous day. 

The Chairperson put the report up for adoption. He asked Committee members if all were in agreement with the report.

Members confirmed that they were in agreement and a proposer and seconder were called for.

Mr Lees proposed the adoption and the Report.

The proposal was seconded by Ms Tobias.

Meeting adjourned.

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