SA Express irregular, fruitless & wasteful expenditure: hearing with Minister & Deputy Minister

Meeting report

Opening remarks
The Chairperson welcomed the Minister of Public Enterprise, Lynne Brown, and the Deputy Minister of Public Enterprise, Ben Martin. He understood that she would have to leave early but was happy that her deputy would be attending the entire meeting. He wished that all Ministers would follow the same process of allowing a deputy to substitute for a Minister who was unavailable. The Deputy Minister would be given time for political comments at the end of the hearing. The Chairperson reminded the Minister that South African Express was not much better but they were making progress, and had to avoid going “one step forward, two steps back”. There were a number of areas that still concerned the Committee. Making time to meet with SAX was part of the Committee’s commitment to getting things right. He asked that no one should waste time on generalities but provide specific and direct answers to questions. He explained to the SAX Board Chairperson, CEO and CFO that the Committee wanted details so that they could know the substance, not the form, as Marx had said. Substance was the details and the SAX leadership should know the details.

Hearing
Mr D Ross (DA) led the questioning and congratulated SAX on its service to passengers which he had personally experienced on the Bloemfontein flights. However, financially SAX was not out of the woods and there was a need to stem the bleeding. That was a massive challenge. He would interrogate SAX on the irregular expenditure so that they could find common ground. According to analysts and experts SAX still had to pass the solvency and financial liquidity test. He had read an article a couple of days previously stating that SAX was still in a financial crisis. He asked the Minister to please give an overview of why SAX was in a financial crisis. In 2014/15 the nett loss was R132 million, revenue was R2.6 billion and operating expenses were R2.6 billion. It was very close to breaking even. In 2015/16 there was an improvement and a profit of R60 million was recorded. That was due to extending the loan repayment which Mr Ross considered good business practice. To extend loans over a longer period and have a lower interest rate was good practice. So, why was SAX now in a financial crisis?

Minister of Public Enterprise, Lynne Brown, stated that the 2014/15 and 2015/16 results were a result of the austerity measures that SAX implemented. There was a big problem in SAX. It was a feeder airline with a small number of aeroplanes, the majority of which were leased. They had to recapitalise the aircraft and the purchasing of those aircraft. In the 2015/16 Annual Report, the Auditor-General had said that the shareholder had to step in to recapitalise SAX. There were a number of issues. SAX was a feeder airline to SAA and played a significant role in the development of routes connecting smaller towns. SAX went where others would not go but as soon as they went there, others came. The airline did not need to have a monopoly but the entry of new operators pushed down the cost of flights to smaller towns. Due to the old aircraft and the need to lease/buy newer aircraft, there were numerous problems. The other challenge was the way in which the airlines were structured as the business model for SAA, SAX, Mango, SA Airlink did not make sense. One codeshare, which sat with SAA, was used by all four airlines but all four flew the same routes. They had not been able to work out how to structure the routes so that there was some competition but that all four airlines did not compete for the same routes. As they were moving towards the optimal corporate structure for SAA, SAX, Mango and the government’s 2.5% share of SA Airlink, she had asked SA Express to revise its 2020 vision strategy to align it with the­ long-term airline strategy of SAA.

The Chairperson thanked the Minister. He noted that there was a great deal of information that could be shared but assured the Minister that the Deputy Minister would provide input later on if there were a need to take it up.

Mr Ross found it encouraging that the Minister had an open and honest approach but the financial problems were enormous. However, there were concerns about the shareholder stepping in for the guarantees required and the contingent liability that it would have for the state, especially as the fiscus was severely constrained at the moment. The current SAX guarantees from Government were R1.1 billion. The smaller airline, SAX, was a feeder airline with SAA as the bigger partner, but SAA also had a guarantee from the state. It was about R11 billion which was a massive amount. It had been decided that SAA flights from Johannesburg to Cape Town would be reduced by a third, flights to Port Elizabeth and East London might be abolished and flights from Johannesburg to London would be reduced from two to one flight per day. That had a major effect on the economy, it was bad for the image of the country and it was inconvenient for commuters. In terms of financing and getting the model right, it seemed to be extremely difficult. What would be the model for both these airlines? The family silver was being sold by selling Telkom shares to keep SAA in the air. Approximately R13.9 billion was required. If SAX was a feeder airline, Mr Ross was even more concerned. Where was SAX heading? What were the real options? Were there options in terms of privatisation? Those were the questions that needed answering before the Committee could get to the detail. The Minister was invited to comment on his remarks, especially in terms of the business model and the longer term strategy so that the Committee could at least know where SAX was heading.

Minister Brown responded that the longer-term plan was to have the three airlines in a holding company with a 25% shareholding. She reminded the Committee that South Africa was a long-haul destination so that they should be looking at a medium haul to help them do it. Banks had completed the business and financial modelling. The SAX Executive had been sitting with it, although the proposal had to go to the Ministers for approval. SAX was a development airline connecting smaller towns. SAA was a much larger airline and required a much larger guarantee and more finance. SAX wanted to recapitalise and had gone cap in hand to National Treasury. In the medium to long term, the airlines needed to be in the same stable to make decisions about which routes go where. SAX had to rationalise routes as some routes were not financially viable. That could mean that there would not be an aircraft on a particular route and those were the decisions that had to be made. There had been no attempt at all to privatise as SAX played too big a role to privatise the airline. It was the training ground for new cadets and aviation players generally. SAX worked where SAA would not go. She reminded the Committee that airlines belonging to the state, worldwide, were highly subsidised and so it was with SAX. Under the strained fiscus, South Africa was also highly subsidising its airlines. The answer was in rationalising and bringing in a 25% shareholder which would bring both funds and management.

Mr Ross commented that it was quite encouraging to hear the possibility of a private equity investment of 25%. South African Airways only owned nine out of the 50 aircraft that they used. He believed that most planes used by SAX were leased from an Angolan company. How many planes did SAX own and how many did they lease?

The Acting SAX CEO, Mr Victor Xaba, stated that SAX currently had 20 aircraft; three were owned by SAX, one had been written off as it was too old and the rest were leased from various leasing companies.

Mr Ross did not want to go into any more detail as SCOPA did not need to take over from the Public Enterprises Portfolio Committee, but he was concerned that the asset base was not very strong. The airline was highly dependent on the leasing companies. The Minister was very open and honest in saying that it was a highly subsidised industry but he wondered whether South Africa could afford a high rate of subsidy considering the low growth and the fiscal constraints.

Mr Ross noted the R16 million profit made. He noted that there was the irregular expenditure, i.e. where there was non-compliance with the Public Finance Management Act (PFMA), to the tune of R38 million. Did SAX agree with the figure?

The SAX Board chairperson, Mr George Mothema, stated that the amount was about R35 million. 

Mr Ross said that SAX had received a qualified report for the last four years and the audit findings seemed to be problematic. That was also the case in the 2016 audit report. Did they think that it would improve in 2017? Were they looking forward to an unqualified report in 2017?

The SAX CFO, Mr Mark Shelley, explained that the airline had moved from a disclaimer to qualified audit and was working to address the findings by the Auditor-General to secure an unqualified report.

The Chairperson asked whether SAX expected to get an unqualified audit in 2016/17.

The CFO was unable to say as they were still in the process of finalising the audit and it would be pre-emptive to say whether they would or would not get an unqualified audit.

Mr Ross noted that in 2014, irregular expenditure was R91 million but that had been condoned. He asked who had condoned the irregular expenditure. The Report stated in very small print that condonation was made by the relevant authority: was that the SAX Board, the Auditor-General or Parliament? What was the correct procedure? Mr Ross put it in context. In 2015, irregular expenditure was R20 million and R16 million was condoned. In 2016, irregular expenditure was R35 million or R36 million and R18 million was condoned. Who had condoned the irregular expenditure?

The SAX Board chairperson explained that, in terms of the procurement policy in operation at the time, the Board had a management process which involved a recommendation by the in-house Bid Committee to the CEO. They had a detailed breakdown of all the irregular expenditure in accordance with all the contracts that had been undertaken within management’s delegated authority. The policy had since been changed.

Mr Ross asked the Auditor-General whether the in-house condonations were proper or not.

Mr Naveen Mooloo, Senior Manager: Auditor-General South Africa (AGSA), replied that, in terms of the PFMA, the responsibility lay with the Accounting Authority of the entity but that the Accounting Authority could delegate appropriately to the CEO, in which case they would audit along those lines.

Mr Ross remarked to the Chairperson that the Committee would have to accept that.

Mr Ross asked for the reason for the expired contracts of R7 million. He asked why the contracts had not been renewed. Was it a question of incompetence or laziness or was it a result of ineffectual contract management? He also asked about the sanction and why there was no disciplinary action.

The Committee Chairperson asked why contracts had been allowed to lapse and whether anyone had been managing the contracts. Did they not have calendars?

The Acting SAX CEO explained that at the time SAX had not had a centralised contract management and procurement process.

The Chairperson responded that decentralisation was not a factor because the people were responsible wherever they were located. Why, when contracts expired, had they simply continued?

The Acting SAX CEO admitted that it had been an area of weakness but they had put processes in place to overcome the human factor with regards to not keeping focus on when contracts were due to lapse, and, more importantly, taking action before the contracts lapsed.

Mr Ross stated for the record that that was a very big oversight, a massive oversight, and it was incompetent financial management at that level.

Mr Ross returned to the question of disciplinary action. It was concerning to note in the Annual Report that there was no disciplinary action and he would like to know why. The Report stated that the mismanagement could not be traced to any individual. Were there no individuals answerable for the oversights? Were robots employed, or did they employ people as a collective? How come they could not trace an individual who was responsible for the oversight? Was there no consequence management or was there no management will?

The Acting SAX CEO confirmed that Mr Ross was correct and that there had been no consequence management.

The Chairperson found the response unacceptable. Why was no action taken against anyone? Why could they not find the responsible people or was there perhaps no management will?

The Acting SAX CEO agreed that there had been no management will.

The Chairperson wanted to know why no action had been taken.

The Acting SAX CEO replied that the view at the time was that the system was poorly set up. Individuals could not be held liable and the system had since been changed to enable stricter consequence management and for the human factor to be taken away. However, he agreed that it was not acceptable.

Mr Ross could not see a difficulty between people and a system. He declared that it was an oversight and the submission was not acceptable. He stated for the record that it was inappropriate, unacceptable and that there should be consequences in that regard.

Mr Ross turned his attention to the procurement processes not followed to the tune of R8.8 million. He noted that it was for the leasing of airplanes. There were apparently no tender processes. Was there a bidding process? What was the lease process if there was no tender process? Time was of the essence so if management knew they were going to ground their fleet, it could not have been an overnight issue. They should have known from the quality of the aircraft that they would be grounded at some time and SAX would have to lease another aircraft. What was the time span and was then not enough time for a tender process?

The Acting SAX CEO explained that the figure was for work leases. Charter aircraft were used where there was a shortage of aircraft available at the time to service the schedule. The schedule required X amount of aircraft to be flying per day per month per week. They reserved capacity by going into contracting for ad hoc contracts to have vehicles on demand or at specific times.

The Chairperson informed the CEO that he had been asked for an explanation of process, not an explanation of what had happened, which was an incorrect process. It was not the job of SCOPA to understand what he had done. Why were the lapses allowed to happen? The Executive could not explain their way into changing the audit findings. They were in a SCOPA hearing on the basis of negative audit findings. It appeared almost as if there was no sense of responsibility and that management could not understand the gravity of the situation in which they found themselves.

Mr Ross agreed with the Chairperson. He noted that it seemed that planes were chartered on an ad hoc basis. How could there be confidence in management at senior level, especially when condonations were made without proper procedure? R2.7 million had been condoned in-house as a result of tender deficiencies. It was unacceptable that those tender deficiencies had been condoned by management.

Mr Ross turned to the areas of irregular expenditure that had not been condoned. Who was responsible for procurement deficiencies of R362 000? No motivations had been received as to why the deficiencies had taken place and whether it was valid expenditure or not. He did not believe that it could be recovered. What was the appropriate disciplinary action and who was responsible in SAX at that time for the disciplinary process?

The Acting SAX CEO responded that at the time responsibility for disciplinary action lay with the previous CEO, according to the policy at the time.

The SAX Board chairperson added that someone had been disciplined in so far as it related to the irregular expenditure for the chartered aircraft. An employee had been disciplined. It had happened in the past couple of months as a result of all the irregular expenditure that the Board had discovered. In consultation with the shareholder, the Board had parted ways with the previous CEO so that they could introduce new management in order to get to the bottom of the matter.

The Committee Chairperson asked whether the previous CEO had deteriorated or had been appointed with those deficiencies. Had he been appointed following due diligence processes?

Mr Ross could not accept such a lean personnel structure with everything revolving around the CEO. Certainly, there was a disciplinary committee, a risk committee and an internal audit committee. He wanted more detail about responsibility and how the organogram worked. One person, the CEO, was responsible and he had left. Mr Ross did not buy it. He wanted the names of members of the Disciplinary Committee, the Internal Audit Committee and the Risk Committee.

The Acting SAX CEO replied that certain employees had been suspended and one had been disciplined and dismissed. The dismissal was related to chartered aircraft services. Mr Xaba admitted that these had not been in response to the previous audits but as a result of items that he had found since he had taken up the position of Acting CEO.

In response to Mr Ross asking when the Acting CEO had taken up his post and how long had the CFO been in his position, Mr Xaba said he had been appointed on 10 April 2017 and the CFO had been appointed on 1 October 2016.

Mr Ross stated for the record that an organogram and a proper structure were non-existent. Was he correct?

Minister Brown replied that the previous CEO was one of the few black experts in aviation but he was not a good manager. An expert in the area did not necessarily translate into good management. The Board was concerned and had taken a proposal to her a year previously and they had gone through a process after which it was decided that Board would not renew the contract of the then CEO. From Denel Aviation, they got the Acting SAX CEO who had aviation experience but better management skills. The Minister had met the executive and the leadership and she had appointed the Board. They had had serious problems, especially with leasing aircraft and consequence management. One case had gone to the Hawks after the appointment of the present leadership. The new Acting CEO had different aviation skills but could manage the airline.

Mr Ross noticed that there was massive irregular expenditure, and even more non-condoned massive irregular expenditure and that was even more serious. There had been no disciplinary action in terms of appropriate steps. There had been irregular expenditure with no action taken. He noted that a presentation had been prepared by the new management after the SAX Annual Report which was an improvement and gave hope and made much more sense.

In a response to a request by Mr Ross, the Acting SAX CEO gave a summary of the document that he had prepared. He said the intent behind the document was to link it to the audit findings of the Auditor-General in the financial statement. Areas that had been improved included strengthening the oversight of management and there had been a segregation of duties. The IT environment and the procurement section were reporting to the chief procurement officer. Those roles had been separated. Subject matter experts had been employed to lead those functions. Another improvement was the delegation of the authority framework with the inclusion of consequential management. The General Manager of each function was responsible for irregular expenditure but they had made each employee responsible for specific actions. Another key development was the centralisation of the procurement environment. Various people had had access to procure and were able to commit on behalf of the company. The ability to commit on behalf of the company was now centralised at the chief procurement officer level and at the CEO level. Another area of improvement was the delegation of condoning to board level with recommendations by the CEO, which increased oversight. SAX was also working on preventing irregular expenditure before it happened and not just after-the-fact. They identified typical root causes and removed those. SAX was linked to inefficiency in the environment of limited service providers, sometimes resulting in only one quote. The SAX procurement policy had been aligned to the industry within which it operated.

Mr Ross asked whether they had a bid committee, a risk committee and an internal audit committee. He remained concerned about the maintenance policy for aircraft on the ground. Safety was a critical aspect of airlines. Why did they not use SAA’s technical expertise to maintain aircraft? He believed that they had a problem with their own maintenance at SAX.

 The Acting SAX CEO replied that they had a unique model as they flew aircraft and then maintained them themselves. Within their technical department they had certified artisans and technicians who were certified for the type of the aircraft flown by SAX. SAA used SAA Technical and the certification of those technicians was for the type of aircraft that SAA flew. SAX operated two types of regional aircraft with seats of 30 to 96. Thus different certificates were required. The problems were not the maintenance but the age of the aircraft. Plans had been running from year to year in terms of re-fleeting. Most aircraft flown were between 20 000 and 30 000 cycles so they needed to re-fleet in order to alleviate the efficiency of the maintenance. Those aircraft had only another 4 to 7 years before they became middle-aged.

Mr Ross noted that SAX had admitted that maintenance could be improved. When would maintenance be restructured? Had they tried to engage with SAA Technical? Was there a problem in maintaining the aircraft at SAX? Was the budget proper and functional and were aircraft being maintained?

The Acting SAX CEO confirmed that all aircraft were being maintained. Finance was a challenge regarding spares for the aircraft. Spares had to be bought as capital items as they were high-value acquisitions. They needed to source funding to find spares. There had been an engagement, led by the shareholder, with a view to a working relationship between SAA Technical, SAX and Denel because the latter had technical expertise on typically military aircraft of different types. A PFMA pre-notification had been sent to the shareholder with a view to transferring SAX maintenance to Denel. SAX would transfer technical expertise into Denel and SAX would focus on flying the aircraft. He could provide a short-term improvement plan and a long-term plan on the transfer of technical expertise to Denel.

Mr Ross concluded his questioning by expressing his concerns about the model not being really structured, the future plans were not completely clear and there was a massive challenge in financing and re-financing the fleet and re-fleeting. He stated that the Committee might request SAX to appear again as it was a very important issue and it was important for the economy to get the finances right at SAX.

Mr E Kekana (ANC) indicated that his questions would firstly focus on administration and legal issues at SAX. He wanted to address the responsibilities of the Accounting Officer. He assumed that as the Accounting Officer, the CEO knew what to do when there was fruitless and wasteful expenditure. In terms of Section 38(1)(g) of the PMFA, the CEO was to report to authorities any unauthorised irregular expenditure. Was that done?

The Acting SAX CEO responded that it was only done at the end of the financial year.

The Chairperson took that to mean it was not done.

Mr Kekana said it was not done, if not done immediately. The role of the Accounting Officer was to prevent irregularities. Was he doing that?

The Acting SAX CEO replied that, with the strengthening of management oversight, it was being done.

Mr Kekana asked if it had been done in 2015/16.

The CEO replied that it had not been done in 2015/16.

Mr Kekana asked what should be done as he had violated the law. Should it be accepted that it was not done and that the Committee should simply proceed?

The Acting SAX CEO noted that it was unacceptable but it had been in the past and new management was in place and dealing with the issue. The Auditor-General had stated that there had been an improvement with the new management and that the shareholder had also ensured that there was adequate oversight of the organisation.

Mr Kekana asked if there would be an unqualified report going forward. The CFO had given a wishy-washy response.

The CFO apologised if that had been the impression created by his response but they had not seen the audit as the audit process had not been finalised and therefore they did not know if there would be an unqualified audit report.

The Chairperson explained that the CFO should reply that SAX had submitted a late and that would give the Committee proper context. Had SAX submitted late or had the Auditor-General delayed? It was not an open-ended process and by law the audit should have been concluded.

The CFO admitted that they had submitted late as they had had challenges in submitting by the 31 May deadline; and then the Auditor-General had had questions and they were now working towards the 31 August deadline.

Mr Kekana started with the three repeated findings by the Auditor-General in the 2015/16 audit report: current and non-current assets, the inventory, and the taxation effects. Was that corrected?

The CFO replied that they had worked on solutions to comply with the requirements for the carrying value of inventories.

Mr Kekana said that he did not want general remarks but specific answers to his questions. Yes, they had put processes in place to address the Auditor-General’s findings. He asked why they had not provided information to the Auditor-General about current and non-current assets.

The CFO replied that the asset value was correct. However, there was a dispute on the portion that was short term and the portion that was long-term. SAX made a reference in the financials which stated specifically that maintenance assets were subject to levels of estimation. In the opinion of SAX, given the uncertainty about when a maintenance event would occur, SAX needed to keep them all as short-term assets. Since SAX had had several issues over the years with the Auditor-General on whether maintenance reserves were short-term assets, they had worked with the accounting opinion obtained from a third party. SAX had sorted out the maintenance reserves as assets. So, they had stuck to their opinion and they were working with the Auditor-General for the current year to indicate why SAX believed that they were all short-term assets.

Mr Kekana was interested in the dispute. Was there a dispute between SAX and the Auditor-General?

The CFO replied that, yes, there was.

In response to Mr Kekana asking how that dispute was resolved, the CFO said that they had obtained an opinion from an external audit firm, KPMG, which had done SAX’s initial accounting policy in 2007, on whether SAX had complied in terms of International Financial Reporting Standards (IFRS). They had reached common ground with the Auditor-General in the current year that maintenance reserves were indeed assets.

Mr Kekana asked whether the purpose was to second-guess the Auditor-General.

The CFO replied that it was not but that they had always had an accounting policy of capitalising maintenance reserves to assets. That had never been an issue until 2014.

Mr Kekana asked about the involvement of KPMG.

The Chairperson informed the CFO that he had to answer in relation to the dispute.

The CFO replied that because SAX and AGSA had not been able to reach common ground in the prior year, they had decided to get KPMG to assess if SAX was accounting correctly, prior to the audit.

The Chairperson noted that they had previously given work to KPMG and so they had gone back to them.

The CFO explained that KPMG had set up the SAX accounting policy and that KPMG understood the airline business as they worked with 80% of the airlines in the world.

The Chairperson said that he knew KPMG got work from Treasury without delivering on the contract.

Mr Kekana added that the Committee knew that when SAX had a dispute they ran to KPMG because KPMG would agree with them.

The Chairperson stated that they must not present KPMG as an angel from heaven. They were motivated by profit. The fact that KPMG had already done work for SAX meant that they were conflicted. It was not a good move and he questioned the authority that KPMG had over the Auditor-General. SAX should have gone to the Auditor-General and not to a private auditor.

Mr Kekana said that it seemed that there were two competing Auditors-General in the country: KPMG and the Auditor-General.

The CFO attempted to explain that they had gone to KPMG because KPMG had reviewed the way that they were accounting. Ultimately, the Auditor-General had agreed with SAX that maintenance reserve was an asset and that they had been accounting correctly. The classification between short and long-term was the current issue. The intention had not been to override the Auditor-General.

The Chairperson stated that going to KPMG had created a precedent and he was surprised that the Auditor-General had accepted it. The Auditor-General would have been the relevant authority to go to.

The Board chairperson noted the comment and would look into it.

Mr Kekana asked about the system called AMASIS for aircraft maintenance logistics. Was the system properly maintained?

The CFO admitted that there had been challenges with the system. He explained that the primary role of the system was to track hours on rotables and that function was maintained but what they had not done over the past years was to invest in the upgrades to the system which would have made it easier to use. They were going to be investing in upgrades – it was the system used by Airbus - and would re-do user training. He admitted that there had been a lack of investment in upgrades but in terms of the day-to-day system, it had been maintained.

Mr Kekana asked why SAX was saying that the audit would be better if they had not corrected their source of information.

In response, the CFO explained that SAX had done a full count of every item in the stores, specifically around consumables and rotables for the stock account which would be processed on the system. The issue with the system was that stock adjustments had been processed through the general ledger to accurately reflect the carrying value of the inventory, but they were not processed on AMASIS as the system was not designed as an accounting system, but as a spares tracking system.

Mr Kekana asked if they not aware of the shortcomings when they procured the system.

The CFO responded that the primary responsibility of AMASIS was tracking of spares for the aviation industry. The fixed assets register was an add-on process. Upgrades would bring better functionality and greater value.

Mr Kekana agreed but asked why they had used an Excel spreadsheet. When they had procured the system, why were they not aware of the shortcoming of the system?

The CFO maintained that the primary reason for buying the system was to track spares. It was not intended to use it as an asset system.

Mr Kekana angrily accused the CFO of not responding to his questions. He rephrased his question. Did they have an asset champion?

The CFO responded: Yes, they have two asset managers.

Mr Kekana asked when they had appointed the asset champion.

The CFO replied that the asset managers had been there since the CFO had started working at SAX.

Mr Kekana responded that the Auditor-General had said that there were no asset champions and hence they had those problems.

The CFO was perplexed as he said they had asset accountants. He could only assume that the Auditor-General had not identified them as asset champions. Perhaps it was a matter of interpretation.

Mr Kekana noted that he had already stated that he did not agree with the Auditor-General. In terms of the findings, that was what the Auditor-General had said, and it was not for him to decide otherwise.

The CEO replied that even though it might be a matter of interpretation, he agreed that the function of an asset champion would add value in the following: the maintenance function, the logistics function, and the finance function. All had separate responsibilities. The view of the Auditor-General was that they had to roll up all three into one oversight function.

The Chairperson asked what the problem of interpretation was. Where was the difference of interpretation with the Auditor-General?

The CFO explained that from a finance perspective, he believed there was an asset champion.

The Chairperson asked about the position of the CEO in respect of an asset champion.

The Acting CEO replied that he had an overarching function and in that respect, he believed that there should be one asset champion with an oversight function over maintenance, logistics and finance.

The Chairperson suggested that he should explain that to his colleague as he did not understand the asset champion issue.

Mr Kekana noted angrily that he had assumed that the management team had met and discussed the approach before they had come to the meeting. The CFO seemed to be contradicting the CEO although his was a member of his team. He expected a response from the entity and not from individuals who gave their own opinions which were not in line with the Auditor-General’s findings.

Mr Kekana turned to Sundry Income. The AG had noted that there was insufficient evidence for Sundry Income, as reflected in the Annual Report. He asked why documents were not kept for audit purposes.

The CFO explained that those items related to asset reserves again. When SAX required an aircraft, the maintenance reserve followed the aircraft. However, the lessor had not submitted the opening reserve and the balances nor had the lessor provided source documentation. Therefore, the entity could not book those aircraft in that particular year. It had been discovered when they were going through balances with the lessor and so they had been disclosed in the 2014/15 year as a comparative and there was no ability to go back to the original paperwork. So, they had adjusted in the prior year.

In response to the Chairperson querying the ability to go back to the original paperwork, the CFO said that when aircraft had been delivered, the finance team and the aircraft acquisition team were not given the original documentation.

The Chairperson asked whether the paperwork had been lost.

The CFO understood that it had been a lack of provision of the documents from the lessor as the aircraft had moved on several occasions.

Mr Kekana asked if there was someone within SAX who had been responsible for the transaction. Where was the person?

The response was that he had left SAX in 2011 to join another company.

Mr Kekana was shocked that he had just left without correcting the problem. So, what did SAX do? Had they just allowed him to leave?

The CFO replied that he could only assume that that was what had happened. Now they checked with the lessors every year.

Mr Kekana was annoyed as the individual had cost them a lot of money and the money had to be recovered.

The CFO assured him that there had been no loss of money. Any refunds that SAX had been entitled to receive from the lessor for maintenance done, had been received.

Mr Kekana informed the SAX CFO that he had told one of their colleagues from SAA to be mindful that everything said was under oath and that everything was on record. If the Committee later found that responses were not accurate, there would be a penalty for lying to Parliament. The intention of the Committee was to improve SAX. If it found that he had given wrong answers particularly on the financial implications, the Committee would come down on him very hard. He had to ensure he was honest and if he did not understand the question, he had to ask for clarification.

Mr Kekana returned to Sundries in the Annual Report. It showed that depreciation for listed assets had been incorrect although it had been corrected. Why did this happen?

The CFO replied that they had corrected it as part of the audit process. There had been a miscalculation of depreciation rates on lease holding improvements to leased aircraft.

Mr Kekana acknowledged the correction but his question was why the error had happened initially.

The CFO explained it as a timing issue between when items were capitalised and when the calculation of the depreciation was done. They had now introduced a process to ensure that capitalisation was speeded up after maintenance had been done and they made sure that the depreciation was calculated accurately.

Mr Kekana asked about the accrual of the leave. The Auditor-General had said that accrued leave pay was R14.5 million for 2015/16. What was the amount for and why did SAX owe it?

The CFO replied that they had to provide for leave pay that had not yet been taken as at 31 March and it had to be accounted for as a liability. It was their policy.

Mr Kekana asked who had prepared the spreadsheet on the list of R30 million fruitless and wasteful expenditure for 2015/16. He zoomed into last column: Action taken and status. There was one answer for everything. Was this filled in maliciously? One could not have one answer for all the items. He wanted a response for each item, not a general response.

The CFO replied that the reality of the cash flow position in that period was that there were certain creditors that they could not pay on time and those creditors had levied interest (R19.8m) and/or penalties (R10.7m). Hence the same explanation applied to each of those items. A guarantee had been awarded in 2015 and they had finally got cash in November 2016. The root cause was cash liquidity. The requested loan was for R567 million and was reduced the next year to R467 million. They eventually got a loan of R346 million in November 2016. They had repaid R358 million in March.

Mr Kekana asked if the CFO was involved in this.

The CFO attempted to explain that it was Exco, which annoyed Mr Kekana who asked who the individual was. The CFO explained the process for recommending to the Exco so that they could decide who to pay.

The Deputy Minister asked if the CFO was the responsible person at the time.

The Chairperson noted that he understood that Exco had decided who should be paid and who should not be paid.

The SAX Board chairperson explained that the Board had to have a centralised process for payment. They had a team where Finance had prepared a payment schedule of all the creditors and the cash flow but the Executive had to authorise payment. When the Acting CEO had joined SAX, the Board had decided that no single individual should take responsibility for paying or not paying creditors and that they would act as a collective. In the ordinary course of business, the CFO would have prepared for payment and taken it to the CEO for signature but they wished to avoid any individual being authorised to make payment.

The Deputy Minister said that Mr Kekana had not received a response on who the individual responsible was.

The CFO answered that the CEO had signed off the payments.

Mr Kekana asked how many creditors had been paid.

The CFO replied that a large number had been paid but others had not yet been paid.

Mr Kekana wanted to know why. They had received the money from the bank but all creditors were not paid.

The CFO replied that there were conditions to the loan and that they had to pay longstanding creditors first. In addition, the amount given was less than what they had requested. Creditors were paid according to aircraft operational needs.

Mr Kekana referred to payments made to SARS and SAA gets fuel for SAX aircraft. Which one was linked to the aircraft?

The CFO explained that SAA, which was linked to the aircraft, deducted the cost of fuel.

Mr Kekana noted that the Auditor-General had said that SAX had not considered the recovery of the maintenance reserve as required by international accounting standards. Why were the accounting standards not followed?

The CFO asserted that accounting standards were followed and a detailed exercise had been undertaken but there was always a level of estimation. That was explained in the accounting policy in terms of IFRS. SAX believed that the assets were recoverable.

Mr Kekana asked whether that evidence had been provided to the Auditor-General.

The CFO confirmed that the evidence had been provided and that that issue had been resolved in the current year with the Auditor-General.

In response to the question on whether the Auditor-General satisfied, the CFO admitted that the Auditor-General was not satisfied. Management believed that they had done everything possible to prove their value.

Mr Kekana asked about the audit process with the Auditor-General. He asked whether, as was normal, SAX and the Auditor-General had met to iron out the issues. Was there still a dispute after discussions with the Auditor-General? Were those the issues that were sent to KPMG?

The CFO agreed that matters were still in dispute but stated that they had consulted with KPMG prior to the audit.

Mr Kekana asked about his attitude after they had followed the process. Was the Auditor-General wrong?

The CFO believed that the Auditor-General was wrong.

The SAX Board chairperson interjected that SAX did not believe that Auditor-General was incorrect. SAX had accepted the Auditor-General’s opinion. The response by the CFO was a personal response and he, the board chairperson, would talk to the CFO. He apologised for the comment.

Mr Kekana was relieved to hear the opinion of the Board.

The CFO apologised for his remark and explained that there had been a dispute but he believed that it had been largely resolved.

Mr Kekana asked for responses from the Accounting Authority instead of the CFO.

The Chairperson agreed that the Board was responsible for answers.

Mr Kekana asked why Trade had been overstated.

After a pause, the Board chairperson agreed that it was his and the Board’s responsibility but Mr Shelley, the CFO, who was a member of the Board, had discussed the matter with Auditor-General.

The Chairperson asked whether the Auditor-General’s Report had been discussed.

The SAX Board chairperson said that the Audit Committee chairperson would be able to respond but he, as the Board Chairperson, was unable to respond.

The Committee Chairperson explained to the Board chairperson that the kind of questions Mr Kekana was asking were those questions that the Board should have asked the operational managers. Even Ministers could answer such questions because they knew about the business. The Board should drill down into the details of the financial statements.

The Chairperson asked for the root cause of why Trade had been overstated.

The Board chairperson asked if the CFO might be allowed to respond.

The CFO explained that it related to recoverability and SAX could not satisfy the Auditor-General’s requirements in respect of audit evidence.

Mr Kekana said that the Auditor-General had also found that leadership and management did not engage in ongoing monitoring and supervision. That was a serious problem. The ship was sinking. Why were the Board chairperson and the CEO not leading? Every year the Auditor-General found the same issues. The mess stemmed from the lack of leadership.

The SAX Board chairperson conceded that there had not been adequate monitoring of what was presented by management to the Board. They had to improve that governance aspect. The Audit Committee met four times a year, as did the Board.

Mr Kekana asked for his assurance to SCOPA and the South African public that he was going to put better systems in place.

The SAX Board chairperson confirmed that they would do so.

Mr T Braithwaite (DA) addressed the CEO because he was the Accounting Officer. He asked if the SAX team was familiar with Treasury Practice Note 8. They were not. Mr Braithwaite reminded them of the procurement regulations. 134 items had been sourced with one quote. How had they reconciled such procurement with the PFMA and Treasury Practice Notes?

The CEO explained that he had bought with him the SAX Chief Procurement Officer (CPO) as they were aware of the problems created by having a decentralised procurement process. The CPO had been chairman of the Bid Committee and all procurement had been approved by the Bid Committee and signed off by the CEO. A new policy had been approved.

Mr Braithwaite stated that the PFMA was the law and there could not be contradictions with policy. Why did it happen and who was responsible?

Mr Sam Vilakazi, SAX Chief Procurement Officer, accepted that there could never be a contradiction with the Act. He wanted to give a practical example as to how the entity had to operate differently. For example, passenger delays were urgent and there was no opportunity to go out on tender or find three service providers. In the new policy, a supply chain system had been developed. Some of the leases would only allow a certain service provider and so they were going to create a supplier pool to alleviate going out on tender.

Mr Brauteseth asked how many of the 134 items were emergencies.

The CPO admitted that some were not emergencies. He explained that they had had an environment of non-compliance and there were transgressions at every level of the entity. The new management had put systems in place but it was taking time to implement compliance. There were issues about emergencies, poor planning and inefficiencies.

Mr Brauteseth could not accept the answer. He asked about the previous CEO at SAX, Mr Inati Ntshanga.

The Deputy Minister suggested that the CPO should tell Committee what he had done since taking office.

Mr Brauteseth appreciated the suggestion but he wished to continue his line of questioning. He understood the non-compliance culture. R20 million worth of condonations could have contained a great deal of fraud. He asked what the new management was going to do about those condonations and whether they were going to call Mr Ntshanga back.

The Acting SAX CEO agreed that it was necessary to investigate.

Mr Brauteseth interrupted, noting that 26 cases were under investigation. He asked why 190 cases were not under investigation. What were they doing about it?

The Acting SAX CEO answered that investigations had been instituted for the chartering of aircraft and the acquisition of spares. The overarching investigation would examine some of the issues on the list. Consequence management had taken place and two employees were under suspension and one employee had been dismissed.

Mr Brauteseth asked for specifics. Were they going to re-open any condonations or were they going to let R20 million go?

The Acting SAX CEO answered that they had only the overarching investigation but were not opening specific investigations.

Mr Brauteseth explained that in government one had to be consequent or the staff would be unmanageable. SAX had 261 instances of wrong doing and 190 cases were not going to be re-opened. When would he be resigning?

The Acting SAX CEO answered that he would have to go back and investigate every case.

Mr Brauteseth explained that he had to go through each transaction and see if there was an element of criminality anywhere.

Mr Brauteseth turned to the 26 cases not condoned. He required details of the investigations.

The Acting SAX CEO replied that he had appointed Basileus Consilium Professional Services (BCPS) that would look at the charter plans and acquisition and utilisation of spares, both of which were high-value items. BCPS was correctly procured.

Mr Brauteseth asked how much was owed to Solenta Aviation Services.

According to Mr Xaba, SAX had paid Solenta Aviation R39 million. Solenta had brought a court application against SAX for liquidation for R87 million outstanding debt. SAX would oppose it as there was a dispute regarding the difference. There had been no tender. SAX had submitted an answering submission.

Mr Brauteseth asked why they had paid Solenta although it was an irregular payment. He asked for confirmation of his understanding that Solenta was seeking to liquidate SAX.

The Acting SAX CEO confirmed this. Mr Xaba re-emphasised that the investigation was focusing on the whole charter aircraft and spares that had been procured by SAX and not at the suppliers. The items not condoned included mainly spares. Some of the items related to consultancy and other matters. Some items would be internally investigated by management.

Asked to explain the control and investigation capacity of SAX, Mr Xaba informed the Committee that he had a Chief Procurement Officer and an internal auditor who would appoint other members of the executive as they saw fit.

Mr Brauteseth asked why the 26 items had not been condoned.

The Acting SAX CEO responded that the end-users of the 26 items had not submitted adequate explanations.

The SAX General Manager of Legal, Risk and Compliance and the Condonement Committee chairperson, Ms Merriam Mochoele, explained that the motivations had to indicate whether the company had got value for money. The Condonement Committee then recommended condonement to the CEO. They had also checked whether the law had been broken.

In response to Mr Braithwaite’s question on whether they had recommended disciplinary action, Ms Mochoele explained that in terms of the policy in place at that time, they had only been able to take action against those who were criminally liable. The policy had been changed.

Mr Brauteseth suggested that the CEO could go through each of those 189 motivations that had been put to the Condonement Committee and determine if there was a case for disciplinary action against any one of those.

Mr Brauteseth asked about the circumstances of the previous CEO leaving SAX.

The SAX Board chairperson replied that the Board had decided not to renew his contract and to terminate his contract earlier than its end date. He was paid the salary for the remainder of his contract of 5 months.

Mr Brauteseth asked about interest owed where payments had not been paid on time, using Air Chefs as an example.

The CFO explained that interest had to be paid to Air Chefs at 8% for a full year. There was interest on late payments and charges for components that had been loaned but SAX had not returned timeously as they had been unable to afford repairs to their own parts.

Mr Brauteseth noted that all interest payments related to SAX not having enough money. What level of debt management was there at SAX? Did SAX give creditors advance warning of late payments to try and avoid penalties?

The CFO explained that SAX had built relationships with creditors and did not like to give them surprises.

Mr Brauteseth asked how much of the R60 million was profit and not a recapitalisation of loans.

The CFO explained that the austerity measurements, adjusted flight schedules and a very good year operationally had offset the cash flow challenges.

Mr Brauteseth asked the SAX Board chairperson to see to it that the CEO had to report on the irregularities in the 216 cases. The CEO had to be strict, stick to the law and be consequent.

The Committee Chairperson requested feedback from the CEO by the end of September 2017.

Ms T Chiloane (ANC) continued the questioning. She asked about the names of people who had not complied. Where were they?

The Acting SAX CEO explained that they were those who had signed off as the general manager where irregularities had occurred. They were the accounting managers. Mr Dave Allenby, GM of Passenger Services, was still employed; Mr Brian van Wyk, GM for Commercial had left in 2016; Mr Peter Mashaba, GM for Technical, had left in March 2016.

Ms Chiloane asked if any disciplinary action had been taken against them or the employees.

The Acting SAX CEO agreed that not enough had been done. They had one dismissal and two were going through disciplinary hearings. There was inadequate consequence management.

Ms Chiloane asked what business SAX had with Solenta Aviation.

The CEO explained that Solenta Aviation offered charter services to SAX using similar aircraft to those used by SAX. Solenta was contracted when SAX did not have enough aircraft to maintain their schedule and that charter planes came with crew and managed their own maintenance. They had had a contract to utilise three aircraft from Solenta.

Ms Chiloane asked if it was a South African-owned company.

The response from SAX was that they did not know the domicile of the owners. Solenta had a South African civil aviation licence.

The Chairperson was surprised that they did not know who the owners were of the company that was trying to liquidate SAX.

Ms Chiloane was shocked.

The Acting SAX CEO explained that part of the investigation was to obtain full details of all charter companies. He explained that the documents had been delivered to him by the investigators on Saturday but he had not yet looked into the report. He committed to providing the information to the Chairperson after the meeting.

Mr Ross raised the point that earlier the SAX Board chairperson had denied that it was an Angolan company. Perhaps he knew the origins of the service provider.

The SAX Board chairperson explained that he had responded to Mr Ross’s question in terms of leases. Chartered aircraft were different from leased aircraft. Further, he explained that the investigation was, in fact, a forensic investigation that the SAX Board and the shareholder had decided upon because of the huge amounts of money that were going to the chartered aircraft companies about which they knew nothing. The SAX Board had not seen the report from the investigator but would share it with the shareholder as soon as they had examined it.

Ms Chiloane asked about Maluti Sky.

The CPO explained that SAX was currently leasing aircraft from a company called Matekane. It had previously operated Maluti Sky but Maluti Sky had terminated and so SAX was now leasing aircraft from Matekane.

Ms Chiloane was looking at SAX as a going concern. What was happening with SAX? It was operating at a R733 million cumulative loss. Should it be closed down?

The SAX Board chairperson replied that the issue of fleet was the main concern to both the Board and the shareholder. When a fleet was becoming older, maintenance expenses increased and that was impacting on the business. The Board was looking into whether they had got value for money for chartered services entered into without a procurement process. Hence the forensic investigation was requested so that they could re-structure the business. The two concerns were increased maintenance costs and the support provided via leasing arrangements.

Ms Chiloane said that the Committee did not know if SAX was going to be profitable or was it going to continue having losses as for the past five years. The audit findings were exactly the same year after year. People left with golden handshakes and then after those people had left, investigations were instigated. Whenever the Committee wanted answers, there were no answers. How was the entity going to recover the money? She had many questions but the person under whose watch the things had happened had left with a golden handshake. The concerns about SAX had raised her blood pressure.

Ms N Khunou (ANC) asked what payment was given to the previous CEO.

The SAX Board chairperson replied that they had paid out the rest of his contract of R776 000.

Ms Khunou was disappointed as at the last SCOPA hearing, the Committee had asked Mr Ntshanga to come to the meeting. Those attending the hearing had not prepared and did not have answers for the Committee. SAX had to return with Mr Inati Ntshanga who needed to answer questions about the problems created by him. He would probably go to another entity and cause the exact same problems there. For the entire period that he was there, SAX received a qualified audit report. How was the Board intending to recover the losses he had caused SAX?

The SAX Board chairperson accepted the concern about accountability. He said that the Board, the shareholder and National Treasury had felt that SAX had needed to get changes into the entity to prevent the business getting deeper into trouble, and they had needed to get rid of the CEO as he could not manage the business. His technical know-how was good but he was not able to manage the situation.

Ms Khunou stated that SAX would be called to return to the Committee very soon to provide answers to questions that they had been unable to answer. She would also want to know the bonuses paid to Mr Ntshanga from the date he was employed to the date he left. He had brought the airline into dispute. SAX employees did not get bonuses, salaries went down and none of the extras had been paid to them. They needed to recoup monies paid to Mr Ntshanga, including his bonuses.

Ms Khunou asked how many aircraft they had in total.

The Acting SAX CEO replied that they had 17 aircraft and four charter aircraft. They owned three aircraft. They had originally had six aircraft: two were sold and one was scrapped due to it ending its lifetime. In response to Ms Khunou asking, he said that the two aircraft had been sold to Matekane but there was no record of the amount paid. No one at the meeting was related to Matekane.

Ms Khunou asked whether the Board knew anything about the aircraft or the persons owning them.

The SAX Board chairperson attempted to explain that he was responding to the question about personal relationships with Matekane but Ms Khunou responded that she knew she would not be getting answers from them in any case.

Ms Khunou asked about the sale and the lease of the aircraft in relation to Matekane.

The CPO responded that the aircraft had been sold to Matekane, a Lesotho-based company for $2.4 million and they were being leased from Matekane for $1350 per hour for 100 hours maximum per month. In aviation, all leases were in dollars. SAX spent R1.7 million per leased aircraft per month.

Ms Chiloane interjected asking the SCOPA Chairperson for assistance as when she had asked that question, the CPO had told her that SAX leased one aircraft from Matekane. Now he was saying that they leased two. The explanation given was that the word ‘aircraft’ was both singular and plural, but Ms Chiloane believed that they were lying.

Ms Khunou asked whom they had paid to advise them to sell the aircraft.

The CPO replied that it was a legacy issue. The contract had been entered into in 2015/16. They were negotiating a new rate as they needed the aircraft because they did not have their own aircraft.

Ms Khunou looked at the Air Chefs costs. The meals had been reduced to a packet of chips or peanuts.

The Acting SAX CEO stated that Air Chefs was a subsidiary of SAA.

Ms Kunou reminded SAX that they had said that SAA paid the fuel but there were amounts for refuelling at Pilanesberg, Sun City and Botswana airports. She wanted a proper answer.

The CFO explained that those three airports were not managed by ACSA and therefore SAX had to pay for the procurement of fuel when landing there.

Ms Khunou asked why he had not said that previously when he was talking about fuel.

The CFO explained that at that time he was talking about late payments to SAA which did not apply to those three airports

Ms Khunou wanted to speak to the person who was championing assets as they had not as yet had satisfactory answers about assets.

The CFO explained that a finance person, Tshepo, looked at the accounting aspect of assets.

Ms Kunou wanted, in writing, a list of assets as the current liability was greater than the assets. The interest was not budgeted for so she wanted a list of late payments. She was adamant that someone at SAX was ensuring that there were late payments so that SAX ceased to become a South African airline. SAX had really frustrated the Civil Aviation Authority (CAA). She believed that they were making people work longer hours than they should as so many flights were being suspended or delayed.

The Acting SAX CEO apologised to Ms Khunou and to the South African public for the delays. He explained that the problem was having aircraft available to service the scheduled flights. The trouble was that when one of the aircraft experienced technical problems, they did not have another aircraft available to substitute for the one that had been grounded, but had to send an aircraft from another route. They were looking into reducing the number of aircraft on the ground, to reducing the delay, and communicating to customers about delays well ahead of time. Things had improved.

Ms Khunou said that the CEO was not telling the truth as the previous Monday a flight from Bloemfontein had been delayed by four hours. Ms Khunou turned to record-keeping.

The CFO explained that documentation was kept in the department to which it related.

She asked why there was no proper record keeping and what the problem was.

The CFO replied that documentation offsite resulted in a delay in retrieving documents but the entity had taken note of the findings of the Auditor-General.

Ms Khunou told the CFO that she wanted a report on his record-keeping in the finance department and that was also to be sent to the Auditor-General. She warned of dire consequences if he did not keep proper records as she did not believe that he would implement proper record keeping.

Ms Khunou asked about the AMASIS system, how much they had paid for it, whether it was bought through a service provider and who operated the system on behalf of the service provider.

The CFO responded that they had bought the right to use the software from IFRS Sky which was the software arm for Airbus. It was a product designed to track aircraft components that were hour- or date-related items and for tracking compliance with CAA regulations. They paid an annual licence for the use thereof. The system was used by IT, Logistics and Technical. He would have to go back and check what was paid for it in 2002.

Ms Chiloane wanted clarity about three payments that had been made to the tune of R337 million to Pratt and Whitney Canada Corp. The Minister had talked of linking SAX, SAA and Mango. Was that going to assist the airline or was SAX almost a closed shop? Perhaps the Deputy Minister could raise the concerns of SCOPA. She referred to the report that the CEO had just received and asked if he could inform them whether it covered everything over the past five years. Did he have any other investigations so that they could know that something was happening?

Mr Ross asked that the CFO and CPO provide in writing details of the cost of selling airplanes, leasing planes, chartering planes and their opinion of its viability.

Mr Kekana asked for the SAX policy on irregular, fruitless and wasteful expenditure.

Ms Khunou said that reports from SAX were always late; the Committee had received lame excuses at the previous meetings with SAX. She was adamant that someone in SAX was sabotaging the airline with the intention of buying the airline. Someone was delaying the aircraft and reducing the routes. They must tell that person that it would not happen. She was there to resuscitate SAX and she warned the person who was sabotaging that it would not happen under the watch of this Committee. She wanted the minutes of the Board meetings to check on the reality, frequency and content of meetings. She wanted to know if the Board really did meet.

The Chairperson hoped that the maintenance agreement with Denel would be done cost effectively. He was concerned as the CEO was from Denel and now he was giving business to Denel so he had to be very sure that all was in order. Had he considered the staff if they would no longer be required for maintenance? From where exactly did the R733 million cumulative loss come? Were the losses a result of management failure or a result of a combination of factors? That was the critical issue to be stemmed so that there was profitability. He hoped that the Deputy Minister could get management to do the right thing and not sell off a 25% equity share. That was how government had lost Telkom and now they were exiting Telkom. Telkom was started with government money and was 100% government owned but shares had been sold off bit by bit. Now they were speaking of 25% shareholding in SAX. That might be the beginning of the end. If SAX and SAA were merged, would the stake holding to be transferred to the new SAA, or was that merger not happening? The inertia and inability to change bothered him as by the time changes were made, years later, they had become irrelevant and meaningless.

Deputy Minister of Public Enterprises, Mr Ben Martins, stated that there was a legal concept called “successor in title”. It meant that when one takes over responsibility, one takes over the successes and failures of one’s predecessor. He had written copious notes of the comments and suggestions made by the Committee. The points that had been raised that morning were grave and important issues that needed to be addressed. He was concerned by the fact that a number of issues raised were apparently legacy issues. Logically, they should have started with those issues that had been foregrounded in the previous meeting. So why had SAX not addressed those so that they could move forward? The SCOPA Chairperson had been happy to welcome the Minister and Deputy Minister, but he had not had not been happy because any entity that was called to SCOPA had weaknesses that fell under the remit of a Department. No entity had been called to SCOPA to be congratulated on good work done. The issues raised were important. The Department of Public Enterprises needed to articulate what it had done and what measures had been put in place. He asked the Director-General of Public Enterprises, Mr Mogokare Richard Seleke, to speak very briefly to the main issues and then he would make his concluding remarks.

Mr Mogokare Seleke, DPE Director-General, said that the issues had been noted over time, especially since he had taken over as DG in December 2015. During that period, he had had extensive engagements with SAX and had looked at the revenue stream and the running costs, as well as other revenue opportunities, and he had realised that the business was a viable business, but there was a problem somewhere in-between in the context of how the company was managed. He was excited at the level and depth at which the issues had been addressed by the Committee. It had confirmed the same as DPE had been trying to deal with. The colleagues in the company knew that they were not just been hard on them but that the Department was trying to resolve the problem that was becoming an embarrassment. Jointly with Treasury, they had looked at the matters relating to the guarantee, the Annual Report and the Annual General Meeting of the company. For two years in a row, SAX had not completed the financials in time. The Minister had had to intervene. The CEO had been released but also the Board had a role to play as certain decisions had been elevated to the Board. As the Minister had said, they were also looking at the optimisation of flights as there were long routes and there was enough money to fill planes. So, they were looking at a way for SAA, SAX and Mango to work together. New sectors might be subsidized initially as tourism and business needed flights to ensure that the economy functioned.

Mr Seleke said that DPE had brought in an official from Denel to manage maintenance at SAX. They had looked at a contract with Denel, but it was being delayed by SAX. They did not take it kindly as there always seemed to be a drag on the part of the company when DPE attempted to intervene. Another problem was the need for recapitalisation but how could one recapitalise when there were still internal problems and money was leaking? With the new CEO, they had seen progress. One could not have over 80% of the capital asset on lease. Leasing companies actually owned SA Express and made profit out of it. If people wanted to be in that business, there was doubtless profit to be made. With the guarantees made by government, and other players who could support SA Express, and with hard work, it was possible for SAX to acquire the new fleet. He was worried that there was no desire to come to that point because the lease arrangement seemed to be a very comfortable arrangement. The spare parts and maintenance problem was another issue. The 25% equity share seemed to suggest that government companies could not run on their own and so they were looking at other possibilities, but it was a last resort.

Deputy Minister Martins said he had told the Board that it had, like any other Board, fiduciary responsibilities and board members had to carry out their responsibilities without fear or favour. If the Board did not perform, it was very clear to them that the Ministry had the power to fire or retire board members based on the remit of their responsibilities. In carrying out its fiduciary responsibility, the Board had to have an eye on management. A new CEO had been brought in and he would be given support to turn around the business. On the merger of SAA, SAX and Mango, work was being done but the Deputy Minister could not report on it. The re-capitalisation of South African Express and related issues had been articulated. The grave issue of irregular, fruitless and wasteful expenditure had to be addressed by all role players. It could not be that the next time that the entity was called that the Committee had to address the same issues. The management had to undertake oversight and resolve the challenges.

The Chairperson asked if there was a political agreement on combining the three airlines.

Deputy Minister Martins said that he had explained that he did not have that information.

Mr Kekana asked the DG whether they would be developing an action plan to deal with the issues at SAX. The Committee would like a copy of the action plan.

The Director General replied that they had a plan but it would be updated following this meeting and thereafter he would forward it to the Committee.

Meeting adjourned.