SAA progress update & SIU investigations, with Minister

Meeting report

The Chairperson welcomed everyone to the meeting and outlined the agenda. He stated that South African Airways (SAA)  last appeared before the Committee on 15 November 2022 and at that time, the entity had briefed the Committee about developments relating to the resumption of its operations in September 2021; as well as matters concerning the annual financial statements; and non-tabling of the Annual Report. He told the Committee that the current meeting would serve as a follow-up briefing from SAA and the Special Investigative Unit (SIU) into its investigations of misconduct at SAA and an update on the Strategic Equity Partner (SEP) acquisition process. He also outlined that on 14 March 2023, the Committee received a briefing from National Treasury about government bailouts to State Owned Enterprises (SOEs) and it was revealed that SAA had received R50.7 billion in direct government funding since 2007, of which R48.4 billion had been received in the past ten financial years. The Chairperson handed over to the Minister for his opening remarks.

Opening remarks from the Minister

Mr Pravin Gordhan, Minister of Public Enterprises (DPE), requested that perhaps in-person meetings need to be reconsidered as well as the travelling times. This is because the delegation spends a lot of time travelling and being away from its obligations for the day.

The Chairperson committed that the request would be looked into. He told the Minister that the biggest challenge had been a shortage of hybrid meeting venues in Parliament.

The Minister reflected on some of the troubles experienced by the entity in the past few years, as previously narrated by the Chairperson of the Committee. He touched on the strikes in November 2019, where an unaffordable wage agreement was “forced down the throats” of SAA, particularly by the National Union of Metalworkers of South Africa (NUMSA). Among some of the troubles experienced by SAA, he mentioned that lenders now require some form of guarantee if they are to continue supplying further cash to SAA. The entity has requested a further amount of R2 billion, however the guarantee from government has not been forthcoming. He told the Committee that there was a decision by Cabinet that state aviation assets should be restructured and a Strategic Equity Partner (SEP) needs to be sought. He also touched on matters concerning SAA discussed in the Zondo Commission.

On 5 December 2019, the SAA board was about to suspend all flights due to insufficient cash flow, which meant that people in various parts of the world would not be able to fly with SAA. In a meeting with lenders, the then board came to the view that it had two choices, firstly to liquidate the Airline which meant that it would have to first sell off all its assets and, in turn, more than 800 workers would be jobless overnight and they would be given at least R33 000 each. The board took it upon themselves to move in a different direction and not liquidate SAA and rather opt for business rescue. With the move into business rescue, SAA has ensured that more than 800 employees still have their jobs and those that left through voluntary severance packages were given fairly substantial payouts which would enable the former employees to sustain themselves while they seek alternative employment. With the assistance of the Department of Employment and Labour (DEL), SAA opened a training facility to assist employees within the gap period while SAA got back on its feet. He stated that the business rescue process commenced on 6 December 2019 and Business Rescue Commissioners were formally registered with the Companies and Intellectual Property Commission (CIPC). According to the CIPC Act, the Business Rescue Commissioners are tasked with the responsibility of taking charge of the Airline and all its affairs. The board and other structures do not have control thereof until the business exits the process of business rescue and the board is restructured. In July 2020, a business rescue plan was formulated and accepted by creditors. However, in the same period, there was the scourge of the COVID-19 pandemic, and a level-five shutdown was announced in South Africa. The Minister indicated that during this period, SAA undertook the task of safely bringing South Africans back from various parts of the world. Due to the decline in economies during that period, when tourism was non-existent and aviation was steadily declining, creditors received a small percentage of the money owed to them in the middle of the year. In September 2021, money was made available from the fiscus for the post-commencement finance where provision of R2 billion was made available for restarting the Airline when appropriate. In the same Covid period, many companies took a huge financial hit and realigned priorities of taking cargo to various parts of the world instead of passengers.

While the presentation may outline the impacts that COVID had on the Airline, it also underlines the impact of recklessness and corruption that took place during State Capture and highlights the decline in SAA's performance, the absence of cash flow, as well as the business rescue process thus far. The Minister noted that although there has been great competition in the aviation industry lately, the growth and acquisition of a business equity partner for SAA will have an even more significant impact and promote healthy competition. The beneficiary will be the travelling consumer more than anyone else.

Briefing by South African Airways

Prof Malesela Lamola, Chief Executive Officer (CEO), South African Airways, introduced the team accompanying him for the presentation. Outlining the contents of the presentation, he told the Committee that it would include feedback on the financials of the audits still in process, an update on the current state of the Airline, and an update on the SIU investigations.

Addressing the issue of the Annual Report, the Committee was assured that the preoccupation of SAA management systems is to ensure that the external audit that began in August 2022 is concluded. The extensive nature of the audit, indicated that it covers four financial years, April 2019 to March 2022. Prof Lamola told the Committee that the process had advanced significantly and that the audit was in its final stages. The agreement with the Auditor-General (AG) is that the audit should be concluded by June 2023. Thereafter an Annual General Meeting (AGM) will be held with shareholders in which the outcomes will be made public. The financial year was concluded in March and the entity is working on ensuring the return of normality.

Prof Lamola confirmed that the current audit had had its fair share of complications. Besides its historic nature, SAA has had to deal with some of its subsidiaries, such as SAA Technical Air Chefs SOC Ltd (Air Chefs), as well as Mango Airlines, which is currently in the process of business rescue without the management team that the external auditors would usually depend on. The aforementioned issues have contributed to the delays experienced by the SAA Board. The current management at SAA has been under tremendous pressure from the shareholder to ensure that the annual reports are concluded and that there is an AGM, where the board will be reporting on the entity's performance.

The management at SAA finds itself having to deal with two versions of how the entity has been identified. The CEO told the Committee that with the second version that SAA identifies with, it seeks to indicate a cultural and paradigm shift in the way in which it is understood and the strategic moment that the entity finds itself in as it arises out of business rescue, is being restructured for long-term sustainability with the SEP. SAA, in version one  is under construction and trying to comply with the various standing regulatory rules of the Public Finance Management Act (PFMA).

At an operational level, SAA has emerged as a smaller entity, which initially had 60 aircraft to currently flying between seven aircraft and the downscaling has created a challenge in terms of what is referred to as the scale of the SAA operating model. The aviation industry has recovered robustly from the COVID-19 pandemic, despite what had been predicted by airline experts. However, constricted capacity has meant that SAA has not been able to exploit the growing market nor respond to the shareholder's desire to ensure that SAA executes its national economic imperatives of ensuring that consumers are relieved from exorbitant ticket prices.
Prof Lamola told the Committee that there had been a growing concern that SAA has not been able to execute its mandate as a national carrier in the Intercontinental International market.

Part of SAA's strategic challenges is that its market has been eroded and captured by various other competitors. SAA needs to defend its previous air traffic rights and unfortunately, the Air Services Licensing Council has been inundated with emerging players in the market taking over the air traffic rights.

Taking the Committee through the Route Network Expansion Plan and the Operational Performance of the entity, Prof Lamola focused on some of the key tasks currently underway. SAA management is continually inspired by the support it receives from the Ministry in supporting its route network plans and the efforts it is making to retain the highly skilled employees that are available, and are vulnerable to being poached by other companies.

There are ongoing discussions between SAA and Kenya Airways, which will enable the entity to change the landscape of the African Aviation market, by engaging in partnerships with other airlines to join a Pan African Aviation Group.

Taking the Committee through the disposal process, Prof Lamola explained that on 12 May 2023, the Competition Commission recommended the approval of a 51% disposal of SAA shares to Takatso Consortium (hereafter referred to as Takatso) through the Competition Tribunal. He emphasised that to date, SAA is managed by the current shareholder at 100% and that there has been no transfer of shares as yet.

See attached for full presentation

Presentation from Special Investigations Unit

Adv Andy Mothibi, Head of the Special Investigating Unit (SIU), introduced team members from the entity who have been active players in leading investigations on SAA.

He took the Committee through the legislative mandate of the SIU and added that it had increased its number of forensic accountants to be able to bring out adequate outcomes. Some outcomes of investigations are reached as soon as evidence is made available and the SIU can make the necessary findings and referrals. He also took the Committee through some processes involved in ensuring that the outcomes produced are channelled accordingly and the relevant referrals are made. Civil litigation has been undertaken to recover losses made by the Airline. Most individuals that have been found guilty have left the entity, however, those individuals will continue to be pursued based on the evidence of criminality which points to them.

(See presentation for further details)

Adv Mothibi detailed briefly the grounds on which investigations had begun and the processes are undertaken to start investigations. He also took the Committee through the terms of reference for the SAA investigation.

Mr Leonard Lekgetho, Chief National Investigations Officer, SIU, took the Committee through the progress outcomes from investigations conducted by the SIU and confirmed that some investigations are still ongoing. An investigation into the Requests for Quotations, with a required response of three days was concluded, and one referral was made to the Hawks. There was no disciplinary referral as the official involved, left the employ of SAA.

(See presentation for further details)

The SIU has considered the State Capture Report relating to SAA and it is implementing the recommendations and working in collaboration with other law enforcement agencies. It is also investigating the ten matters covered by the proclamation and it can be confirmed that four matters have been finalised. Outcomes achieved on the finalised matters include two National Prosecuting Authority (NPA) referrals, two disciplinary referrals, and eight matters currently being reviewed for civil recovery.

Due to State Capture, some members of the Accounting Authority, including ex-official members, failed in their fiduciary duties to properly manage the entity's financial affairs. The SIU found that some Board members benefited from corrupt payments facilitated by at least two legal firms.

Adv Mothibi stated that the main focus of the SIU is to ensure that there is consequence management on members who have been found guilty, including some of the former Board members whose names will be made available in due course. The SIU has had a few challenges in terms of its civil litigation processes because of how some members who have been found guilty have challenged the jurisdiction of the Special Tribunal, however, the court has ruled in its favour.

The SIU has received new allegations about the Takatso deal and it is undergoing internal processes of assessment with it. It has also received allegations that the SAA aircraft was used to fetch vaccines from Brussels during 2021. Were there no alternative methods made available for the delivery of vaccines in a less expensive way? Adv Mothibi said that the SIU is still in the process of locating relevant documents and further progress will be provided. The Department has been contacted and it will assist the SIU in concluding the matter.

He stated that some of the risks mentioned have not materialised and confirmed that the CEO and his team had worked together with the SIU.

See attached for full presentation

Discussion

Mr S Somyo (ANC) highlighted that while there were some comforting areas during the SAA presentation as far as progress is concerned, there were a few areas of discomfort. He said that reference had been made to the purchasing of six aircraft after National Treasury had given its approval. Evidently, the current asset level of the entity has expanded. Where does SAA stand in terms of the assessment of its asset base? Considering the approvals of the Competition Commission during the "white noise" period, how would these two correlate?

He referred to the new deal and asked whether the SIU would still consider pursuing the investigations as outlined in its report. He also asked for clarity on the focus areas concerning the new deal.

Has the SIU been able to establish where SAA officials, that had been found guilty of crimes in the entity had gone to, as the report indicates that it was unable to take disciplinary action due to the officials leaving the employ of SAA? Mr Somyo expressed concern in this regard, saying that some of these officials may have been re-employed with SOEs and Government Departments.

Minister Gordhan explained that the entity does not have any money to purchase six aircraft and that the aircraft are leased, and therefore do not form part of the asset base of the entity. The leasing is done on a staggered basis as a way to increase the SAA route profitably and currently, the Airline does not have a flight operating in the 06:05 time period, as the usual aircraft used was undergoing maintenance at the time.

He said that Mr Somyo characterised the current situation very well, referring to it as “white noise”. The entity had a choice of either liquidating or saving it and making it work, all of which was happening during a pandemic that was a tumultuous time globally. The list of individuals interested in presenting to the Competition Tribunal indicated that competitors ensured that the entity did not move in a certain direction and disruptors intended to ensure that the deal did not work. This would make SAA appear to be an entity not operating adequately. The relentless push for further corrupt deals in this regard only serves to further discredit the entity, and the Department is working tirelessly to ensure that none of these malicious efforts come to fruition. The Competition Tribunal processes will continue and will be concluded with the participation of the Department. He concluded his response by saying that those who do not want the Airline to work are using every single forum available to create doubt.

Mr Somyo followed up on the question based on the emphatic term used of acquiring six aircraft and asked whether SAA is adding to the already existing asset base.

The Minister explained that there is a difference between acquiring to own and acquiring to lease and that perhaps the use of the word “acquisition” may have created the wrong impression, but currently, the matter is about leasing.

Ms Zodwa Xesibe, Regional Executive Manager: Eastern Cape, SIU, provided a high-level response to the allegations. She confirmed that the SIU did indeed receive allegations about the Takatso deal. The allegations focused on the interference in the administrative process from the Department in selecting the final company awarded the deal. She said that the SIU scope is very wide and what has been reported on thus far are the areas which it is focusing on at the current moment.

The SIU is continuously doing relevant searches and follow-ups on officials who have been found guilty and have since left the SAA.

Mr A Lees (DA) referred to the ongoing Takatso deal, which has had many stumbling blocks. He said that one of the main concerns came after the Competition Commission recommended that minority shareholders would not be going evenly and that the state would have to buy them out. Was this considered to ensure that the deal went through? Because the value of the Airline after clearing its liabilities is between R3 billion and R10 billion, what value would be considered after selling 20% of the 51% to minority shareholders for R8.16?

The Minister stated that the claim from Mr Lees of R8.16 is going to be completely misleading and that it is a matter for Takatso to deal with, as well as the 20% shareholding. He confirmed that it has nothing to do with the state.

Adv Melanchton Makobe, Deputy Director-General: State-Owned Companies Governance Assurance and Performance, Department of Public Enterprises, echoed the sentiments shared by the Minister and agreed that the matter is to be handled by Takatso. He added that it is a condition imposed by the Competition Commission that minorities must be diverse and it is a matter that Takatso should handle.

Mr Lees thanked the Minister for the clarity and reassurance that the matter would not become another bailout, as that would mean other implications.

He said that Harith General Partners, which is the majority shareholder in Takatso, publicly stated a few weeks ago that it had not yet sourced the R3 billion, which is required for the agreement that the Committee is yet to see. How will SAA ensure that the R3 billion is made available, given that it is going to be spread over three years, in terms of the business rescue plan?

Minister Gordhan responded and stated that the Department would make sure that Takatso puts on the table what is required in its efforts to consummate the partnership between the public sector and the private sector. The concerns will be dealt with during the process that takes place after it goes through the Competition Tribunal. The Airline will be in full motion as it should and it will match the competition as necessary to reduce its fairs so that the travelling public can fully benefit.

Mr Lees stated the importance of ensuring that condition precedent is in place before the deal is finalised.

He asked for an update and clarity on the exact amount of profit made by SAA in the last financial year, as mentioned by the Minister.

Prof Lamola stated two constraints exist in the entity’s interaction with the Committee on a public platform. One is that there are governance processes and the financial performance of SAA has yet to go through the various processes and be audited. He indicated that there would be a Board meeting in the evening and the board would process the financials. Some accruals and adjustments need to be carefully considered, therefore the exact amounts cannot be stated at this current stage. However, SAA as an entity has operational profit, and there is the SAA Group, where the performance of the subsidiaries is consolidated together with the Airline. At this stage, the operational performance of the Airline is indeed positive, which is a historical achievement for SAA to report a profit.

Mr Lees thanked the CEO for providing useful information in his response. He said that in the past, the Committee used to get full management accounts out of SAA and it has been very disappointing that at a time post-State Capture, the Committee has not been receiving these full reports. While he commended the operational SAA for showing a profit, he indicated that it would be disappointing for SAA Technical not to show any profit as its potential is much greater than that of SAA Airlines. He expressed that Airchefs should be shut down, or even privatised because the market for the company is quite restricted.

He asked the Minister where SAA gets the money to transfer to the receivership to reduce from about R550 million, when there are claims that the Airline has not made any profits.

Ms Lindsay Olitzki, Acting Chief Financial Officer (CFO), SAA, agreed that the initial amount required was R3.5 billion for the balance of the business rescue process. Over some time, the entity was able to realise some of its operational savings and that what was actually needed was closer to R2.64 billion, which is the amount requested from the various governance processes and of which R1 billion had been received post the last budget vote.

Prof Lamola stated that SAA management has been engaging in innovative ways of recovering debt. In the reading of the PFMA, management discovered that as an Accounting Authority, it is enjoined to recover all the money owed to the state. SAA reduced its ticket liability insurance imposed by credit card companies and airline licensing authorities, by interceding with those institutions to negotiate less amounts bled by those institutions. The money that was able to trickle in enabled SAA to invest the money into operations. SAA has gone into a very aggressive cost containment strategy to ensure that the Airline is run operationally and is self-sustainable.

Ms Jacky Molisane, Acting Director General, DPE, indicated that government is still obliged to pay the balance of the historical liabilities which was part of the business rescue process and said that the money from the Takatso deal can only be forthcoming once the deal is finalised.

Mr Derek Hanekom, Chairperson: SAA Board, confirmed that the Interim Board has had to hit the road running in terms of ensuring that the work of SAA is done. He told the Committee that the audit and risk committee, had a huge problem of racing against time because of the overdue reports. He highlighted that in the meeting, the board will be dealing with the fourth quarter report. The good news is that there is profit including that made by the subsidiaries. Expressing deep disappointment over the ordeals that have taken place in the past few years, Mr Hanekom told the Committee that SAA Technical indeed has the potential and capacity to generate revenue. He also assured the Committee that management has everything under control and these issues are being addressed. The prospects for the coming financial year, 2023/2024, look quite good and the outlook on the entire aviation sector looks much better than it did a couple of years ago.

Mr Lees responded to the Acting DG stating that, indeed the decisions taken do depend on the finality of the deal, however, when an entity commits itself to a deal, a guarantee needs to be put in place and it should be honoured after the deal is signed. He indicated that he understood there are sequences to follow in these processes. Asking for an update on the status of the South African Airways Act, he said that he had not seen anything relating to it coming before Parliament for amendment.

Adv Makobe responded to the matter of the R3 billion that Takatso has to put in and said that it is a legal obligation in terms of the sale of shares agreement. He said that the Bill had been drafted and finalised to go through the processes within government.

Mr Lees concluded that he looks forward to seeing the Bill, which is quite a short document and therefore should not be difficult to amend.

He asked for clarity on the 8.7% salary increase and whether it was awarded to every employee.

Prof Lamola clarified that no money was given to employees "out of the blue”, however, there was a well-thought-out salary adjustment as part of the staff incentivisation program at SAA. The last time employees received an annual increase was in 2019, which was budgeted for and there was an indication that it was not meant for top management but rather for general staff, excluding pilots and executive management. He told the Committee that pilots are under closed bargaining processes, with negotiations starting during July as per the salary review with the South African Airways Pilots Association, which agreed that the pilots would get a salary review in August 2023.

Ms T Siweya (ANC) flagged to the Minister and his team that she was advised in the week that she should turn to a particular News channel and listen to the former DG of SAA, who had been speaking on SAA's issues. She said that when something is told on various platforms, it eventually becomes true. It is in the interest of all Committee Members and the management of SAA that the entity thrives and goes back to its former glory and that consumers of the product should be able to hear an alternative voice. She highlighted that she is unsure of the plans that SAA has in place to mitigate the damage that already exists, especially because SAA is no longer the South African passenger airline of choice, but rather used as an alternative option for emergencies. She suggested that as the board continues to do its work, the energies should also be redirected towards fixing the perception that consumers have about the SAA product and its reputation.

Ms Siweya indicated that she is also a Member of the Portfolio Committee on Public Enterprises and that the presentation from SAA was not new to her. Why does the entity continue to put targets in place that it is unable to meet? Is it a legislative issue? She asked for further clarity on the matter. She also sought clarity on the issue of acquiring versus buying and indicated that it would create problems in the future for the Airline because if the target is not met in March 2023, Members will come back and ask the same question again.

Will the entity still be using the seven aircraft to acquire the new routes or is the addition reliant on the new aircraft? How much revenue was made by the entity in the previous financial year? She asked that the entity provide the Committee with clarity regarding the passenger and cargo revenue exceeded in the budget.

She commended the report written by the SIU and indicated that it is always easy to follow.

Prof Lamola said the issue of corporate reputation remains one of the major concerns of the management operating the Airline. He indicated that it hurts to learn that SAA is no longer the Airline of choice for most South African travellers; however, management has received scientifically contrary views to those raised by Committee Members. In the industry, there are instruments to weigh customer satisfaction, by using the Net Promoters Score (NPS), which is an anonymously conducted survey on passenger experience. SAA is a member of the Star Alliance and out of 25 companies that SAA competes with, the Airline has strangely come out favourably as per NPS results. The entity has been pleasantly surprised by the monthly number of people who continue to join the Voyager membership. There are plans in motion to ensure that the reputation of the Airline is restored, and a media consulting company works together with SAA. There are careful media strategies in place.

Prof Lamola apologised for the confusion on the PowerPoint slides, pointing out that the month indicated next to the routes are not performance targets set in an operation. These referred to operational rollout plans that are purely just commercial and the reference to March 2023 is to indicate the end of the financial year. According to the current budget for the financial year end of 2024, the company would have added six aircraft to the seven that are currently operational. All six of the aircraft will be leased which means that SAA will pay a monthly fee and after three years, the aircraft will be returned to its owners. The arrow indicated on slide 12 refers to an already underway process, meaning that the entity is not waiting on the six aircraft. SAA is currently in the process of adjudicating the Request for Proposal (RFP) for the four aircraft. The process of selecting the preferred supplier will happen in the next three weeks and all the regulatory issues of acquiring the aircraft will be resolved. The fleet includes a wide-body long-haul aircraft that will be used to launch the first Inter-Continental route by SAA in the post-COVID period. Only SAA can be given its location.

He indicated that the revenue achieved in the previous financial year was R5.5 billion and R310 million of the revenue was for cargo.

Minister Gordhan stated that the Committee Member raised a few valid points concerning the matter of the former DG. He explained that the process started when the Public Service Commission (PSC) wrote to him about a complaint by a candidate who felt disenchanted by the process that they went through. The PSC instructed him to investigate the matter. Adv Makobe handled the acquisition of a forensic firm and an investigation was conducted following the necessary steps, and a report thereafter was prepared. In terms of South African law, DGs are formally appointed by the President and not by the Minister. Therefore the report was accordingly submitted to the Presidency. The second protocol is that in the event of a dispute between a Minister and a DG, it is managed by another Minister appointed by the President. He also explained that the issue was with something the DG did and not a direct dispute with him. Mr Ronald Lamola, Minister of Justice and Correctional Services, saw the report and decided on the suspension of the DG and thereafter proceeded with the disciplinary inquiry. The outcome of the inquiry stated that the DG should be dismissed. After the matter, several other issues were discovered which have been handed over to the Presidency. The Minister relayed the steps taken by the former DG in his dispute. The DG speaks quite disparagingly about the President and both Ministers (Mr Lamola and Mr Gordhan). As far as Minister Gordhan is concerned, there have been many fabricated matters around SAA. The fabrications have been rebutted several times before, however, certain news publications and TV stations have continued to give the former DG a platform based on freedom of speech. Personal attacks are shared on the matter and narratives with which certain political parties have chosen to associate.

The Chairperson stated that although the issues may be interlinked and are important, the engagements should be SAA centred.

Ms C Mkhonto (EFF) asked for clarity on the issue of the 20% minority stakeholders. She asked who the biggest shareholder of SAA would be after the transaction took place.

Have the positions of the officials subjected to disciplinary hearings been filled? As the entity cannot continue to run without those positions and were the pension packages of those officials paid out?

Ms Mkhonto asked for an update on any restrictive measures put in place, such as blacklisting the officials to prevent them from moving to other institutions within government sectors for employment and continuing with maladministration.

She raised concerns about the allegations that SAA owed Airlink millions of rands for the reasons listed in the presentation. She asked for clarity on the matter and an update on whether the matter was settled.

She said that it was good to hear that most of the cases referred to the SIU are going to be concluded by August 2023, and highlighted the importance of concluding the issues at SAA to allow the new role players to do the necessary work and for the Committee to focus on these new role players within SAA. The new role players also need to be able to account to the Committee and move forward with their recovery plans.

Ms Molisane explained the role of Takatso, saying that it is a special purpose vehicle implemented for the acquisition of Takatso to have 51% shareholding. It comprises Harith General Partners and has a minority shareholding in Syranix and Global Aviation. Once the deal has been finalised, the government will be a 49% shareholder.

Prof Lamola indicated that the positions of the officials that left SAA have not yet been filled and it is a challenge because some of the investigations are still ongoing. Management is not able to act decisively against employees until the SIU makes the necessary disciplinary referrals. There were three recent referrals made and action has been taken on such cases. In instances where there are employees implicated in the investigations and are in the process of resigning, the SIU instantly brings the matter to the attention of the board for appropriate action to be taken.

He said that once the process has reached a stage wherein there are particular names, the process of blacklisting will also begin. If there is any need to re-employ, SAA management ensures that no one re-joins SAA when they have allegations or investigation clouds over their heads.

He responded on the issue of pensions, explaining that there is currently a matter in Kempton Park court where the issue of the travel rebate scheme, one of the most abused financial areas in SAA, was being deliberated. When the employee left, SAA put a stop to their pension fund and the employee went to the Public Protector to complain that their pension had been withheld. SAA reverted to laying charges as a way of recovering funds that could be proven from the participation of the employee in the scheme.

Ms Olitzki stated that Airlink fell into the group of recommencement creditors which fall within the business rescue plan, however, it is pursuing a case in court against SAA on the particular amount.

Ms B Zibula (ANC) commended Adv Mothibi on clarifying the issue of employees leaving the SAA without facing the necessary disciplinary action. She said that the issue was a major concern for most Committee Members.

She said that it looks like Board members have a particular part that they play in corruption, based on their otherwise powerful position and this is a problem that needs to be looked into, as one cannot be a player and a referee in one position.

Although she understood the frustration of the Minister on the NUMSA matter, she said that workers also need to earn a salary. She referred to the fact that wage negotiations were underway at Eskom due to workers fighting for their salaries.

She asked for clarity on when the position of the DG will be made a permanent position and concluded by saying that the Minister should work hard at ensuring that SAA comes back into full swing.

In response to Ms Zibula's plea to have the national carrier back, Minister Gordhan indicated that it is indeed the type of business that allows companies to take up space where they see a vacuum. He stated that it is the same means that the CEO of Airlink has used over the years. SAA would not be featured in the current flight talk had it not opted for the business rescue route.

Minister Gordhan agreed with the sentiments shared about the previous board that it was part of the State Capture campaign. He said he is encouraged that the SIU has been looking at the diversity of the issues presented to the Committee. He highlighted that an issue of concern would be the gap between what could potentially be recovered which is an amount in the billions and what has been recovered which is in the millions.

Responding to the concerns about the Acting DG, the Minister told the Committee that the Department could not act on the matter until the disciplinary process had been finalised and it had gone through a process of advertising. He said that the Department would be looking at the matter internally.

Professor Lamola said that there is a desire to fly the Golden Triangle which is Cape Town, Durban, and Johannesburg, however, version two of SAA is run on stricter business principles. The entity will not be able to initiate a route unless a thorough economic study has been done and money will be made on the route. The decision goes through various governance approval processes and many considerations are taken into account before a final decision is made. He noted that the culture of the new SAA, which differentiates it from the old SAA, is to avoid making business decisions based on political sentiments.

The Chairperson, said that the outlook has been that there will be a modest profit for SAA, pre-Takatso merger. The sentiment was that SAA was finding it difficult to be financially viable, so a SEP was brought on board. The modest profit that has been projected, is due to how SAA has had to push the reset button, rebuilding itself from the ground up. Is there still a need for SAA to engage in a SEP process if it is recalibrating itself towards self-sufficiency?

The Committee has previously raised concerns about what would happen if Takatso was unable to raise the required R3 billion, and again in the current meeting, the concern has been raised again. In his response in November 2022, the Minister stated that if that were to occur, there would be no deal and the DPE would have to explore other possibilities. There have been conditions of the regulatory processes that need to be considered. He asked for a timeline on the matter to be concluded, and what plans would be put in place to mitigate the concerns raised if the R3.5 billion does not come to the table

The Chairperson stated that while SOEs are meant to generate money for the state, the contrary has occurred; there have been multiple bailouts to these SOEs. An issue that has been cited has been the challenges of the PFMA which does not allow for business agility. He made an example using the South African Broadcasting Corporation (SABC), where a disk machine will break and a tendering process will be required, while the other broadcasting competitors could walk down the road to have the matter fixed and business continues. He suggested that it may be time to engage with National Treasury on creating the necessary agility within the PFMA as a response to ensuring that SOEs can meet their commercial obligations whilst still holding on to the state's strategies. He noted the importance of looking at all the variables to fix the SOEs.

Minister Gordhan thanked the Chairperson for his questions and comments. He stated that the management of SAA has no reason at this point not to take Takatso bonafide, and believes that Takatso will deliver the funds when required. The company will have to solve its problems in terms of its minority shareholders. The Competition Commission process takes about ten months, and the Competition Tribunal is set for the third week of June, where representations will be made and there are a few more regulatory processes to go through. By the end of August 2023, all the regulatory requirements should be concluded. The Acting DG and her team have begun the process of engagements with Takatso on the timelines for each activity and the expectations from the officials, and the project planning should be concluded in the next three weeks.

He outlined a difference between a seven-aircraft airline and a 60-aircraft airline, and had the shenanigans not occurred, the 60-aircraft Airline would have been in a different space. The Airline would be providing dividends to the state as opposed to extracting bailouts. The SEP is required to put money in which will enable the Airline to expand along the lines systematically, based on commercial criteria and a reasonable chance of success of the routes paying back its costs and the profits made. He stated that the issue is not the current way of operating but rather the future growth. SAA has been forced into a situation of letting go of 3 000 workers which creates a huge gap. However, the aviation space has a lot of room for growth.

The limitations experienced through the Vulindlela operation raise questions about what exactly stands in Eskoms way in the procurement issue. After various discussions, it was concluded that self-created issues stood in its way.

Follow-up questions on outstanding matters

Mr Somyo agreed with the Minister in saying that in the decision to apply the PFMA, there should be caution to not get into delegitimising the PFMA itself and therefore, there must be time and space to apply what is there. He said that he is happy about the application of Section 54 of the Act in terms of the matters concerning the acquisition. The entity is getting into meeting some of the requirements to either build or dispose and it has to rely on that particular clause going forward.

He asked for clarity on the exact amount of the acquisition in terms of the agreement with National Treasury and an update on the value proposition if the entity would rely on the acquisition. Regarding the leasing, he asked whether SAA still has the technical wing and the link between the maintenance issues. Is it possible for the matters raised by the SIU to match the speed of where the entity would like to see itself, to avoid a delay in clarifying the issues? There needs to be a link between the timelines of the entity and the matters raised by the SIU to avoid any delays as these end up costing money.

Mr Lees asked for clarity on how it has been possible to maintain the air licences for SAA without providing annual finances for the past four years. Is there a special deal for SAA, as it is normally a requirement?

He asked for clarity on the number of employees at SAA, because, based on a media article quoting the [board] chairperson, there are 2 000 employees and at the end of business rescue, there would be 1200 employees.

He asked for an update on the pilot training bonds, and statistics of pilots that have since resigned from the entity.

Ms Mkhonto followed up on her question regarding the 51% Takatso shareholding and 49% State shareholding and asked whether this would mean that SAA is being privatised. Would SAA still be considered an SOE?

Ms Siweya asked who would be responsible for appointing the board in the 51% Takatso shareholder and 49% State shareholder deal. Regarding the R5.5 billion, could SAA be considered to be making a profit? And if it continues along these lines, could there be a future for SAA to be self-sustainable?

Response

Minister Gordhan responded to the question from Mr Somyo, saying that the use of the word acquisition is correct, however, in this instance, it is about the leasing of the aircraft but when it comes to the disposal of shares, there are technical legal matters involved. The difference is who is disposing of the shares, and the PFMA covers when an entity decides to sell its shares.

He said that most of the pilots enjoyed flying overseas and because the Airline was not operating overseas, they left to explore other airlines, such as the Middle Eastern airlines.

There are often cases where the state finds itself as the minority shareholder within the state's stable. The reality is that the state does not always have the funds to manage and provide additional investment for an entity to grow. He highlighted that it does not mean privatisation, because the state has 49% equity and the golden share which means that it owns the brand headquarters in South Africa; transformation of the staff; and management will take place. The intention was never to privatise but rather to save the Airline.

He said there would be a proportional board nomination as would occur in a commercial company.

On self-sustainability, the Airline can sustain itself as a very small one but to grow, the Airline will need a capital injection and that cannot come from the fiscus and due to the fiscal constraints, it has to come from elsewhere. A number of SOEs find themselves in the same position.

Prof Lamola said that SAA Technical is still very competitive in the global maintenance repair and overhaul market, and it is even doing third-party work for other airlines. This is a sustainable situation with good potential for growth. He also stated that both the domestic and international Air Services Licensing Councils required financials but they also require management accounts. An affidavit is submitted every month with a disclosure that SAA still has enough money to fly for the coming months. The number of staff cumulatively is 987 - 2 000 refers to the Group, including Airchefs, SA Tech etc.

The pilot training bond refers to the money made available for pilots to study further. They have an agreement with the company that the individual will not resign immediately after completing the said course to repay the company in the form of work hours. SAA currently has a complement of 87 pilots and it is currently on a recruitment drive for 37 additional pilot for the extended fleet. Resignations vary but during the past quarter, there were only about three resignations.

The revenue is currently R5.5b – in 2017, the Airline was reporting revenue north of R37b so this R5.5b is not big money and shows the constraints. SAA is operationally surviving but is not commercially thriving. SAA needs a SEP for a capital injection and agility.

The audit is being worked on systematically particularly on the issue of managing regular expenditure, consequence management and strengthening financial reporting systems in SAA.

Adv Mothibi, on the assessment of the new allegations, said the SIU will ensure it speeds up the assessment so there is no doubt on where they stand for certainty.

Regarding the recoveries, the Special Tribunal, having received the Constitutional Court thumbs up, the process will begin unfolding. All the other quantifications in this space will also be speeded up. One would have to wait until all the quantifications are done to give a clear indication of the contract values to be set aside at the Special Tribunal and the possible recoveries.

Adv Mothibi agreed it is important to speed up the investigations to close the matters quickly and SAA knows where it really stands as it moves forward. It is also important to remember a number of contracts are being looked at. The matter of possible outstanding contracts will also be looked into.

Adv Makobe replied to the question of share price and acquisition explaining that in terms of Section 54 (2) of the PMFA, in terms of the Treasury Regulation, there must be a significance and materiality framework to set the threshold for applications made and the definition of acquisition. Regarding this transaction, Section 54 (2) of the PFMA does not apply – it is the Companies Act this applies to this transaction. This was also confirmed by a legal opinion received.

Mr Somyo wanted to know the price of the lease.

Prof Lamola responded that the matter of lease acquisition is unfortunately competitively sensitive information. SAA competes in the lease market and issues tenders for leases. SAA has competitors watching the meeting and if they know how much was paid for leases, will have some advantage over SAA. To give a ballpark figure, to lease an A320, ranges between $220 000 to $240 000 monthly. This aircraft is usually about 15 years old. A new A320 would cost about $200 million or $250 million. There are people globally that buy and lease aircraft. These figures show where SAA needs to aim and shows the need for a SEP to buy new aircraft.  The lease price also depends on the market, how busy the airlines are in season etc – supply and demand.

In closing, the Chairperson thanked everyone for their engagement as they received an update on SAA matters. The Committee will engage with the AGSA to find out if they are happy with the way things are progressing with the audit because there are outstanding audits to keep an eye on. The expectation is that for SAA to the functional, effective, efficient and thriving, it needs to “go back to basics”.

The Chairperson remarked that the Committee was kept busy by things going wrong so he appealed for everyone to do things right to render the Committee “jobless”.

The Chairperson informed Members of the Committee schedule for the rest of the week and the next.

Minister Gordhan thanked the Committee and trusted the update showed the Committee that SAA was in “survival mode” and was now ready for phase two. He cautioned against “foreign shopping” of people showing to different fora spreading the same rumours and stories trying to ensure the deal does not happen because someone wants to “pick up the pieces on the side”. SAA is working on the detailed planning for the milestones it needs to cover in the coming months to make this deal work.

The meeting was adjourned.