South African Airways Bill (B35B-2006): adoption

LABOUR AND PUBLIC ENTERPRISES SELECT COMMITTEE
7 March 2007
SOUTH AFRICAN AIRWAYS BILL (B35B-2006): ADOPTION

Chairperson: Ms M Temba (ANC – Mpumalanga)

Documents handed out:
South African Airways Bill Presentation
South African Airways Bill [B35B-2006]

SUMMARY
The Department of Public Enterprises briefed the Committee on the South African Airways Bill (B35B-2006) explaining that it provided for the transfer of Transnet’s ownership of the airline to the state. It would then be transformed into a State-owned Enterprise.

Members raised questions about the timing of the change in ownership control, the future sale of the state’s stake in the airline, whether the state would have to provide funds to the airline if it hit financial difficulties again, and the situation during the transitional period before ownership changed hands.

In the end the Bill was adopted unanimously.

MINUTES
Department of Public Enterprises (DPE) Presentation on South African Airways Bill
Ms Ursula Fikilepi (Director: Corporate Legal Services) went through the presentation outlining the background to the Bill and why it was necessary. These reasons included Transnet’s need to dispose of its non-core assets. Transnet could no longer hold on to South African Airways (SAA) due to the volatility of the industry. Due to SAA’s strategic utility as a vehicle for the promotion of South Africa it was deemed important for government to retain ownership of SAA. The rest of the presentation was concerned with SAA’s conversion to a State Owned Enterprise (SOE) once it had been removed from the Transnet stable. Ms Fikilepi stated that the Bill marked significant progress and that government would shortly have complete control over SAA.

Discussion
 
Ms N Ntwanambi (ANC, Western Cape) suggested that the Committee needed to engage with SAA directly in the near future. She questioned the profitability of SAA and the issue of staffing.

Ms S Mabe (ANC, Free State) enquired as to whether the state would enjoy complete strategic control over SAA after the transfer of shares from Transnet. She questioned the motives of SAA’s sponsorship of the Cape Town Jazz Festival. Another point of contention was whether there was legislation in place to prevent foreign ownership of SAA.

Mr Litha Mcwabeni, Deputy Director General: Corporate Structures and Services, responded that there were already sufficient checks and balances in place to ensure that SAA remained a national asset including the airline licensing process. SAA’s turn-around plan was not unique and the issues faced by SAA are endemic to most airline carriers. One area that could be addressed was SAA’s cost structure – the other causes of low profitability are extraneous variables such as the fuel price and the exchange rate.

An ANC Member related a story about a tourist he met who praised SAA’s ample legroom. The Member was impressed but stressed that SAA can improve further. He asked whether the state envisioned a scenario where the state sold its majority stake in the airline.

Mr Mcwabeni responded that there was a provision in the Bill for the dilution of government ownership – but in the immediate future SAA will be completely state owned. He acknowledged the DPE’s realisation that they still needed to process some issues with the Select Committee even after piloting the Bill through the Portfolio Committee.

Mr D Gamede (ANC, KwaZulu-Natal) asked what Transnet’s position would be during the transitional period. Would it remain fully responsible for SAA? He also asked how the state was currently managing its role as shareholder during the suspensive conditions.

Ms Fikilepi responded that Transnet and the DPE currently enjoyed joint management; however until the Bill has been passed Transnet remains the legal owner.

Mr Gamede then asked whether the state was actually a shareholder yet.

Ms Fikilepi replied that until the Bill is passed the state could not really take over management. Both Transnet and SAA’s Chief Executive Officers (CEOs) sit on the SOE CEO forum which allows for government interaction. During this transitional phase she viewed this as the best solution.

Mr Vuyo Kahla (Group Executive: Legal Services, Transnet) stated that Transnet owned the shares but has agreed to sell it to the state. For the state to acquire these shares the Bill needs to be passed. During the interim period Transnet has provided for a R1 billion assistance amount and will provide the government with risk management information. After the suspensive period is over the state will gain full ownership.

Mr Mcwabeni stated that if one sold the shares to private enterprise a “grey area period” would result. This was a moot point in his opinion as in this case the state owns both entities. 

Ms Fikilepi stated that with regard to the issue of a bailout if SAA needs a cash injection it was hoped that SAA would primarily use its balance sheet to raise funds and not rely on the government. The Minister of Public Enterprises has expressed the wish that SAA should be self-sufficient as far as is possible.

Ms Fikilepi noted that SAA’s status would change in terms of the Companies Act, but stressed that the sale of these shares to government should not affect SAA employees.

An ANC Member asked whether, as the Bill now stands, it allows for the option of SAA going public.

Mr Kahla responded in the affirmative and noted that the Minister would have that option at his disposal.

Mr Gamede stated that Transnet’s ownership of SAA is not explicit. He wanted to know who would face litigation if legal action was initiated against SAA – Transnet or government?

Mr Kahla responded that SAA would face litigation as it has legal personality.

Mr Gamede retorted that in essence Transnet would bail out SAA, so one cannot truly separate them.

Ms Fikilepi replied that SAA is a registered company and acts solely except in the case of litigation explicitly involving the shareholder. In the instance of Transnet acting as guarantor for SAA, legal action can be taken against Transnet. She also highlighted the primary purpose of the Bill is solely to transfer shares from Transnet to government, but that it is forward looking in terms of the state’s role as shareholder.

Mr Mcwabeni stated that there are two main issues relating to shareholding, as far as he is concerned – Rights and Obligations. Rights relate to the ability to appoint board members and the right to set the entity’s agenda. Obligations relate to the issue of bailing SAA out (if need be), due to the direct impact on the shareholder itself.

Mr D Mkono (ANC, Eastern Cape) asked whether there was a guarantee that the employees would not be adversely affected.

Mr Kahla responded that they had been in consultation with trade unions and emphasised that their employment status would remain the same.

Ms Fikilepi reiterated Mr Kahla’s statement.

The Chairperson called for the State Law Advisor’s opinion.

The State Law Advisor stated that with reference to Clause 3, the transfer date is when Transnet left the ownership equation and that was the crux of the matter.

The Chairperson moved the Bill and it was adopted unanimously.