Myeni's push for BEE slice could cost SAA billions
SAA and its low-cost carrier Mango stand to lose billions of rands by failing to conclude a direct lease agreement with international aviation company Macquarie.
NJR ZA via Wikimedia Commons
The Sunday Times has obtained a memo from Mango to the SAA board, asking it to reconsider its rejection of the deal and recommend it to Finance Minister Pravin Gordhan. The appeal was made after the board, chaired by Dudu Myeni, rejected Mango's initial request.
The cash-strapped national carrier currently leases four Boeing 737s from Macquarie, and subleases them to Mango. Mango wants to extend this lease and hire two more 737s directly from Macquarie until 2023. In return, Macquarie has agreed to waive "return conditions" for the aircraft. These are payments SAA and Mango would have to make to Macquarie when returning the aircraft at the end of the lease.
Macquarie agreed to the deal because 2023 is considered the end of the planes' useful life.
Deal rejected despite significant financial benefits
Although the deal would save SAA R1.3-billion and Mango R1-billion, Myeni's board rejected it in March.
This prompted Mango to resubmit its proposal to the board on May 30, spelling out the financial benefits to Mango and SAA - including the R1.3-billion bill to the national carrier. "This important fact might not have been clear in the Mango submission to the SAA board," the May 30 memo said.
It also outlined other savings, such as R860-million in a "maintenance reserve" - money set aside every month for each plane. "Mango will be eligible to claim against those amounts when they perform any qualified work," the memo said. Mango would also save R150million by not having to pay a maintenance reserve for the engines. The memo concludes it would be difficult to "negotiate such favourable terms and conditions again".
Empowerment credentials requested
Several well-placed airline sources said the SAA board's failure to approve the deal had raised eyebrows. "After the appeal, the board was able to see that there was no question about the need to agree with Mango's proposal," said one.
Myeni had instead requested a breakdown of Macquarie's empowerment credentials. "We have asked for this from Macquarie . That is now back with the board to be tabled at the next meeting in August," said the source.
Myeni's moves have fuelled fears she intends to involve a local finance house in the deal. "She did the same with Quartile Capital and with BnP Capital," said another source. Last month it emerged BnP Capital stood to earn a R256- million "success fee" for sourcing R15-billion in debt funding for SAA before its contract was canned when it turned out the firm did not have a valid Financial Services Board licence.
An SAA presentation to the Treasury in May seen by the Sunday Times reveals BnP had also been appointed to "analyse" SAA's lease agreements.
Macquarie declined to comment. Mango said: "A portion of Mango's fleet will require lease renewal or replacement soon and one of the options available is to directly lease aircraft from the lessor of this segment of our fleet."
Neither SAA nor Myeni responded to repeated requests for comment.
Source: Sunday Times
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