Letter to Chair of the Standing Committee of Finance

7/24/2019 Letter to Chair of the Standing Committee of Finance

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South African AirwaysChairperson6thFloorA Block, Airways ParkOR Tambo International Airport

Private Bag X 13Kempton Park1627

Tel: 27 11 978-2520Email: [email protected]

Directors

DC Myeni* (Chairperson), WH Meyer (Chief Financial Officer), Y Kwinana*, JE Tambi* (Sierra Leonean), AD Dixon*

*Non-Executive Director

Company SecretaryRuth Kibuuka

South African Airways SOC Ltd Reg. No. 1997/022444/30

Honourable Chairman of the Standing Committee on FinanceMr Yunus Carrim, MPHouse of AssemblyP.O. Box 15Cape Town

Dear Honourable Chairman

RESPONSE TO THE QUESTION FROM THE HONOURABLE DAVID MAYNIER MP

During the recent portfolio committee hearing at which I appeared on behalf of SAA, theHonourable David Maynier MP posed the question, namely Tell us why you should not resign (asChairperson).

I undertook to prepare an answer for this Honourable Committee.

Firstly, I serve as the Chairperson of SAA at the pleasure of the shareholder, being the SouthAfrican government and specifically the shareholder representative, the Honourable Minister ofFinance. It is an honour and privilege to serve in this capacity and I intend to carry out my

responsibilities as long as the Minister requires.

Secondly, I believe that I and the Board of SAA have performed well in extraordinarily difficultcircumstances.

It is well recognised that South African airlines are under extreme pressure with expendituregrowing and passenger revenues falling. One only has to consider our competitors to understandthat.

For SAA we are under additional unique pressures. It is trite that SAA is undercapitalised. TheLTTS which is known to the Members of Parliament, makes clear that recapitalisation was requiredand its approval by the Cabinet, implied that it ideally should be. The interest burden on SAA isextreme and the return to profitability under current circumstances is a challenge. But we arepositive as continue to look at how best we can contain costs as per our cost compressionprogramme.

SAA has over the past 12 months placed considerable effort behind what is known as the 90-dayturnaround plan. Its success is well known and every effort is made to continue that progress.

We have also led the bold initiatives to clear up maladministration. It has been our Board that hasbrought maladministration before independent hearings.


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It has been our Board that initiated the Edward Nathan Sonnenebergs anti-corruption program. Itis our Board that initiated the Ernst and Young procurement investigation into procurement losses.

It is our Board that has identified massive losses and pursued those responsible for a variety offailings. These actions have proved most unpopular hence recent media attacks. We have beenpublically vilified yet we are undaunted. The Board, with the support of the Shareholder

Representative and the Shareholder ( South African Government) will continue to clean out the rotand strive to return the Company to profitability. The Government of South Africa is signatory toOrganisation on Economic Cooperation and Development (OECD), and therefore we take our leadfrom the government regarding anti-corruption initiatives and programmes.

It is this Board that is challenging many past decisions that have, on reflection, merely served todownscale the airline and inhibit its return to profitability. We are challenging issues such as theclosure of the Cape Town/London route, the closure of Dakar/Washington route, the Mumbai routeand domestically routes such as Cape Town/Durban and frequencies between OR Tambo andDurban. These enquiries can be threatening but they need to be done. Those threatened havemuch to lose hence media leaks.

I would pose the question why do we suddenly have so many internal, disgruntled employeesanonymously leaking documents and stories to the press. Why do these not reflect a balance offacts. What is the purpose and intention behind it. Do we really want to succumb to these actionsand interrupt enquiries that are uncomfortable? We understood at the outset that we would facecriticism.

Recently the Airbus transaction received considerable negative publicity. Again this is fuelled byanonymous insiders. What the Board is doing, is testing the wisdom of the proposal. This is aproposal that will lock SAA in 12 years of escalating rand cost leasing expenditure. This is amassive transaction and its impact will be felt for a decade to come. We as a board want to testthat. We are not wedded to any alternative, as the media might suggest. We want to putalternatives, properly motivated, before the Honourable Minister whose decision it ultimately is.

Have we done this unilaterally? Not at all. I have personally communicated in writing and face-toface on numerous occasions with Airbus representatives. They have at all times provided us withspace to consider the alternatives. At this moment we are acting under a period of grace providedby Airbus. We are not challenging Airbus. Airbus is a major and highly valued partner andstakeholder in our business. We are not at odds with them and they have been extremelycooperative. We have also ensured that the Minister has been informed. He has also been clearthat this is within our remit and his only requirement is that we deliver what is in the best interestsof SAA. He is aware of the deadlines and consequences and we are extremely conscious of them.

More recently we have had adverse media reporting of the going concern status of the airline.This is a important debate and it is continuously occupying our minds. However we should beclear. SAA is paying all it liabilities. It is serving all its loans. We are not about to default at all. Why

is a perfectly normal internal report taken out of context. Who benefits from creating suchnegativity. It might be nave to take these occurrences at face value. Certainly should Airbusimpose penalties then we at risk and that risk must be managed. I do not expect that to happen.

This Board has initiated and started the implementation of Transformation Initiatives. This is in linewith the Government Transformation Policy. We have observed that SAA procures goods andservices amounting to R24 Billion Rands per annum. Only 4% of the total procurement spend goesto only 29 50% Black Owned companies. We have made commitment to ourselves as the Boardand Management that we will assist in increasing this percentage to impact on Black Owned YouthBusiness, Women, People With Disabilities and Military Veterans. I must hasten to say that this isbeing done in an ethical, transparent and within SAA Transformation Policy, and Supply ChainPolicy. We as an SOCs is taking a lead from the government and are giving opportunities to

historically disadvantaged people too.


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Honourable Chairman, I believe that this Board has walked a difficult road. That road has strangelynot been popular and is much criticised by those better informed and those not. However as longas the Honourable Minister believes that we are acting in the best interests of the Company thenwe, and I in particular, will continue. I am conscious that when we challenge certain issues, someare threatened. There is a burden to carry but I shall continue to do what is expected of me.

SAA has history of financial losses, but recently, the media has been selectively reporting aboutfinancial performance of SAA as though it is something new. No one has spoken about thehedging losses in 2004/5, losses incurred through Sale and Lease Back of SAAs Fleet (Aircraft)during the tenure of the former SAA CEO, Mr Coleman Andrews. That decision continues to affectSAA, as we only own less than 10 Aircraft today in our books. SAA losses were also experiencedby the former Transnet CEO, Ms Maria Ramos while SAA was part of Transnet. She was fullysupported by the Government of South Africa, not so long ago, and she took a bold decision, toremove SAA from Transnet, as by design, SAA is not meant to make profits, but at least we mustbe financially sustainable. Again, Honourable Chairperson, we need to ask ourselves what wewere established to do. Do we continue to do what we need to do, and who benefits, I think TheDept of Tourism is one of our direct recipients of our services.

In conclusion, SAA has embarked on an inclusive approach where we would like Government ofSouth Africa to consider a Whole of State Aviation Policy Framework, which will assist us tooperate like newly established Airlines such as Ethiopian Airlines which operates and gets supportfrom the Government, such as

DoT (Airport charges, route rights)

Tourism (Developmental routes)

Home Affairs (Transit & Tourist visa and Unabridged Birth Certificates)

DTI (National Industrial participation program)

DPE (Corporate structure for aviation assets; Alignment of procurement for Denel, SAA and SAX

DIRCO (Understanding route network changes, leveraging bi-lateral relationships)

Dept of Finance for Airport Taxes, all SARS and VAT charges.

The closure of Beijing Route, was a decision of the Board, and indeed, considering that the Airlinewas loosing (according to the numbers given to us by Executives, R30million Rands per month.)This is a strategic route, and it does link up with the BRICS as part of government BRICS broaddevelopment agenda, but the lack of a Whole of State Aviation Policy Discussion, makes us tooperate in silos, and yet there could have been fiscal transfer mechanism to ensure that wecontinue with this route as it takes about 2 to 3 years to develop a new route. But what gives mejoy is that, through this Beijing Route, the contribution made through SAA, in the countrys TradeActivities is about R90 Billion Rands in 3 years.

While we have challenges at SAA, we have a will to grow the Airline and continue to impact in SAsDevelopmental Agenda, and all this can be or may be twice as vast as its challenges. In fact,value that SAA already deliver to the country is material. Based on the June 2013 OxfordEconomics Report:

The SAA as a Group contributes R 9.2 billion (0.3%) annually to South African GDP and anadditional R 12.4 billion in catalytic benefits through tourism.

The Group supports 34,000 jobs in South Africa and a further 51,400 jobs through catalyticdemand effects on tourism from our two airlines: SAA; and Mango. Many of these jobs arehigh productivity jobs.


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Our contribution to public finances annually is R 6.1 billion, through: income tax; VAT; airpassenger duties and other aviation specific taxes; Government revenue raised via the Group'ssupply chain; and the taxation of activities supported by the spending of employees of both theGroup and our supply chain.

Implementation of the LTTS would grow our business and increase our annual GDPcontribution to R 38 billion by 2025.

In my view, financial losses will not be addressed by removing the Board, but corruption,maladministration must be dealt with at its core by the Board as being done now. South Africansmust be told the truth, and we are doing so, and we have the best interest of SAA and the interestof South Africans in all what we do.

Honourable Chairman, I will not resign in this position, but will continue to serve at the pleasure ofthe South African Government as long as it requires me to serve.

Respectfully,

Signed Copy to be sent via SAA Company Secretary

_________________________

Ms. Duduzile Myeni

SAA Chairperson

Date: ____________________

Letter to Chair of the Standing Committee of Finance

Documents

Transcript of Letter to Chair of the Standing Committee of Finance