Airbus deal: Gordhan 1, Myeni 0

Cape Town-110624.Finance Minister Pravin Gordhan. The Climate Investment Funds (CIF) in Africa, the African Development Bank (AfDB) will host the 2011 CIF Partnership Forum in Cape Town, South Africa from 24-25 June 2011. AfDB Vice President, Bobby Pittman, is expected to give opening remarks and welcome over 400 delegates expected from recipient countries, other multilateral development banks, UN agencies, donor countries and other stakeholders. Picture Mxolisi Madela/

Cape Town-110624.Finance Minister Pravin Gordhan. The Climate Investment Funds (CIF) in Africa, the African Development Bank (AfDB) will host the 2011 CIF Partnership Forum in Cape Town, South Africa from 24-25 June 2011. AfDB Vice President, Bobby Pittman, is expected to give opening remarks and welcome over 400 delegates expected from recipient countries, other multilateral development banks, UN agencies, donor countries and other stakeholders. Picture Mxolisi Madela/

Published Dec 22, 2015

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Johannesburg - South African Airways has accepted a Finance Ministry instruction to lease five wide-body planes from Airbus.

This means that that the airline is abandoning an alternative plan by its chairwoman and avoiding a $40 million payment that threatened its financial stability.

SAA has “approved the execution of the transaction as directed and a process is under way to conclude it within the next few days,” the National Treasury said in a statement on Monday. “The National Treasury will work closely with Airbus and SAA to finalise the swap transaction.”

SAA, which is cutting costs to ease a dependence on state- guaranteed loans, was instructed by Finance Minister Pravin Gordhan to proceed with the deal to lease A330-300s in line with a decision made by one of his predecessors, Nhlanhla Nene, who was fired by President Jacob Zuma on December 9.

The transaction was opposed by SAA chairwoman Dudu Myeni, who wanted the planes sold to a third party in South Africa that would then lease them to the airline.

The reversion to the original agreement shows the Treasury is keeping to a pledge to contain spending and isn’t bowing to pressure from Myeni, who runs Zuma’s personal foundation.

In the absence of an agreement between the Treasury and SAA before December 21, Airbus would have triggered a $40 million payment related to an earlier deal to buy 10 A320 planes. Nene ordered SAA to proceed with the leasing arrangement on December 3, but was fired six days later by Zuma, who eventually replaced him with Gordhan.

AFP reports that Nene's firing 18 months into his job, and his replacement with little known backbencher David van Rooyen, triggered financial turmoil that sent the rand into a tailspin, plummeting to record lows.

The backlash forced Zuma into a dramatic U-turn, sacking Van Rooyen after four days and re-appointing Gordhan, a steadying hand who held the key finance portfolio from 2009 to 2014.

Apparently shaken by the market response, Zuma took the unusual step of officially denying rumours that he had a romantic relationship with Myeni.

Airbus will refund SAA more than $100 million related to earlier payments for the A320s, according to the Treasury. SAA will also avoid impairment charges estimated at more than R1 billion ($66 million), as it will no longer be acquiring the aircraft. Legal documentation must be completed by December 28.

The deal will “improve the airline’s financial position by alleviating the cash-flow pressure and improving its profitability, ” the Treasury said. “Further measures will be taken next year to stabilise the airline.”

SAA last month appointed Musa Zwane as its seventh acting or permanent chief executive officer in less than four years. Other changes amid the uncertainty about the Airbus deal include the departure last month of Chief Financial Officer Wolf Meyer.

Bloomberg

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