South African Airways agrees to treasury-backed Airbus deal

South African Airways accepted a Finance Ministry instruction to lease five wide-body planes from Airbus Group SE, abandoning an alternative plan by the state-owned carrier’s 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,” South Africa’s National Treasury said in a statement on Monday. “The National Treasury will work closely with Airbus and SAA to finalize 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 Dec 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 Dec. 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 Dec. 3, but was fired six days later by Zuma, who eventually replaced him with Gordhan.

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 1 billion rand ($66 million), as it will no longer be acquiring the aircraft. Legal documentation must be completed by Dec. 28.

The rand, which has weakened 23 percent against the dollar this year, was little changed at 15.0790 as of 9:30 a.m. in Johannesburg.

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 stabilize 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 [With assistance from Andrea Rothman and Janice Kew]