Even before the Covid-19 pandemic, South African Airways was sunk in a major crisis, suffering losses of millions of dollars a day.
The state-owned airline, however, tried various ways to stem this loss, but at every moment the state istration was put in check. And now the airline seems to have suffered for years from massive corruption.
Prosecutors from a South African Special Investigation Unit (SIU) have warned that the airline has suffered rampant corruption in recent years, which has affected the entire structure of the company.
According to the investigation, the company suffered from mismanagement, illegal conduct by employees, misappropriation of public funds and embezzlement.
“The state of SAA at the moment is terrible”, said Andy Mothibi, head of SIU. “In this case, the airline is almost at its disintegration". Despite the immense damage accumulated over the years, SAA still plans to resume its flights in May this year.
Everything took place over a long period, including the time the company declared Judicial Recovery. These issues remained with the company from January 2002 until the end of 2019, when a management change partially resolved the issues, shortly after the investigation was initiated.
According to prosecutors, there are irregularities in several points. SAA may be involved in corruption issues with the purchase of Airbus aircraft, overpriced maintenance and service contracts, as well as internal deviations to favor third parties.
Tampered aircraft leasing agreement
SAA carried out a 2012 a process to sell Airbus A320 aircraft, and then make a tender to lease Airbus A320 aircraft. The so-called lease-sale-back scheme is common in airlines, however, the promoters found several holes in the negotiation.
The companies Bank of China (BOC), Pembroke and Standard Bank won the process, removing almost 30 planes from the company's property.
In SAA's contract with Pembroke, which has more inconsistencies, the company paid $41 million for each SAA A320 aircraft. The airline itself previously paid US$38,9 million for each Airbus A320 aircraft, making a profit on the transaction.
However, South African Airways paid Airbus US$115,4 million for the purpose of Pre-Delivery Payments (PDP) in an agreement signed on January 24, 2013.
When SAA and Pembroke agreed to the transaction, the leasing company had to repay the PDP, but this amount is not shown in the company's revenue share, nor in SAA's “cash” entries.
The leasing process was more expensive for SAA compared to the price paid for each aircraft to Airbus (US$ 38,9 million), while the leasing cost a total of US$ 46,5 million, not counting the return of the aircraft to the leasing company.
In addition to the problem with the PDP refund, which went anywhere but to the airline's bank , prosecutors estimate that in this lease-sale-back transaction SAA lost $23,7 million.
Another contract, with the airline Flyfofa Airways, includes a leased plane that was idle for eight months without use, with a total loss of US$ 19,9 million for the airline. Another contract with the same company indicates 5 aircraft that were leased, but never operated commercial flights by SAA.
Airline employees even misused the travel discount policy, causing a loss of US$ 39,9 million in just one financial year.
“There are allegations that SAA were selling the travel benefit for financial gain”, the investigators said.
There are still several irregularities favoring companies that should collaborate with the judicial recovery process, however, these have connections with SAA employees who were dismissed for misconduct.
Source: AeroTime
