The Special Investigating Unit (SIU) has secured a Special Tribunal judgment setting aside South African Airways' (SAA) decision to extend an R85.34 million dry-lease agreement with Flyfofa Airways for a Boeing 737-300 freighter. The Tribunal found that SAA's decision, through its Board, to extend the lease without any procurement process and/or approval from the National Treasury for deviation, was not taken in accordance with a procurement system that was fair, equitable, transparent, competitive and cost-effective.
According to the SIU, the agreement was extended for 36 months at a total cost of R85,340,863 from 1 July 2019. The Tribunal has also ordered Flyfofa to provide the SIU's attorneys with a detailed account of all money received from SAA and the costs actually and properly incurred in performing the agreement. This includes accounting for the period when aircraft ZS-TGG was grounded and any substitute services provided during that time.
The SIU's investigation found that SAA had effectively ceded its domestic overnight freighter operations to Flyfofa. Evidence before the Tribunal showed that SAA had previously assessed Flyfofa's financial position as "high risk", citing the absence of audited financial statements, a solvency ratio of 0.1 and losses in the preceding two financial years. This raises concerns about the due diligence conducted by SAA before entering into the agreement.
The Tribunal has ordered Flyfofa to pay the SIU within 14 days any amount shown by account to constitute profit or unjustified enrichment, together with interest at 11% per annum from the date of the order. Judge Fortuin criticised the conduct of the SAA Board, despite its members not being cited as respondents. The judge stated that the SAA Board's conduct in the matter warranted criticism, as it had a cost not only to SAA but also to the public.
The Special Tribunal's judgment also ordered that the judgment be sent to the minister responsible for SAA, its directors and board chairperson to consider whether further action should be taken. This could potentially lead to further investigations and accountability measures against former directors of SAA.
The R85.34 million dry-lease agreement was initially intended to support SAA's freighter operations. However, the lack of a proper procurement process and approval from the National Treasury has raised questions about the legitimacy of the deal. The SIU's investigation and the Tribunal's judgment aim to recover profits and investigate potential accountability among former directors.
The collapse of the agreement may have implications for SAA's future operations and its relationships with other airlines and partners. The airline industry is highly regulated, and compliance with procurement regulations is essential to avoid similar disputes and reputational damage in the future. The outcome of this case may serve as a precedent for future procurement decisions in the industry.
Key points
- The Special Tribunal has declared SAA's R85.34 million dry-lease agreement with Flyfofa Airways unlawful due to a lack of a proper procurement process.
