SAA’s R4.5bn ten­ders

Two re­ports show how the ail­ing air­line ex­tended ser­vice con­tracts – one in per­pe­tu­ity and the other sev­eral times

CityPress - - Front Page - SIPHO MASONDO sipho.masondo@city­press.co.za

The be­lea­guered SAA – al­ready bleed­ing and sur­viv­ing on gov­ern­ment bailouts – has paid R4.5 bil­lion to over­seas con­trac­tors in terms of long-term con­tracts. Two foren­sic re­ports, in the pos­ses­sion of City Press, re­veal how SAA Tech­ni­cal (SAAT), which main­tains and ser­vices the fleets of the na­tional air­line as well as sev­eral other car­ri­ers, flouted pro­cure­ment reg­u­la­tions and ex­tended con­tracts sev­eral times with­out go­ing to ten­der.

There are also in­di­ca­tions that in­side in­for­ma­tion was given to at least one of the for­eign com­pa­nies to help it hold on to its “ev­er­green” con­tract.

Both re­ports were sub­mit­ted in May and will be pro­cessed by the new SAA board.

The rev­e­la­tions come just two weeks af­ter the cash-strapped air­line re­ceived a R2.3 bil­lion bailout to set­tle a Stan­dard Char­tered Bank loan.

The re­ports were drawn up by Open Wa­ter Ad­vanced Risk So­lu­tions, which pro­vides foren­sic ac­count­ing, fraud pre­ven­tion and lit­i­ga­tion sup­port ser­vices. Open Wa­ter was com­mis­sioned by Ad­vo­cate Nontsasa Memela, the head of SAAT’s sup­ply chain.

Memela, who as­sumed of­fice in 2013, di­rected the in­ves­ti­ga­tors to probe how and why, in 1999, SAA had en­tered into a ten­der with Bridge­stone Air­craft Tire Europe SA (BAE) which had no end date. BAE sup­plied SAA Tech­ni­cal with Boe­ing and Airbus air­craft tyres.

A se­nior SAA ex­ec­u­tive told City Press that “it was a strange con­tract, crafted in a man­ner that makes it con­tinue into per­pe­tu­ity”.

“It ba­si­cally said the con­tract will stand as long as SAA has Boe­ing air­craft in its fleet,” the ex­ec­u­tive said.

FIF­TEEN YEARS OF PLENTY

The first foren­sic re­port that looked into long-term con­tracts at SAAT re­vealed that SAA and its tech­ni­cal divi­sion ex­tended a tyre con­tract sev­eral times, over 15 years, with­out a pub­lic ten­der.

The Pub­lic Fi­nance Man­age­ment Act for­bids the ex­ten­sion of con­tracts with­out a pub­lic ten­der process. It shows that:

BAE was paid up­wards of R2 bil­lion for the con­tract, which was signed in 1999 and is still run­ning.

In Septem­ber 2013, SAAT ad­ver­tised a ten­der for the sup­ply of Boe­ing and Air­craft tyres. It was won by BAE in Novem­ber 2014.

In­ex­pli­ca­bly, no con­tract was signed, with the two par­ties opt­ing to work through a mem­o­ran­dum of un­der­stand­ing.

In De­cem­ber 2015, SAAT and BAE can­celled the mem­o­ran­dum, re­tracted the ten­der and agreed to re­vive the ev­er­green con­tract, which had ended in Novem­ber 2014.

In Fe­bru­ary last year, SAAT is­sued a new ten­der. In May 2016, the SAAT board ap­proved the ap­point­ment of Miche­lin for the sup­ply of Airbus tyres. It opted to split the tyre ten­der and open an­other ten­der process for the sup­ply of Boe­ing tyres.

While ne­go­ti­at­ing the con­tract with SAAT, Miche­lin sup­plied tyres through a dif­fer­ent mem­o­ran­dum of un­der­stand­ing. But Miche­lin re­neged on a manda­tory lo­cal sup­plier devel­op­ment, prompt­ing SAAT to can­cel the ne­go­ti­a­tions.

SAAT awarded the same ten­der back to BAE in Oc­to­ber last year. How­ever, no con­tract was signed and the board agreed to pro­cure­ment via a mem­o­ran­dum of un­der­stand­ing, which was signed in Jan­uary. It ex­pired at the end of June. Boe­ing did not re­spond to re­quests for com­ment.

THE AIR FRANCE BO­NANZA

The sec­ond re­port shows that a fiveyear com­po­nents and lo­gis­tics con­tract with Air France, worth R240 mil­lion a year, was sum­mar­ily ex­tended on a quar­ter-to-quar­ter ba­sis in 2013 by the SAAT board with­out go­ing to ten­der. By 2016, the French com­pany had scored R2.5 bil­lion from SAA. In the mean­time, SAAT had ad­ver­tised for a new R1.3 bil­lion, five-year com­po­nents and lo­gis­tics ten­der.

The Bid Ad­ju­di­ca­tion Com­mit­tee rec­om­mended that it be awarded to Air France for the Airbus com­po­nents and Is­rael Aero­space In­dus­tries for the Boe­ing fleet.

The re­port says that the com­mit­tee’s rec­om­men­da­tion “did not in­clude any amounts and was pre­sented in a man­ner that deems Air France to be the ser­vice provider pro­vid­ing the low­est cost to SAAT, not­with­stand­ing the fact that they were ap­prox­i­mately R200 mil­lion more ex­pen­sive than Lufthansa”.

Fur­ther­more, the re­port noted sev­eral in­ci­dents where ten­ders were open and com­pa­nies com­peted only to have the Air France con­tract ex­tended on a quar­terly ba­sis over time, as SAAT ei­ther de­layed in ap­prov­ing the ad­ju­di­ca­tion com­mit­tee’s rec­om­men­da­tions or with­drew its ten­der and started afresh.

For ex­am­ple, in April 2015, the ad­ju­di­ca­tion com­mit­tee rec­om­mended that the ten­der be awarded to Air France for the Boe­ing com­po­nents and Pe­ga­sus Univer­sal Aero­space for the Airbus parts.

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How­ever, in June 2015, the ten­der was with­drawn again, which re­sulted in an­other six-month ex­ten­sion.

In De­cem­ber 2015, SAAT ad­ver­tised a five-year ten­der for the sup­ply of com­po­nents for its Boe­ing and Airbus fleet. The ad­ju­di­ca­tion com­mit­tee rec­om­mended that Air France be awarded the con­tract.

How­ever, in May last year, the SAAT board over­turned the de­ci­sion and awarded the con­tract to a joint ven­ture be­tween US avi­a­tion com­pany AAR Cor­po­ra­tion and JM Avi­a­tion.

Open Wa­ter in­ves­ti­ga­tors found that JM Avi­a­tion, which was reg­is­tered in 2015 and was sup­posed to be a Black Eco­nomic Em­pow­er­ment part­ner of AAR Cor­po­ra­tion, had nei­ther ex­per­tise nor ex­pe­ri­ence in the avi­a­tion sec­tor. The com­pany’s premises were also found to be a res­i­den­tial area in Sand­ton. Air France did not re­spond to re­quests for com­ment. AAR Cor­po­ra­tion spokesper­son Shawn Tay­lor said the com­pany had al­ways con­ducted it­self ac­cord­ing to South African and US laws.

“Any al­le­ga­tions to the con­trary are com­pletely false. AAR stands be­hind our busi­ness prac­tices, and we re­ject any no­tion of im­pro­pri­ety.”

JM Avi­a­tion, he said, was a cer­ti­fied, Broad-based Black Eco­nomic Em­pow­er­ment (BBBEE) en­ter­prise and its part­ner­ship with AAR was aligned with the le­gal reg­u­la­tions and in­tent be­hind BBBEE – namely, to build the ca­pa­bil­i­ties, per­for­mance and skill sets of South Africa’s black-owned busi­nesses and its work­force.

An­other se­nior ex­ec­u­tive said the AAR/JM Avi­a­tion joint ven­ture would save SAAT R800 mil­lion over five years.

An­other in­ter­nal SAAT re­port, ob­tained by City Press, re­veals that all the ex­ten­sions and can­cel­la­tions of the two ten­ders were meant to “give SAAT an op­por­tu­nity for man­age­ment to con­sider var­i­ous op­tions, in­clud­ing ne­go­ti­at­ing dis­counted rates for in­di­vid­ual con­tracts”.

It also shows that SAAT was look­ing at “joint pur­chas­ing mod­els”.

An air­line source said Memela had also probed the Air France com­po­nents con­tract be­cause SAAT was al­legedly pay­ing the French air­line more than what was agreed to in the 2008 com­po­nents con­tract.

An in­ter­nal SAAT email ob­tained by City Press shows that, over and above the agreed an­nual R240 mil­lion pay­ment, SAAT paid Air France R70 mil­lion more ev­ery year be­tween 2008 and 2016.

An­other email, writ­ten by for­mer SAAT board chair­per­son Yakhe Kwinana in July last year, re­veals that Air France should have been dis­qual­i­fied from get­ting ten­ders at SAAT be­cause of mis­con­duct iden­ti­fied by Open Wa­ter dur­ing its ini­tial in­ves­ti­ga­tion phase.

The let­ter, which Kwinana had ad­dressed to Dudu Myeni, the chair­per­son of SAA, reads: “Open Wa­ter went as far as dis­cov­er­ing that Air France was be­ing as­sisted to ten­der by an in­side source. There is ev­i­dence that can prove that Air France should have been dis­qual­i­fied from par­tic­i­pat­ing from all ten­ders at SAAT be­cause of their mis­con­duct and non­ad­her­ence to ten­der rules and con­di­tions.”

SAA RE­SPONDS

SAA spokesper­son Tlali Tlali said it was im­por­tant to un­der­stand the sta­tus that these re­ports en­joyed within SAA and the pro­cesses the com­pany had em­barked upon be­fore con­clu­sions were made on any as­pect of the re­ports.

“Not­with­stand­ing this, the board would like to as­sure the pub­lic that it does not con­done, nor will it cover up, al­le­ga­tions of crim­i­nal­ity at SAA. How­ever, any ac­tion the board must take against any­one ac­cused of im­pro­pri­ety must be fac­tual and be legally sus­tain­able.”

In­ves­ti­ga­tions, he said, were pre­vi­ously com­mis­sioned by SAA to look into fi­nan­cial losses in­curred by the com­pany. “The board has looked into those re­ports and de­ter­mined that, as things stand, they are in­com­plete.”

He said fur­ther work was be­ing done on the re­ports be­fore be­ing given to the board for con­sid­er­a­tion.

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