Buy or lease? Ministers at odds over jets

Public Enterprises Minister Lynne Brown is in a standoff with Finance Minister Malusi Gigaba over an “inflated” aircraft deal for South African Express that has grown by more than R100-million in nine months.

Brown this week threatened to go ahead without his consent while Gigaba threatened to pull R950-million in government loan guarantees to the airline.

The standoff comes after the National Treasury this year paid R5.2-billion from the National Revenue Fund to save SAA. On Friday, the government said it would pay R3billion from the fund to Citibank. The bank had refused to extend loans to SAA that were guaranteed by the government.

In April, Standard Chartered Bank told SAA it would not roll over a R2.2-billion loan due to mature at the end of June.

Sources close to the SA Express transaction said the Treasury had taken issue with the R160-million price for four Bombardier aircraft that the company had leased since 2006. The lease is due to expire this year.

The Sunday Times established that last November the owners of the aircraft, Royal Scot Leasing, agreed to sell the Bombardiers to SA Express for R40.4-million. An insider at the airline said at the time that it had decided buying was the better option.

“When lease contracts come up we have to return the aircraft with certain return conditions attached, and sometimes it makes better economic sense to buy. This was one of those cases [where] we saw that we would need $6-million (R81-million) and they were willing to sell the aircraft to us for $3-million,” he said.

An SA Express official, with knowledge of the deal, said the first deal had been all but complete when acting chief executive Victor Xaba instructed it be restarted.

The Sunday Times understands that Brown told Gigaba on September 14 that the deal to buy the aircraft would go ahead.

A response sent by Treasury this week was seen by the Sunday Times. It said: “. . . In the event that SA Express proceeds with the transaction without the requisite approval from the minister of finance, the airline will be in contravention of a guarantee condition.” A contravention would require government to recall its guarantee.

Brown’s spokesman Colin Cruywagen said discussions were continuing.

This week Brown revealed that SA Express had paid about R5.7-million to Guptalinked company Trillian Capital Partners.

Reports suggested that the airline’s unaudited financials showed it made a R234-million loss in the 2016-17 financial year.

Treasury spokesman Mayihlome Tshwete did not respond to specific questions, but said: “Deliberations on the issue are still ongoing and details will be communicated once this process has been completed.”

SA Express did not respond to our questions.