SAA flies into parts tender storm
US firm wins contract despite being more expensive than the recommended bidders
STRUGGLING SAA passed up savings of more than R1-billion in awarding a R3.6-billion aircraft components support contract that appears destined for the courts.
Despite the state-owned airline’s dire financial situation, its subsidiary, SAA Technical, says it is not obliged to procure services from the cheapest bidder.
The Sunday Times can reveal that one of the losing bidders, Air France, has instructed its South African lawyers to demand that SAA Technical reveal details of the adjudication process, which ended with it failing to win the contract.
The Sunday Times has established that SAA also passed up German airline Lufthansa’s bid — against the advice of its executives — which would have saved R1.3-billion of the budgeted amount for the contract.
The money could have come in handy for SAA, which survives on state guarantees and has applied for yet another government guarantee — said to be for R5-billion — from Finance Minister Pravin Gordhan.
Asked why SAA Technical had chosen US aerospace and defence company AAR Corporation’s bid over Lufthansa’s much cheaper bid, SAA spokesman Tlali Tlali said: “One of the conditions of the tender document clearly states that SAA Technical is not obliged to award this bid to the bidder that quotes the lowest.
“Furthermore, it should be taken into consideration that pricing was not the only criteria used to evaluate this bid. Factors that were taken into account when evaluating this bid are in line with the provisions of section 217 of the constitution,” said Tlali.
The statement flies in the face of calls by the National Treasury and the government for state-owned companies to practice financial prudence.
SAA is technically insolvent and has received no less than R15-billion in government guarantees. Although not physical cash, these bail-outs allow the airline to source loans.
SAA could also find itself having to reverse the decision or paying penalties to unsuccessful bidder Air France.
Air France is completing the final three months of the previous contract to supply SAA Technical with aircraft components.
According to internal documents, after the second round of bid adjudication, Air France Industries was recommended by SAA Technical’s executives in a submission to the board dated April 26 last year. But the recommendation failed to win favour with the board, which awarded the contract to AAR.
Internal SAA Technical documents reveal that its executives preferred Lufthansa after the first round of bid adjudication. After bidders were asked for their best final price the executives preferred Air France in terms of pricing, with Lufthansa and AAR trailing.
In a memorandum to the board, SAA Technical executives said this was because the Air France bid could shave R1.1-billion off the budgeted R3.6-billion.
They said the benefits of contracting Air France included continuity of service, a proven track record and a commitment to finding a local partner.
SAA Technical confirmed that the contract had been awarded to AAR, but refused to give any more details, including the final price, duration or why AAR had been selected over the recommended bidders.
But internal documents show that executives submitted two recommendations, dated April 8 and April 26 last year. These reveal that the tender, which was issued in December, was for five years and SAA had budgeted R720-million a year for the contract.
Lufthansa was the recommended bidder following the first round of bid adjudication, scoring a maximum 90 points for pricing. Air France’s was second by a wide margin, while AAR was slightly more expensive than the French.
In the executives’ second submission, Lufthansa, although it still scored highest, was replaced by Air France as recommended bidder.
Crucially, AAR’s scores for pricing and BEE had improved by 41.95 points, and it replaced Air France in second place. Air France improved from 58.23 to 65.78 points out of 90.
Neither Air France nor AAR responded to e-mailed questions. Lufthansa corporate communications and political affairs director Jens Krüger said: “We cannot give any comment on this topic.”
Air France’s South African legal counsel, Mzukisi Kota, declined to comment.
However, in his letter to SAA this week, Kota said the airline had a right to request “adequate reasons” for the decision according to the Promotion of Administrative Justice Act. SAA has until end of business tomorrow to respond.
AAR spokeswoman Kathleen Cantillon said the firm could not comment as it was bound by a nondisclosure agreement.
SAAT not obliged to award bid to lowest bidder Air France bid shaved R1.1bn off the R3.6bn budget