Pretoria - South African Airways (SAA) will go ahead with a swap transaction, which will see the national carrier swap the purchase of ten A320 aircraft for a lease of five A330-300 aircraft, said National Treasury.
“The Minister of Finance Pravin Gordhan directed the board of South African Airways to conclude the swap transaction with Airbus in line with approval granted in July 2015.
“SAA has informed the National Treasury that the board has approved the execution of the transaction as directed and a process is underway to conclude it within the next few days,” said National Treasury in a statement on Monday night.
National Treasury said it was in direct contact with Airbus to ensure that all the required actions are executed smoothly to conclude the deal.
Also, Airbus has indicated that they are amenable to the implementation of the transaction and have required that all legal documentation be in place by 28 December 2015.
“National Treasury will work closely with Airbus and SAA to finalise the swap transaction. The implementation of the deal in this manner will mean that SAA will no longer be required to pay additional pre-delivery payments to Airbus which would have amounted to approximately $40 million,” explained Treasury.
As the national carrier will take delivery of each of the A330s pre-delivery payments that have already been paid, which total just more than $100 million will be refunded by Airbus.
“SAA will not be required to recognise impairments as will no longer be acquiring aircraft. It had been estimated that such impairments could have totalled in excess of R1 billion.”
In addition, the implementation of the transaction will improve the airline’s financial position by alleviating pressure on the company’s cash flow and improving its profitability.
In 2002 the airline entered into a purchase agreement with Airbus to acquire A320 aircraft and the agreement has proved to be financially onerous to the airline.
In April 2015 the airline’s board applied for approval from the former Minister of Finance Nhlanhla Nene to cancel the purchase of 10 A320 aircraft and instead enter into an operating lease on five A330-300 aircraft with Airbus. This was approved by the then Minister in July 2015.
During November 2015, SAA applied for permission to amend the transaction to allow SAA to purchase the A330-300 aircraft and enter into a sale and lease back deal with a local lessor/s. SAA argued that one of the benefits of this transaction structure would be a mitigation of the airline’s exposure to exchange rate fluctuations.
On 3 December 2015, the former Minister Nene, decided not to approve the amendment to the A320/A330 swap transaction structure.
Treasury said that while acknowledging that SAA might have benefited from entering into the local leasing arrangement, Minister Nene believed the terms of the local leasing transaction remained speculative and there was considerable risk that the local leasing arrangement would not be in place by the time the A330 purchase contract was concluded with Airbus at which point SAA would be required to pay $ 100 million in pre-delivery payments.
National Treasury said further measures to stabilise the airline will be taken next year. –SAnews.gov.za
