Airbus spending would have made no cents

Thursday, November 5, 2009

Cape Town - Minister of Defence and Military Veterans Lindiwe Sisulu says it would have been "beyond comprehensible" for government to commit to spending such a large amount of money on purchasing eight Airbus A400M military transport aircraft.

Earlier today, Government spokesperson Themba Maseko announced that Cabinet would instruct Armscor to terminate the programme as soon as possible.

Maseko said the termination of the contract was due to extensive cost escalation and the supplier's failure to deliver the aircraft within the stipulated timeframes.

Briefing a joint standing committee on defence in Parliament on Thursday, Sisulu said the decision followed yesterday's Cabinet meeting and added that government had informed Airbus of the termination of the contract.

Sisulu said it would be "beyond comprehensible" to commit to spending such amounts on the aircraft - estimated to be over R40 billion - if the country had far more pressing economic and social needs that needed to be addressed.

She said government now hoped to claim back the R2.9 billion it had already paid towards the contract to be refunded to the National Treasury, in line with the agreement which had made allowances for a refund.

The department had put together a team of lawyers who were studying the contract to determine by when they could retrieve the refund, she said.

The decision to cancel the contract comes after the cabinet had tasked Sisulu to look at the various cost implications should the contract, which was signed in 2005, be cancelled.

Sisulu said when it was approved by cabinet in December 2004, the contract was worth R17.6 billion at the time and delivery was expected to be made between 2010 and 2012.

By last month, the costs of the contract had increased by a further R30 billion, she said.

Sisulu said the contract made allowances for the agreement to be terminated if a critical milestone was delayed by 14 months.

One of these milestones was the first flight of the aircraft, which the contract had specified would be made by January 31 2008.

In April, Armscor had informed Airbus that government reserved the right to terminate the contract as a critical milestone had not been met.

Government had already withheld R1.1 billion in payments towards the contract, following a standstill period which was entered into in April and came into effect last month, she said.

On a question on whether Airbus actually owed Armscor penalties because it had fallen behind in delivery targets, Armscor chairman Popo Molefe said he needed to study the contract in further detail to ascertain whether this was so.

Sisulu said the industrial participation programme between Airbus and Denel would continue, but added that government would have to wait and see, as Airbus could still decide to cancel the programme following government's announcement today.

She also emphasised that though the contract had been terminated, the department would still be looking at meeting its capabilities for peace-keeping across the continent.

The move by South Africa follows Chile, which cancelled its 2005 order to buy three Airbus A400Ms after elections there.