Govt cancels Airbus purchase

Thursday, November 5, 2009

Pretoria - Government has decided to terminate the controversial contract to purchase eight military A400 Airbus strategic lift aircraft.

The decision was made at a Cabinet meeting held on Wednesday.

Government spokesperson Themba Maseko said following a review of the contract by the Ministries of Defence and Military Veterans, Finance, Trade and Industry, Science and Technology and Public Enterprises, it decided not to go ahead with the transaction.

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

The government announced its intention to buy the eight planes in December 2004, saying it expected them to cost 837 million euros, or R6.4 billion at the prevailing exchange rate. But, by the time the contract was signed, the price had surged to R17 billion and subsequent delays in the project resulted in a further escalation reaching a staggering R47 billion.

Maseko said Cabinet had resolved that Armscor will be instructed to terminate the programme as soon as possible.

"The cost escalation would have placed an unaffordable burden on the taxpayer at a time when the national fiscus is under pressure due to the economic downturn," he said.

An amount of R2.9 billion will be refunded to National Treasury as per the contract provisions.

"Cabinet believes that the interests of the South African taxpayer will be best served by not proceeding with the contract," Maseko added.

The Minister of Defence and Military Veterans will brief the Portfolio Committee on Defence about this decision later this morning.