Cape Town - Plans by state-controlled South African Airways (SAA) to bring its subsidiaries under control of its board are not only transgressing various company regulations, but also constitute uncompetitive behaviour, reported Netwerk24.
This is the warning by competitor airlines and aviation experts on the latest attempt by Dudu Myeni, contentious chair of the SAA board and ally of President Jacob Zuma, to get SAA subsidiaries under control of her board.
An SAA report seen by Sunday newspaper Rapport, and which was supposed to have been implemented a year ago already, contains a breakdown of how the boards of, among others, low cost airline Mango, the airline SA Express and the cargo division of the airline have to be placed under control of the SAA board.
According to the report, this would mean the SAA board is complying with its responsibilities regarding corporate governance as required by the King III codes of corporate control. The report alleges directors of SAA will obtain voting control over its subsidiaries.
Current practice involves having independent boards in charge of all SAA's subsidiaries and only one SAA director serves on these boards.
According to the latest policy, it is worrisome that a centralised bank account will be created for SAA and all its subsidiaries and cash control managed centrally, said Charl Kocks, an expert on corporate governance at Ratings Africa.
Kocks says this is a transgression of the Companies Act, unless the controlling company and its subsidiaries clear up arrangements about such loans among each other beforehand. He added that it is also unheard of that, according to this policy, no directors from outside the airline are allowed to serve on boards of its subsidiaries.
"This removes the possibility of bringing in expertise from outside SAA - for instance to provide perspective," said Kocks.
Ansie Ramalho, chief executive of the Institute of Directors in Southern Africa (IoDSA), said that although she has not seen the SAA report, it sounds to her completely contrary to the principles of the King III codes.
Kirby Gordon, spokesperson of FlySafair, says they are worried that closer cooperation among SAA and its subsidiaries will create further non-competitiveness in the industry.
The Competition Commission is currently investigating a complaint of uncompetitive behaviour against SAA and Mango after SAA indicated that its Boeing 737-800 aircraft had been loaned to Mango at a favourable rate. This means SAA, Mango and SA Express can be operated at a loss due to the use of financial support by the state.
Lumkile Mondi, an expert on corporate governance at the University of the Witwatersrand (Wits), said Myeni's attempts to get SAA's subsidiaries under the control of her board are "meaningless".
"Pravin Gordhan [Minister of Finance] recently indicated that he is not at all interested in anything SAA does until a new board and experienced management team have been appointed and proper financial statements have been submitted for the airline. Until this happens there is no way Treasury will open any money taps for SAA," said Mondi.
Putting out fires
SAA had to put out a number of fires last week after Cynthia Stimpel, SAA's suspended treasurer, alleged in court papers that Phumeza Nhantsi, acting financial head of SAA, instigated a contract with BnP Capital to restructure the airline's R15bn debt. This follows a complaint that proper tender procedures had not been followed and that the SAA board acted against the advice of the treasury by appointing BnP Capital. Stimpel was worried about the legitimacy of the contract, which would have meant BnP would pocket R256m as an intermediary.
Stimpel has taken SAA to the Labour Court regarding her suspension. She alleges she was suspended because of the protected revelation of details regarding the deal to National Treasury and the Organisation Undoing Tax Abuse (Outa). SAA alleges she leaked confidential information to the media, something Stimpel denies.
Rapport has obtained a report on SAA's financial achievement during the quarter to the end of June, which indicates that SAA had made an operational loss of R1.388bn during the three months until the end of June and that its finance costs have increased by 51%. This is despite growth in turnover of 7%.
The report also indicates a lot of tension between the management of SAA and that of Mango. SAA initially planned not to fly between Johannesburg and Port Elizabeth anymore and that Mango would take over those flights. Later, SAA decided its withdrawal from the route would be gradual, but it seems Mango added extra flights to the PE route without consulting SAA.
ALSO READ: Tensions growing between SAA, Mango
* For more news in Afrikaans, visit Netwerk24.