SOUTH AFRICAN AIRWAYS BILL, 2006

1
SOUTH AFRICAN AIRWAYS BILL, 2006 Select
Committee on Labour and Public Enterprises, Cape
Town 14 November 2006
2
Table of Contents

• Background
• Introduction
• The Bill
• Implications of the Bill
• Conclusion

3
Background

• In 2004 the Minister of Public Enterprises
  approved Transnets four-point turn-around
  strategy to focus on core freight services,
  namely the provision of rail, ports and pipeline
• The four-point turn-around strategy entails the
  disposal of non core businesses, which will help
  Transnet management focus on turning the company
  around into a focused freight logistics company
• South African Airways (Pty) Ltd (SAA) is not
  core to Transnets freight businesses

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Background (cont.)

• In addition, due to the volatility of the airline
  industry and the need to assist SAA to strengthen
  its balance sheet, it was decided that SAA should
  be separated from Transnet
• The intention is that SAA should be a stand-alone
  State-Owned Enterprise (SOE) reporting directly
  to the Minister of Public Enterprises
• On 26 July 2006 Cabinet endorsed the separation
  of SAA

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Introduction

• As a stand-alone SOE, SAA will report directly to
  Government
• As a national airline SAA will provide critical
  tourism and business links that will assist in
  creating international hubs in South Africa
• Having a national airline in this role is not
  unique to South Africa and is the case in
  countries such as Australia, New Zealand,
  Malaysia, Singapore, United Arab Emirates and
  China
• A national airline that will create hubs in South
  Africa is part of Governments new imperative to
  better leverage its SOE / agencies for the
  greater benefit of the economy and the countrys
  citizens

6
Introduction

• On 12 June 2006 the Government (represented by
  the Minister of Public Enterprises) signed an
  agreement with Transnet to separate SAA from
  Transnet and for Government to acquire the SAA
  shareholding from Transnet
• The salient features of the agreement are the
  following
• All of Transnets assets, rights, liabilities and
  obligations in SAA will be transferred to
  Government
• Ownership, risk and benefit will be passed to
  Government effective from 31 March 2006
• Government will replace Transnet as guarantor in
  respect of various guarantees issued to third
  parties lenders and the International Air
  Services Council
• Transnet will provide SAA with a R1 billion
  facility and Transnet will act as banker of last
  report providing SAA with access to monies
  required until the Transaction is finalised and
  Government has actually replaced Transnet as
  guarantor
• Between signature date and closing date, the
  Department of Public Enterprises and Transnet
  will jointly carry oversight responsibilities in
  respect of SAA to ensure efficient handover of
  direct control over SAA
• The agreement is subject to suspensive
  conditions, which include the enactment of
  legislative mandate to effect the transfer (i.e.
  the Bill)

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The Bill

• On 24 October 2006 Cabinet approved the draft SAA
  Bill, which was certified by the Chief State Law
  Advisor on 10 November 2006
• The purpose of the Bill is to provide for -
• The transfer of Transnets shares, interests and
  claims in SAA to Government
• The (eventaul) conversion of SAA into a public
  company with share capital and
• The listing of SAA as a major public entity in
  Schedule 2 to the PFMA
• The Bill records that the main object of SAA is
  to engage in passenger airline and cargo
  transport services, air charter services and
  other related services
• SAAs borrowing powers are subject to the PFMA,
  similar to other public entities

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Implications of the Bill

• The Bill authorises Government to acquire the
  shareholding in SAA from Government
• The eventual conversion of SAA into a public
  company will enable SAA to access funding from
  the private sector easily since public companies
  are generally recognised as the optimal corporate
  form to access capital markets
• SAA will continue to run its business as usual
• SAA will be listed in Schedule 2 to the PFMA
  similar to other major public entities such as
  Transnet and Eskom which have operate off their
  own balance sheets

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Conclusion

• The separation of SAA from Transnet should assist
  in strengthening the balance sheets of both SAA
  and Transnet and focus the attention of the
  management of both companies in turning their
  companies around
• With direct reporting to Government, Government
  should be able to leverage SAA to provide tourism
  and business links for better economic growth
• The Bill will effect Governments acquisition of
  the shareholding in SAA