Tribunal sets aside SAA’s R85 million Flyfofa lease extension
· Citizen
A Special Tribunal judge has criticised the South African Airways (SAA) board for its decision to extend a dry-lease agreement for an aircraft with Flyfofa Airways.
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Judge Chantel Fortuin set aside the parastatal’s decision, making way for the Special Investigating Unit (SIU) to recover any profits made from the R85 340 863 agreement.
SIU approaches Special Tribunal over SAA-Flyfofa agreement
The SIU approached the tribunal following an intensive investigation into SAA’s decision to extend the original contract with Flyfofa.
The investigation found that SAA had effectively ceded its domestic overnight freighter operations to Flyfofa.
SIU spokesperson Selby Makgotho said the unit’s investigation found that in September 2015, the SAA Board approved a deviation from its standard aircraft-procurement process as a risk-mitigation measure.
“Flyfofa was subsequently among the companies invited to make presentations to SAA’s Cross-Functional Sourcing Team in March 2016,” Makgotho said in a statement on Friday.
“SAA’s own assessment at the time recorded Flyfofa’s financial position as ‘high risk’, citing the absence of audited financial statements, a solvency ratio of 0.1 and losses in the preceding two financial years.”
SAA and Flyfofa subsequently concluded a series of short-term wet-lease arrangements during 2016, which meant that the company would provide the aircraft, crew, maintenance and insurance.
A dry lease, on the other hand, means only the aircraft is provided – in this case, a Boeing 737-300 freighter.
SIU investigation exposes procurement failures
Makgotho said the national carrier entered a three-year dry-lease agreement with Flyfofa for two B737-300F aircraft on 3 November 2016.
The deal was scheduled to end in 2019.
However, on 1 July 2019, they concluded a further 36-month arrangement for the provision of a B737-300 freighter.
“The evidence further indicated that the arrangement was concluded during a period when the Flyfofa aircraft was grounded and that SAA made payments to Flyfofa during the period the aircraft was grounded,” Makgotho said.
He said based on the evidence the SIU presented, “the tribunal found that SAA’s decision, through its board, to extend the lease without any procurement process and/or approval from the National Treasury for deviation – for 36 months at a total cost of R85 340 863 from 1 July 2019 – was not taken in accordance with a procurement system that was fair, equitable, transparent, competitive and cost-effective, as required by Section 217(1) of the Constitution.”
Flyfofa ordered to disclose payments and costs
To facilitate the recovery, the tribunal ordered Flyfofa to provide the SIU’s attorneys with a full and detailed account of all amounts received from SAA and costs properly and actually incurred within 30 days from 11 September 2026.
The account must be supported by underlying documents and include the period during which aircraft ZS-TGG was grounded.
It must also include any substitute performance provided during that period.
“The tribunal further found that the decision was not authorised by any properly recorded, approved and reported deviation in accordance with Treasury Regulation 16A.6 and National Treasury Instruction Note 3 of 2016/17,” the spokesperson said.
This rendered the decision unlawful and it was set aside on the grounds of legality.
Although the members of the board were not cited as respondents, Fortuin said their conduct in the matter “warranted criticism”.
“This conduct has a cost, and it is not only to the SAA alone. This is a cost to the public,” she said.
Judgment opens door to action against former board members
The tribunal also ordered the Registrar to send the judgment to the minister responsible for SAA and the carrier’s directors and board chairperson to consider if appropriate steps should be taken against those who served on the board when the 2019 extension was concluded.
The tribunal referred SAA to various legal avenues through which individual directors or officials involved in the decision may be held personally accountable.
These include financial misconduct proceedings under the Public Finance Management Act, applications to declare directors delinquent or place them on probation under the Companies Act and further SIU investigation or civil recovery proceedings.
They also include referrals to the National Prosecuting Authority or Directorate for Priority Crime Investigation where the conduct may constitute corruption, Makgotho said.
“The tribunal also indicated that the minister may consider the continued suitability of directors who remain on the SAA Board and were responsible for the decision.”
“The Judge ordered that the minister shall, within 90 days of the date of the order, file a short report with the Registrar of this tribunal confirming whether the steps have been taken and, if so, what the outcome was.”