The government’s second state-owned airline SA Express says it will oppose an application to have it placed in business rescue, because the unpaid contract based on which the application is being made was irregularly obtained.
SA Express, which services several smaller regional routes as a feeder to SAA, owes global logistics firm Ziegler R11m and applied on Friday for an urgent hearing to be held on January 28.
Like SAA, SA Express is in deep financial difficulty and is unable to meet operational costs with revenue earned. Its last set of financial statements, which have not been tabled in parliament but were leaked to the media, showed widening losses of R591m over the 12 months to March 2019 and questioned its going-concern status.
The company has also been the recipient of several bailouts as the government attempted to put it on a sustainable footing. Flights have been grounded on at least two occasions for non-compliance with maintenance protocols and non-payment of airport fees.
But SA Express said in a statement on Monday that it was in dispute with Ziegler over the contract which was signed by former CEO Inathi Ntshanga in 2017 and had raised red flags when reviewed by new management. The contract is an agreement to provide a range of services including cargo management, customs clearing and inventory, and supply chain management.
SA Express said the contract also included a controversial clause that limited SA Express’s ability to review and dispute incorrect invoices. This was inconsistent with the Public Finance Management Act, which compels all government entities to seek the best value for money at all times.
“Given the devastating effect that corruption had on the once-thriving regional carrier, the first order of business was to ensure that tattered governance structures where rebuilt and reinstated. A review of all agreements revealed a number of gaps and irregularities within some of the contracts.
“Ziegler was one of the contractors identified as irregular and misaligned to the Public Finance Management Act. Upon reviewing this particular contract, SA Express discovered a number of discrepancies allowed by the previous leaders of the organisation,” says the statement.
But Ziegler says that it renegotiated the contract with interim CEO Siza Mzimela in August 2018, shortly after she started work at SA Express. The company says that at this meeting no objections were raised and that new payment terms of 60 days were extended. Mzimela ended the agreement in January 2019.
Later, lawyers for SA Express disputed several invoices on grounds that the contract was irregular. SA Express’s subsequent failure to settle the matter and to pay its debts had resulted in the court application, says Ziegler.
Several state-owned companies have successfully reversed contracts that were entered into illegally by former management and for corrupt purposes.
SA Express said “suppliers who have obtained contracts legitimately are compliant in working with the airline to ensure that payments are reasonable for both parties, while those with dubious contracts constantly bulldoze to ensure that they get their way before the conclusion of irregular contract investigations”.
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