South Africa Rejects SAA Proposal to Change Airbus Plane Deal

South African Finance Minister Nhlanhla Nene rejected an application from the country’s state-owned airline to renegotiate a plane-leasing deal with Airbus Group SE after concluding the proposal would leave the carrier at risk of default.

South African Airways has been ordered to implement the previously-approved transaction, the National Treasury said in an e-mailed statement on Thursday. Any move by the state-owned airline to conclude a significant deal with Airbus or any other party without approval from the Treasury would constitute an “act of financial misconduct which could be grounds for sanctions against the board," it said.

SAA, which is unprofitable and surviving off government-backed loans, renegotiated an order for 10 A320 aircraft earlier this year in favor of leasing five more modern A330 models. That would have reduced operating costs and released the airline from pre-delivery payment obligations to Airbus. While Nene approved the swap in September, SAA Chairwoman Dudu Myeni last month outlined an alternative plan under which SAA would buy the A330 planes and enter into a rand-denominated sale and lease-back transaction with a local leasing company.

SAA has failed to show that the proposed amendment to the deal structure would definitely leave the airline in a better financial position than it would have been under the original swap proposal, the Treasury said.

“The information indicated that the proposed transaction structure would actually leave SAA in a materially worse off financial position where it is unable to meet its commitments as they fall due," it said. Although there may have been benefits, “these were far outweighed by the high probability of a default on the government guarantees and the severe consequences thereof,” the Treasury said.

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