1 SOUTH AFRICAN EXPRESS BILL, 2007 Portfolio Committee on Public Enterprises, Cape Town 16 May 2007

2 Table of Contents Introduction Overview of SAX Separation of SAX The Bill Implications of the Bill Conclusion

3 Introduction In 2004 the Minister of Public Enterprises approved Transnet’s 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 Express (Pty) Ltd (“SAX”) is not core to Transnet’s freight business. The transfer of SAX to Government exits Transnet completely from the aviation sector, thereby cementing a key element of the four-point turnaround strategy.

4 Introduction (cont.) Some of Transnet’s subsidiaries and business divisions that are strategic to the objectives of Government have been transferred to the State as shareholder or another public entity (indirect shareholding by the State) – eg SAA, Metrorail. On 18 April 2007 a full cabinet meeting confirmed and approved the following: –separation of SAX from Transnet; –acquisition of the SAX shareholding from Transnet by Government represented by the Minister of Public Enterprises; –establishment of SAX as a SOE; and –submission of the SAX Bill to Parliament for adoption

5 Overview of SAX SAX is a regional airline operating smaller gauge aircraft (turboprop and regional jets) than those used by mainline airlines (traditional full service carriers) and low cost airlines that operate narrow-bodied and wide-bodied jet powered aircraft. Regional airline air services are particularly well suited to many South African domestic and African regional geographic areas. A number of thin routes that were loss making routes when operated by larger gauge of equipment are now operated successfully by SAX.

6 Overview of SAX (cont.) Type of AirlineAirline Traditional Full Service (FSC) - Combination airlines (Passenger& cargo) SAA, BA/Comair & Nationwide Low Cost Airlines (Passenger)Mango, 1Time & Kulula.com Regional Airlines (Passenger/cargo)SAX & Airlink Commuter Airline (Passenger)Executive Turbine Aviation, Executive Aerospace Full Charter Airlines / Wet leaseInter Air, Safair, Rovos Air, Executive and VIP Charter Service, Bateleur Air Charter, Capital Air, CFA Air Charters, Interlink Airlines, Naturelink’, Swift Flite, Zenith Air

7 Separation of SAX Similarly to SAA, SAX will become a stand- alone SOE that will report directly to Government. Government decided that SAX should be a stand-alone SOE rather than a subsidiary of SAA for the following reasons: –integrating SAX into SAA may have competition implications; –SAX has achieved a turnaround to sustainable profitability as a stand alone unit with its focus on its own mission rather than merely serving the primary objectives of SAA; –SAX has a clear focus on its regional service offering. –focus SAA management on turning SAA around, in line with the decision to separate SAA from Transnet and make it a stand-alone SOE.

8 Separation of SAX (cont.) DPE and Transnet held preliminary discussions to identify key principles of the separation. DPE, National Treasury (“NT”) and Transnet will form working group to execute the separation for the benefit of Government, Transnet and SAX. The working group will seek to agree on issues such as the valuation of assets and liabilities, the transfer of guarantees and letters of support issued by Transnet between DPE, NT and Transnet. The Minister of Public Enterprises will represent Government for purposes of the transaction. The SAX Bill will constitute one of the key conditions for the close of the transaction.

9 The Bill On 18 April 2007 Cabinet approved the draft SAX Bill The draft Bill has been published in Government Gazette No dated 11 May The purpose of the Bill is to provide for - –The transfer of Transnet’s shares, interests and claims in SAA to Government; –The future conversion of SAX into a public company with share capital. The Bill records that the main object of SAX is to engage in passenger airline and cargo transport services, air charter services and other related services in South Africa and the African continent. The Bill limits SAX’s operative scope to the African continent and surrounding islands This will be achieved by using smaller gauge aircraft than the main line and low cost airlines. SAA’s borrowing powers are subject to the PFMA, similar to other public entities.

10 Implications of the Bill The Bill authorises Government to acquire the shareholding in SAX from Transnet The future conversion of SAX into a public company will enable Infraco to access funding from the private sector easily since public companies are generally recognised as the optimal corporate form to access capital markets SAX will continue to run its business as usual DPE and NT are still resolving classification of Infraco under the PFMA

11 Conclusion The transfer of SAX to DPE will allow Transnet to focus on its core business and investment programme and avoid the potential negative impact on its balance sheet and credit rating.