1. SOUTH AFRICAN AIRWAYS BILL, 2006
Select Committee on Labour and Public Enterprises,
Cape Town
14 November 2006
Use balance scorecard format and show measurement
For DPE strategy analyse measurement – constraints, shifts and focus for remaining period
Input in SOE teams to be reflected in scorecards

2. Table of Contents Background Introduction The Bill
Implications of the Bill
Conclusion

3. Background
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 Airways (Pty) Ltd (“SAA”) is not core to Transnet’s freight businesses

4. 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

5. 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 Government’s new imperative to better leverage its SOE / agencies for the greater benefit of the economy and the country’s 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 Transnet’s 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)

7. 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 Transnet’s 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
SAA’s borrowing powers are subject to the PFMA, similar to other public entities
Issue: deal flow – sufficient similar type transactions in future for proper transaction programme or will it be ad-hoc transactions
To Do:
-list no. of 54(2) transactions
-detail of exercising reserved shareholder rights (InfraCo, Aerostructures, PBMR)
DPE specific transactions (Continental investments)

8. 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

9. 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 Government’s acquisition of the shareholding in SAA
-Developing guidelines (TOR service providers and outsource development of guidelines) – Governance (Ayanda) to assist
Consolidate guidelines