Corruption watchdog challenges financing of SAA subsidiaries

As South African Airways plans to resume flights before September, as confirmed by new CEO Thomas Kgokolo, tensions are brewing over the funding of the airline’s subsidiaries through diversions of the ZAR10.5 billion (USD 735 million) bailout capital allocated to SAA in October 2020, which initially was approved with no notion of the capital being diverted to the carrier’s subsidiaries.

The Organisation Undoing Tax Abuse or OUTA, a South African non-profit entity that tackles government corruption and misallocation of public funds, has raised an investigation over possible reckless actions and trading activity from the board member executives of Mango Airlines and SAA Technical who allegedly continued trade activity while parent company SAA was in bankruptcy protection.

“One must ask if the boards of Mango and SAA Technical contemplated their respective organisations’ solvency and acted in the best interests of these companies, whilst they were making losses prior to and during the pandemic induced economic meltdown,” said an OUTA representative.

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OUTA seeks to challenge a proposed 2021 Special Appropriations Bill, in which ZAR2.7 million (USD 191 million), which will be sourced from the ZAR10.5 billion, will be allocated to SAA’s subsidiaries; Mango Airlines, SAA Technical, and Air Chefs.

OUTA claims that the allocation of the SAA state-aid capital to the subsidiaries is a misuse of state funds and improper redirection of limited state resources to non-essential state-owned entities who have not followed the appropriate channels to warrant access to state resources.

“The matter of recapitalising these three subsidiaries was not contemplated as part of the allocation of the R10.5 billion allocation to SAA in the business rescue plan,” said OUTA Chief Executive Officer Wayne Duvenage. “The Special Appropriations Bill purports to re-channel funds earmarked for SAA directly to the subsidiaries or via SAA, without the subsidiaries following due process as required under the Public Finance Management Act, No 1 of 1999,” he said.