The Special Investigating Unit (SIU) secured a Special Tribunal judgment setting aside South African Airways’ (SAA) decision to extend its dry-lease agreement with Flyfofa Airways (Pty) Ltd for a Boeing 737-300 freighter. The SIU is set to recover profits Flyfofa made from the R85,340,863 agreement.
Based on evidence presented by the SIU, the Tribunal found that SAA’s decision, through its Board, to extend the lease without any procurement process and/or approval from the National Treasury for deviation, for 36 months at a total cost of R85,340,863 from 1 July 2019, was not taken in accordance with a procurement system that was fair, equitable, transparent, competitive and cost-effective, as required by Section 217(1) of the Constitution.
To facilitate the recovery, the Tribunal ordered Flyfofa to, within 30 days from 11 September 2026, provide the SIU’s attorneys with a full and detailed account, supported by underlying documents, of all amounts received from SAA and costs properly and actually incurred in performing the agreement. This must include an account of the period during which aircraft ZS-TGG was grounded and any substitute performance provided during that period.
The Tribunal further ordered Flyfofa to pay the SIU within 14 days any amount shown by account to constitute profit or unjustified enrichment, together with interest at 11% per annum from the date of the order.
The SIU approached the Tribunal following an intensive investigation into SAA’s decision to extend the original contract with Flyfofa. The investigation found that SAA had effectively ceded its domestic overnight freighter operations to Flyfofa.
The SIU’s investigation found that in September 2015, the SAA Board approved a deviation from its standard aircraft-procurement process as a risk-mitigation measure. Flyfofa was subsequently among the companies invited to make presentations to SAA’s Cross-Functional Sourcing Team in March 2016.
SAA’s own assessment at the time recorded Flyfofa’s financial position as “high risk”, citing the absence of audited financial statements, a solvency ratio of 0.1 and losses in the preceding two financial years. SAA and Flyfofa subsequently concluded a series of short-term wet-lease arrangements during 2016.
On 3 November 2016, SAA entered a three-year dry-lease agreement with Flyfofa for two B737-300F aircraft, which was scheduled to end in 2019.
On 1 July 2019, SAA and Flyfofa concluded a further 36-month arrangement for the provision of a B737-300 freighter (impugned decision). The evidence further indicated that the arrangement was concluded during a period when the Flyfofa aircraft was grounded and that SAA made payments to Flyfofa during the period the aircraft was grounded.
The Tribunal further found that the decision was not authorised by any properly recorded, approved and reported deviation in accordance with Treasury Regulation 16A.6 and National Treasury Instruction Note 3 of 2016/17. The decision was therefore declared unlawful and set aside on the grounds of legality.
Although the members of the Board of Directors were not cited as respondents, Judge Fortuin said: “the SAA Board’s conduct in the matter warranted criticism.”
“This conduct has a cost, and it is not only to the SAA alone. This is a cost to the public,” Judge Fortuin added.
The Tribunal also ordered the Registrar to send the judgment to the Minister responsible for SAA, as well as SAA’s directors and Board chairperson, for consideration of whether appropriate steps should be taken against those who served on the SAA Board when the 2019 extension was concluded.
The Tribunal referred SAA to various legal avenues through which individual directors or officials involved in the decision may be held personally accountable, including financial misconduct proceedings under the Public Finance Management Act (PFMA), applications to declare directors delinquent or place them on probation under the Companies Act, further SIU investigation or civil recovery proceedings, and referrals to the National Prosecuting Authority or Directorate for Priority Crime Investigation where the conduct may constitute corruption.
The Tribunal also indicated that the Minister may consider the continued suitability of directors who remain on the SAA Board and were responsible for the decision.
The Judge ordered that the Minister shall, within 90 days of the date of the order, file a short report with the Registrar of this Tribunal confirming whether the steps have been taken and, if so, what the outcome was.
President Cyril Ramaphosa signed Proclamation R2 of 2020 authorising an investigation into certain allegations concerning the affairs of SAA, including the procurement of or contracting for Airbus aircraft and maintenance, repair and operations services.
The judgment is a continuation of the SIU’s efforts to implement investigation outcomes, promote consequence management and recover financial losses suffered by State institutions.
Enquiries:
Selby Makgotho
Spokesperson: Special Investigating Unit
Cell: 083 718 6128
SIUMedia@siu.org.za