The Special Investigating Unit (SIU) has secured a Special Tribunal judgment setting aside South African Airways’ (SAA) decision to extend an aircraft dry-lease agreement with Flyfofa Airways (Pty) Ltd worth R85.3 million.
The judgment also paves the way for the recovery of any profits or unjustified enrichment made by Flyfofa from the agreement.
The Tribunal found that SAA’s decision to extend the agreement for 36 months from July 1, 2019, was unlawful because it was made without following a competitive procurement process and without approval from National Treasury for a deviation.
The agreement, valued at R85,340,863, involved the provision of a Boeing 737-300 freighter.
According to the SIU, the Tribunal found that the decision was not made through a procurement system that was fair, equitable, transparent, competitive and cost-effective, as required by Section 217(1) of the Constitution.
The SIU approached the Tribunal following an investigation into SAA’s decision to extend its original agreement with Flyfofa.
The investigation found that SAA had effectively ceded its domestic overnight freighter operations to Flyfofa.
The Tribunal ordered Flyfofa to provide the SIU’s attorneys with a full and detailed account of all amounts it received from SAA and the costs it properly and actually incurred while performing the agreement.
Flyfofa has 30 days from September 11, 2026, to provide the account, supported by underlying documents.
The accounting must also cover the period during which the aircraft, identified as ZS-TGG, was grounded, as well as any substitute performance provided during that period.
Flyfofa must then pay the SIU within 14 days any amount shown by the account to constitute profit or unjustified enrichment. The amount will attract interest at 11% a year from the date of the Tribunal order.
The investigation also examined SAA’s dealings with Flyfofa before the disputed extension.
In September 2015, the SAA Board approved a deviation from its standard aircraft procurement process as a risk mitigation measure. Flyfofa was among the companies later invited to make presentations to SAA’s Cross-Functional Sourcing Team in March 2016.
However, SAA’s assessment of Flyfofa at the time classified the company’s financial position as “high risk”.
The assessment cited the absence of audited financial statements, a solvency ratio of 0.1 and losses recorded in the preceding two financial years.
SAA and Flyfofa subsequently entered into a number of short-term wet-lease arrangements during 2016.
On November 3, 2016, SAA entered into a three-year dry-lease agreement with Flyfofa for two Boeing 737-300F aircraft. The agreement was due to end in 2019.
On July 1, 2019, the two companies entered into another 36-month arrangement for one Boeing 737-300 freighter.
The SIU said evidence presented during the proceedings showed that the arrangement was concluded at a time when the Flyfofa aircraft was grounded and that SAA made payments to the company while the aircraft was grounded.
The Tribunal found that the decision was not authorised through a properly recorded, approved and reported deviation in terms of 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 SAA board members were not cited as respondents in the case, Judge Fortuin criticised the conduct of the board in relation to the transaction.
The Tribunal ordered the Registrar to send the judgment to the minister responsible for SAA, the airline’s directors and its board chairperson for consideration of whether further action should be taken against those who served on the board when the 2019 extension was concluded.
It identified several possible avenues for accountability, including financial misconduct proceedings under the Public Finance Management Act, action under the Companies Act, further SIU investigations and civil recovery proceedings.
The Tribunal also said matters could be referred to the National Prosecuting Authority or Directorate for Priority Crime Investigation if the conduct is found to constitute corruption.
The minister has been ordered to file a report with the Tribunal within 90 days confirming whether steps have been taken and, if so, their outcome.
SIU spokesperson Selby Makgotho said the judgment formed part of the unit’s efforts to implement investigation outcomes, promote consequence management and recover financial losses suffered by state institutions.
The investigation into SAA was authorised by President Cyril Ramaphosa through Proclamation R2 of 2020 and included allegations relating to the procurement and contracting of Airbus aircraft and maintenance, repair and operations services.
