Almost two-thirds of South African Airways deals 'poorly contracted'

21 December 2015

Sixty per cent of 48 contracts South African Airways signed with suppliers were “improperly negotiated, poorly contracted or weakly managed”, according to a report into the national carrier.

Ernst and Young’s forensic technology and discovery services examined the documents as part of a report into the airline’s procurement operations to identify the losses caused by failings in either the procurement and contracting phase or the implementation phase of these particular contracts.

It is the first of a number of planned investigations into specific areas of the business to identify reasons for its unprofitable trading.

The contracts examined are among the largest signed by SAA, its catering arm Air Chefs, low cost carrier subsidiary Mango and maintenance division SAAT.

“A logical deduction must be that if these contracts (many of which are the largest awarded) suffer these weaknesses then the bulk of the smaller contracts will be at least [as bad] if not worse,” the airline said in a statement.

“Potentially 60 per cent of SAA’s total procurement could be in one way or another subject to weak business controls. This must lend itself to some idea as to why the airline makes such large losses.”

In its most recent financial results, South African Airways posted a loss of ZAR374 million for year ending 2015, and in February this year received a loan of ZAR6.5 billion from the South African government.

SAA’s board has been in conflict with its management team over the matter. “The board has asked the question of management (particularly the financial executives) how it takes an external Ernst and Young investigation to identify these while management does not,” the company said in a statement.

SAA said the board is studying the report, and will outline specific action plans to address identified weaknesses.

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