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SAA board to take over control of the boards of Mango, other subsidiaries

Finance, other functions to be centralised.
Dudu Myeni, SAA board chair

The controversial SAA board is set to take over control of the boards of its subsidiaries, including low-cost airline Mango that has since it began operations a decade ago been operated at arm’s length.

This comes against the background of a Competition Commission investigation into the relationship between SAA and Mango and its possible effect on competition in the airline industry. Mango’s founding CEO Nico Bezuidenhout also resigned and left the company at the end of July.

While SAA is the sole shareholder in Mango, SAA Technical and Air Chefs, which gives it control, the SAA board under chair Dudu Myeni has a bad track record in managing the national carrier. SAA’s financial statements for the last two financial years have not been finalised due to going concern problems.

Myeni has also been known to interfere in the execution of SAA’s long-term turnaround strategy which placed her on a collision course with Finance Minister Pravin Gordhan. Gordhan has in the past week again called for the replacement of the SAA board.

Moneyweb earlier reported that the SAA board took a resolution to no longer treat Mango “as if it wasn’t part of the SAA group”.

It has since come to light that this is part of a much wider policy reflected in a document called ‘Corporate Governance Framework to Regulate the Relationship between SAA and its Subsidiaries’.

The document, which Moneyweb has seen, was finalised about a year ago, but only recently came to the attention of leaders at subsidiary level, insiders told Moneyweb.

Neither SAA nor Mango responded to questions about the document.

In terms of the policy, the boards of subsidiary companies will consist of a maximum of five directors, three of them being non-executives who also serve as non-executive directors of SAA and the other two executive directors being the CEO and CFO of the subsidiary. The effect is that SAA directors will now have voting control.

This is a departure from current practice where Mango has its own board independent of SAA, with only one SAA director representing the parent on the Mango board.

The subsidiary boards will be entitled to establish their own board committees, but that will be done in consultation with SAA and the terms of reference of such committees will be reviewed annually by the relevant SAA board committees.

The SAA board will decide on the appointment of subsidiary board members after consultation with the subsidiary chair and will notify the minister accordingly.

It is clear from the document that SAA at group level will play a material role in determining the strategy of subsidiary companies. It states that in adopting strategies and plans, “the boards of subsidiaries should take into account and balance the value of being part of the group and the interests of the subsidiary”.

The policy provides for a centralised treasury system “with a centralised cash management process governed by SAA’s financial risk management policy”.

It further establishes central services provided by SAA to subsidiaries, subject to an agreement between SAA and each subsidiary. These services include shareholder and stakeholder relations, strategy and planning, finance, human resources, legal risk and compliance, internal audit and, except for Mango, company secretariat.

Non-compliance with the policy is stated to possibly result in disciplinary action, including dismissal.

The flaws

Corporate governance expert Charl Kocks of Ratings Afrika, who has studied the policy, says a central treasury function with centralised bank accounts would be at odds with the Companies Act, unless the authorisation of intra-group loans had taken place beforehand.

He further questions the lack of provision for any independent directors on the subsidiary boards, because of the significant impact the actions of these companies would have on their public customers. Such boards could benefit hugely from the expertise and wisdom of independent directors, but the new framework does not allow for it, he says. He also finds the tenor of the instruction to be quite totalitarian, verging on being threatening.

He further points out that surplus assets of subsidiary companies may only be utilised elsewhere within the group if the group company being lent such assets is in a position to repay it.

This might not be the case with SAA, since it is public knowledge that the airline has been technically insolvent for an extended period of time.

Subsidiaries would have to be sure not to prejudice outside creditors in deciding on such transfers, he says. In the case of an airline that trades with members of the public and in the normal course of business receives advance payments for flight tickets, extra care has to be exercised, he says.

An aviation expert with close knowledge of SAA questions the unusual amount of power that will be centralised in the hands of the SAA directors. He says normally the minister tables the board candidates in cabinet for approval, contrary to the new policy that provides for the SAA board to make the appointments to subsidiary boards and the minister to be merely notified accordingly.

He further criticises limiting the size of subsidiary boards to five members. This, he says, is too small for a sizeable operation like Mango for example.

The King Codes deal primarily with the need for independent directors – an issue that is not at all provided for in the new policy, he says. The chair of the subsidiary board has to be independent, which is not the case if he also serves on the SAA board, the expert says.

He further questions the centralised services, especially finance, which presumably includes procurement, and strategy and planning. Internal audit also shouldn’t be a group function, he says.

The intention is clearly that SAA will have control over the money and will take all the important decisions. SAA does not have a good track record, in contrast to for example Mango, that has been profitable for all but two of its ten years of existence, the expert says.

“The question is whose needs will be prioritised? If SAA Technical for example needs money for an important aircraft part while SAA itself is in financial trouble, how will the resources be applied?” he asks.

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Oh dear. This is the kiss of death for mango! !
Can’t have the child showing the parent up now can we.

Should be the other way around. But I suppose they have their sights on some heavy handouts, always the case when the cadres pull a stunt like this. The future of these airlines is not a priority.

Looks like the cookie jars of Mango, SA Express, Air Chefs and SAA technical and Air cargo are about to be looted. perhaps a few other subsidiary linked organisations too.

Now Dudu has even more “control” – not that she is capable of controlling anything properly.

Dudu is like the cheeky jack russel that taunts the doberman called Pravin and then runs and hides between Zuma’s legs…..figuratively and literally…..

“…Paging Competition Commission, Paging Competition Commission, Come In…”

The dumbest decision I have ever seen. The one that can’t taking over the ones that can.

End of comments.





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