An attempt to overcome the protectionism that keeps South African airlines out of some other parts of Africa by forming a joint venture with a Congolese partner ended in disaster for state-owned regional airline SA Express, Inati Intshanga, its CEO, told the parliamentary portfolio committee on Public Enterprises today. A telephone call by an anonymous whistleblower in August , a month after the company's external auditors had given it “a clean report”, had resulted in an investigation by forensic auditor Sizwe Ntsaluba which had given cause for concern. A final report was expected by mid-November. According to a report presented by SA Express today, the potential irregularities reported included R42 million in VAT shown as a debtor by SA Express which might not be fully receivable from the SA Revenue Services, a R16 million debt which might not be recoverable and allegations about the procurement process of an IT contract for application development. The report stated: “these allegations are material and, if substantiated, could negatively impact SA Express'audited financial statements.”
Discussing the failure of the Congolese venture, Congo Express, in partnership with BizAfrica, the SA Express report explained that market conditions were not as predicted, and the partner “did not have the capacity to inject his share of the capital or share our corporate governance principles”.
In addition to this, SA Express had not had a full understanding of the consequences of the Democratic Republic of the Congo legislation and the chief executive of the joint entity, Didier Kindambu, had unilateral control of it.
Listing the lessons learned from the experience, the report continued that in future it would learn from other South African corporates already operating in the region, “hunt in a pack”with other state-owned enterprises, appoint legal and tax advisers at the planning stage, investigate the option of partnering with other South African institutions fo finance the operation, identify existing infrastructure and qualified service providers and ensure that all estimates were conservative and address thin capitalisation concerns as well as operational requirements.
Intshanga said the initial investment had not been high - the main expense had been for the leasing of an aircraft. All agreements had been terminated and the shareholding was transferred to the co-shareholder, Biz Afrika. But it was intended to recover the outstanding amounts in the event that Congo Express continued to trade profitably within two years of May 31 this year.
Intshanga said that SA Express continued to fly between Johannesburg and the Congolese mining town of Lubumbashi , from where Congo Express was intended to carry passengers to other local destinations.