STATEMENT BY THE GOVERNMENT OF SOUTH AFRICA ON SOUTH AFRICAN AIRWAYS LIMITED

Issued by: Government Communications

27 June 2001

The Government, as the sole shareholder of Transnet, received a report from the Minister of Public Enterprises on the issue of the contract between South African Airways (SAA) and Mr Coleman Andrews, following the Minister's meeting with the Board of Transnet.

In considering this report, the Government also recalled that in 1996, Transnet commissioned SBC Warburg Investment Bank to assess the situation at SAA. The Bank concluded that SAA was in a financial crisis and that the existing management team did not have the capability to improve the situation. They also recommended that SAA consider the appointment of a turnaround specialist. Following this assessment, conditions worsened at SAA.

It was within this context that the Government, as the sole shareholder in SAA, supported the turn-around strategy that was presented to Government in 1998. This strategy included the recruitment of an international turn-around specialist to put SAA on firm financial footing. It was on this basis that Mr Andrews was appointed to manage SAA.

The Government was not involved in the determination of the terms of Mr Andrews' engagement. This was the responsibility of the Transnet Board.

Having examined all the factors relating to Mr Andrews' appointment, the Government believes that his appointment could have been handled differently. The breakdown of trust between the Chairperson of the Transnet Board and the then Managing Director, served to compound this matter.

This breakdown led to the adoption of a different process for the appointment of Mr Andrews. It is also possible that a different final remuneration package would have been accrued to Mr Andrews if the process had been better managed by all.

It is clear that there were irregularities in the process that led to Mr Andrews' appointment. Nonetheless, the appointment procedures were subsequently regularised by the Board.

Notwithstanding all this, the Government has no doubt that all parties involved with Mr Andrews' appointment acted in good faith and in the interest of the national carrier.

The Government is firmly committed to good corporate governance in both the public and private sectors. Work to improve this has been undertaken for some time. This allows us now to make specific announcements:

• The Government will, within the next 14 days, sign a shareholder compact with Transnet, which will significantly promote good corporate governance at Transnet. Such shareholder compacts will be signed with other major state corporations.
• The Government will require that there is full disclosure of the conditions of employment of all executive and non-executive directors at State-owned Enterprises in their annual reports.
• Within the next four weeks, Government will be unveiling the Transnet End State Model. This model will clarify the line of reporting between Transnet and its various subsidiaries and will clearly define a government model together with appropriately artioned governance responsibilities between Transnet and its subsidiaries.

It is Government's view that the Transnet Board should be strengthened. The individual parties to these events will serve no cause other than to damage a valuable State asset by continuing with this unseemly squabble.

The Government remains committed to ensuring that SAA becomes a leading global airline.

Contact: Joel Netshitenzhe on 082-900-0083