Minister of Defence and Military Veterans Lindiwe Sisulu has called in Treasury to help in talks with planemaker Airbus Military for the return of moneys she believes is due following the cancellation in November 2009 of a €837 million (then about R9.6 billion) contract to buy eight A400M transports.
Asked last week with the progress in reclaiming the R2.9 billion government believes its due, Sisulu said: “No, we have not yet recovered our investment into the Airbus venture. As we have always indicated this was a primary condition of our contract with Airbus that should we withdraw before a particular cut-off time we would be able to recover what we had put in.
“Unfortunately this has not been possible yet; the driving force in our negotiations with Airbus has always been Armscor so we have been working through Armscor. We finally resorted to asking Treasury to assist us in this matter and therefore Treasury is communicating on behalf of the South African Government with Airbus and we hope to hear from them soon. And we have given them 12 to 18 months to pay back and live up to the contract, so in 18 months time if they haven’t we will look at what options are available.”
This seems at odds with previous reports. In October last year, Reuters reported Secretary for Defence Mpumi Mpofu as saying the country’s negotiations with Airbus Military could be finalised before the end of this year. “I cannot disclose the details of the negotiations but I can indicate to you it’s looking very good,” Mpofu said at the time.
In July last year, a Sunday newspaper claimed Airbus Military was “blackmailing” the country by threatening to pull out of industrial partnerships related to the buy worth R2.3 billion. The Weekend Argus on its front page also stated that Airbus has “made a cut-throat counter-offer of four planes at a cost lower than the 2005 deal, despite that a four-year delay is likely to push up the price. … The new discount offer sets the total price, without the first two years’ maintenance costs, at about R4.3 billion for the four planes, and states that the deposit already covers two- thirds of the full price.” The article was also published in the Sunday Independent and posted on the Independent Online website.
“In documents leaked to Weekend Argus, Airbus made its terms clear,” the paper says: “Termination by Armscor of the South Africa acquisition contract leads to automatic termination of the (2005) Letter of Understanding. As a consequence Airbus has no further obligation with respect to the industrial participation of this programme.” It reportedly added it may be forced to relocate the R2.3 billion work packages to other participating countries. The paper said government maintained that its legal reading of the deal did not suggest any conditions between the acquisition of a fleet and the industrial partnership, despite a plea by Denel CEO Talib Sadik, in a letter to Armscor in January, for a reassessment of the government’s cancellation of the Airbus contract, given the “adverse consequences” to Denel should the plug be pulled.
Airbus Military’s SA spokesman, Linden Birns, at the time denied that there were hostile negotiations, but confirmed to the paper their threat to pull the offsets. “Obviously, if the doors are closed and another tender is not coming up… we would have to review the (industrial partnership) programme,” he said. Birns indicated that since the letter was written in mid-February last year, Airbus had entered into a dialogue with Armscor and that the Acting CE of Airbus – Sipho Mkwanazi – would seek a meeting with Sisulu soon to understand the circumstances around the “sudden cancellation” and “the way forward”.
“There was and is no blackmail,” he told defenceWeb in an emailed response in July. “The letter that Sunday Independent referred to was written in mid-February. Things have moved on since then. The letter was addressed to Mr JS (Sipho) Mkwanazi, Acting CEO, Armscor. It was not addressed to Minister Sisulu.
“Far from being hostile, the letter responds to Armscor’s letter of November 5 2009 and provides an assessment of the investments made by SA and Airbus Military in the South African industry, the contractual obligations underpinning these and the industrial and military operational impacts of South Africa’s decision to terminate its A400M contract (this decision was announced by SA Govt [sic], without any discussion with other contract parties or with affected organisations and businesses).
“The letter included an Annex containing a revised proposal for Armscor’s consideration. This was in response to Armscor, which, last October, raised the possibility of a reduced order. “Nowhere in this letter or in any other correspondence with Armscor – the party nominated by government to manage its A400M contract – has a gun been put to its head or any threat issued to the effect that SA must accept the revised proposal, or else…,” Birns said.
He continued that Airbus Military and Armscor began discussions “a few weeks ago” on unwinding the A400M contract. “This is a legal process that has to be followed.” Meanwhile, he says, Airbus Military has been in discussion with its SA industrial partners. “In the meantime, local design engineering and manufacturing of A400M components continues.”