SA Express: A masterclass in state looting

Nearly three years ago, North West premier Supra Mahumapelo proudly heralded the reopening of Mahikeng Airport — and the resumption of flights between the airport and Johannesburg — as a major step in revitalising his province’s economy.

Mahumapelo revealed that SA Express, the small state-owned airline set up in 1994 to "offer connectivity to secondary and main airports", would be flying between North West’s capital, Mahikeng, and two destinations — Joburg’s OR Tambo International and Pilanesberg — three times a week.

"We said that we will make this practical and I am very happy that SA Express and all stakeholders came to the party to make this a reality in line with our saamtrek, saamwerk [pull together, work together] philosophy," Mahumapelo said.

That was in 2015, long before images of North West in flames dominated television screens and newspaper headlines, and angry residents called on Mahumapelo to "stop making excuses and step down".

Right now, the breaking point is that Mahumapelo’s son Supra jnr scored a R1m bursary from state-owned arms company Denel. But as protests intensify, it is clear the rage is symptomatic of a deeper public anger over corruption within North West’s government.

Skeletons are tumbling out of the closet, appearing to confirm rotten business dealings in the province, where GDP fell 3.6% in 2016 and more than 41% of people can’t find work.

As the story of the Mahikeng airport reveals, this province appears to be ground zero for widespread corruption and maladministration at SA Express too.

It is an airline that cannot afford to waste money. Taxpayers forked over R121m last year to give SA Express more "working capital", as well as a R1bn guarantee to keep it in the skies.

And while its audited financials for the year to March 2017 still haven’t been released, parliament was told last year that it had clocked up a R234m net loss, from a slim R16.9m profit the year before. Worse, its passenger numbers have gone backwards: in 2015, it was flying 4,100 passengers a day, now it’s ebbed to around 3,300.

Documents seen by the FM show that even SA Express last year doubted if its financials were true. This suggests nothing has changed since 2016, when the auditor-general flagged problems with the accounts, highlighting "material misstatements", "non-compliance with legislation" and R35m in "irregular expenditure".

One letter, in the FM’s possession, shows SA Express pleading with national treasury for R612m in "emergency funding".

It’s been chaotic in SA Express’s executive suite too. In March last year, CEO Inati Ntshanga was paid R766,000 to leave.

Victor Xaba took over as acting CEO, but within a year he too had quit. In his resignation letter, dated November 20 2017, he expressed deep concern that his efforts to turn SA Express around had been undermined by a lack of support from the department and the board.

"In the past seven months, I have been reduced to a fire-fighting micro-managing chief operations officer.

"This reality will continue to dilute the office of the CEO both present and future, and requires a radical approach to achieve the requisite turnaround of the business.

"In simple words, SA Express and its leadership remain ‘an afterthought’."

Without the political will to get to the root of the rot at SA Express, the airline risks being a perpetual drain on taxpayers.

This might be changing, now that Pravin Gordhan has taken over as minister of public enterprises.

Makgola Makololo, acting director-general of the department of public enterprises, says Gordhan "is aware of allegations of rampant corruption and maladministration at SA Express that have occurred over a period of time" and says much of this ought to be referred to the Zondo commission investigating state capture.

"Mismanagement and corruption appear to have been endemic at the airline. These allegations are serious, since poor management of the airline has affected the long-term sustainability of the business," she says.

Already, the Hawks are investigating SA Express’s dealings with Mahumapelo’s government in North West. These are irregular at best, at worst overtly criminal.

The weird flow of funds between Mahumapelo’s government and SA Express had caused disquiet at the airline’s head office near OR Tambo airport.

Two weeks before Ntshanga quit, the SA Express board resolved to hire forensic investigators "to look into the questions raised around a five-year contract" between the airline and North West’s department of community safety & transport.

In that contract the North West agreed to pay SA Express R407.2m in "airline subsidies", airport "operational costs" and "route marketing subsidies" over five years.

Documents in the possession of the FM show the board wanted investigators to probe "the governance arrangement as they relate to the legal rationality of the contract, the financial and operational requirements of the project".

Some of these subsidies were meant to be paid to service providers, but may have been diverted to enrich insiders — as the following case study illustrates.

This is a telling story, which reveals how SA Express slotted neatly in the pattern of looting happening at state-owned companies elsewhere in the country.

A whistleblower, 53-year-old Mahikeng resident Babadi Tlatsana, claims one of SA Express’s former general managers, Tebogo Brian van Wyk, used her company Koreneka to siphon money out of the airline.

Van Wyk, insiders say, developed a reputation at the airline for boasting about his powerful political connections.

Tlatsana has told the Hawks it all started after she came up with a plan in 2014 to resuscitate flights into Mahikeng, after the national election.

"I intended to revive flights into Mafikeng and more regular flights into Pilanesberg. The Mafikeng Airport had, to my knowledge, since the ‘departure’ of the Bophuthatswana regime, not been functioning at all," she said.

So she contacted SA Express, who said Van Wyk was the man who could make it happen.

Eventually, Van Wyk told her that Koreneka "had been provisionally selected as the service provider for SA Express’s North West operation".

Tlatsana says she was told her company was picked because "I originated from North West, I was a female and as such in line with their bidding preferential criteria with regard to empowering women in North West Province [and] I was the original person who came up with the idea."

But she says Van Wyk had a "few issues" he wanted to discuss before signing the deal. First, he told her to appoint a specific accountant, David Kalisilira, to manage her company’s finances.

Kalisilira is the managing partner at tax consultancy JDK & Partners, which he started in 2009. His biography on the company website says he worked for the SA Revenue Service "in various positions" for six years, and "occasionally embarks on small property projects to keep his creative side alive".

Second, Van Wyk told Tlatsana she needed to appoint two other people as shareholders and directors — and he suggested that "Catherine Joyce Phiri" would be perfect for the role.

Tlatsana says she later found out that Phiri is the mother of Van Wyk’s life partner. (Van Wyk denied this to the FM, but during an investigation by SA Express, he didn’t dispute this.)

In the end, Tlatsana, Phiri and an SABC project manager were appointed as equal 33% shareholders in her company. In April 2015, Koreneka was duly appointed as a "preferred bidder" for a R51m baggage-handling contract, even though there was no competitive tender process.

Tlatsana admits to the Hawks that she signed the contract with SA Express without reading it. "I clearly remember how nervous I was when the contract was signed. I was so excited at the time and I felt very important.

"I did not read the agreement. I also did not want to appear stupid."

She says she trusted Van Wyk completely, even providing her Internet banking codes and pins to the auditor, Kalisilira. "Mr Van Wyk informed me that he was going to assist me and Koreneka to be successful. He said he would monitor certain payments and follow the progress of our services closely. I was happy that such a busy man of his stature was willing to assist."

But, she adds, that trust was misplaced.

In the statement to the Hawks, she details how millions were paid into Koreneka’s business account by SA Express — far more than it should have got — only to then disappear from the account.

A forensic investigation by SA Express confirms this, saying the amounts paid to Koreneka were "grossly inflated" and paid without a valid contract being in place.

(Kalisilira says Tlatsana was responsible for the payments, and accuses her of stealing R15m from her own company.)

To take one example, R5m was transferred by Koreneka to a technology company called Neo Solutions, run by businessman Vivien Natasen, in November 2015.

That same day, Koreneka tried to make another payment of R5m to Neo Solutions, but the bank reversed it.

Natasen, who has offered to turn state witness, has made a section 204 witness statement to the Hawks admitting he received the money but denying he knew these payments were illegal.

In his statement, he said he and Van Wyk are "business associates in various ventures".

"Van Wyk approached me in November 2015 and asked if he could transfer R10m into the bank account of Neo Solutions. He explained that it was necessary to do it this way as he was an official of the state [employee of SA Express] and was leaving. I asked for his confirmation that the funds were above board and that we would not be implicated in any wrongdoing and he confirmed as such," he says.

Natasen says Van Wyk was leaving SA Express and told him he "didn’t want his employees to be jealous" that he had implemented a successful business.

"Van Wyk requested that an amount of R300,000 needed to be paid out to him in cash. This amount was paid on January 4 2016."

Natasen says he transferred the money into an account for "Batsomi Investment Holdings" in four batches between December 11 2015 and March 29 2016, on Van Wyk’s instructions.

There are numerous other cases of money flowing in and out of Koreneka’s account. In May 2015, R2m was transferred from that account to an "unknown" account, ostensibly for "consulting fees" and to fund "reparations" to the Pilanesberg airport.

In September that year, another R5m was paid to another "unknown account"; Tlatsana says Van Wyk told her this was for "other stakeholders, for fire trucks and security cameras" at the airports.

May 6 2015: SA Express transfers R8.5m to Koreneka FNB account

May 7: Kalisilira allegedly transfers R2m from Koreneka into “unknown” account. Tlatsana says Van Wyk claimed the money paid at beginning of Koreneka’s contract was for consulting fees and to fund “certain reparations” to the Pilanesburg airport

May 7: A further R2m is transferred from Koreneka’s account into the account of Peter John Papitis, in four batches — R660,000, R700,000, R320,000 and R320,000. Tlatsana has no explanation for why Kalisilira allegedly made this payment

May 11: R2m is transferred from Koreneka into an unknown account. The only reference to the payment is “movement and finance”

May 14: R500,000 is transferred from Koreneka to an unknown account, with the reference “El Skakol”

August 27: SA Express transfers R8.5m into Koreneka’s account

September 16: R5m is transferred from Koreneka’s account to an “unknown account”. Tlatsana says Van Wyk told her this money was for “other stakeholders, for fire trucks and security cameras” at Mahikeng and Pilanesburg airports. She says these trucks were never received and she paid for the cameras herself

September 21: R500,000 is transferred from Koreneka account to another unknown account — with the only reference to the payment stating that it is for “management consulting”

November 11: R5m is transferred from Koreneka to the business account of Neo Solutions, a tech company run by Vivian Natasen. On the same day, Tlatsana says, Kalisilira tried to transfer another R5m to Neo Solutions, but this was reversed by the bank

November 12: R4.9m is paid by Koreneka to Neo Solutions

—  The baggage-handling scam

Tlatsana says that after a while, it became clear to her something shady was going on.

She says Kalisilira became "evasive" when she asked for the invoices linked to the multimillion-rand payments being made from Koreneka’s account, and told her to ask Van Wyk.

So she changed the Internet banking codes to Koreneka’s accounts, and transferred the cash to other accounts — including her personal account — ostensibly to preserve the money. She also removed Phiri as a shareholder.

Then things got really nasty. Tlatsana was arrested on charges of fraud and theft related to her transfer of the money. The charges were later withdrawn, but as it stands, Koreneka’s contract with SA Express is now "on hold" pending the investigations into what happened.

The FM asked Van Wyk about these allegations, but he dismissed any suggestion that he did anything wrong.

Instead, he painted a scathing picture of Tlatsana as a criminal. He said Tlatsana was "married to a Nigerian and they are running scams".

He promised to hand over evidence of her wrongdoing but later cancelled that meeting, saying his lawyer was "unavailable".

What will make it difficult for Van Wyk, however, are Tlatsana’s claims that she has recordings of him boasting of bribing an unnamed government "minister".

Significantly, Lynne Brown, Gordhan’s predecessor, admits she heard those recordings. "The recording had been leaked to me, and I had heard the recording. I didn’t know any of the voices, but I did hear the male voice say a minister had to get R10m. I took the recordings to the board, and asked them to report this matter to the Hawks."

In November 2016, SA Express’s own internal investigation found that Van Wyk had masterminded the awarding of a ground-handling and facility-management deal where North West’s government paid R51m to a company in which his life-partner’s family were directly involved.

In the middle of that forensic investigation, however, Van Wyk resigned from SA Express. His lawyer, Tumi Lesomo, tells the FM he quit "after being subjected to harassment including summary suspension without being afforded a chance to make any representations.

"He elected to resign to pursue opportunities in the private sector because he didn’t want his name embroiled in controversy which would follow any investigation that would be conducted mostly in the media, as is currently the case," Lesomo says.

SA Express spokesperson Refilwe Masemola confirms that "various allegations have been raised" with regard to Van Wyk’s involvement with North West.

Masemola says an investigation has "uncovered breaches in the airline’s code of ethics" even though Van Wyk had resigned before the investigation was completed.

"The matter has been handed over to the relevant authorities," Masemola confirms.

Strangely, Van Wyk’s lawyer says he was told there were "no adverse findings against my client [and] we are unaware of any further investigations into my client".

The question is, how did the Tlatsana case get so far, before anyone noticed? How many similar instances are there at SA Express? One possible answer is that it didn’t suit some at the airline or in government to find the answers.

Five days before Xaba resigned, he wrote a memo motivating a widening of the scope of existing investigations into other "allegations of irregularities" at a cost of R7m.

Xaba’s proposed probe would have followed the money that flowed from North West’s government to "service providers" of SA Express.

Ultimately, that proposal wasn’t given the green light, because then minister Brown issued a directive that the case be handled by the Hawks.

Brown confirms to the FM that she’d referred the case of the alleged North West corruption to the Hawks as she believed it was "clear cut".

"I’m surprised the Hawks haven’t acted yet," she says.

Hawks spokesperson Hangwani Mulaudzi confirms that his unit’s investigation into looting at SA Express continues — but says extra statements and bank records are needed before it is finalised.

Critically, the rot at SA Express extended far beyond just shady contracts with Mahumapelo’s government.

In at least one instance, apparent mismanagement and alleged nepotism almost collapsed the company.

Xaba’s November 2017 memo revealed how the airline tried to investigate rampant theft of components and spares. It’s a critical point, considering that in April 2016 the Civil Aviation Authority suspended its licence for nearly two days as a precaution to avoid "serious safety hazards". The airline subsequently claimed this was "just a misunderstanding" relating to paperwork.

Either way, SA Express is now spending hundreds of millions of rands chartering planes, so it can continue offering services.

Xaba says SA Express owns only four of the 22 aircraft it uses on its routes and "dry-leases" the rest. It’s a common practice in the industry but in the case of SA Express, its leasing strategy has from the beginning contravened the Public Finance Manage- ment Act.

The upshot, Xaba says, is that SA Express incurred "irregular expenditure" of R312m on charter planes during its 2016/2017 financial year. "This expenditure was incurred without having been provided for in the annual budget," he says.

The huge, unbudgeted-for charter plane expenses — for which there was limited or no paperwork — rang alarm bells in the department of public enterprises and the SA Express boardroom.

They wanted answers about who owned the charter companies being used by SA Express, and were concerned that the airline was being milked.

Some of the subsidies were meant to be paid to service providers, but may have been diverted to enrich insiders

—  What it means

"The board also needed to ascertain whether the airline received fair economic value for the money spent on the charter services received, specifically in relation to the contractual rates that were levied against the airline," Xaba’s memo notes.

Xaba says these "excessive" costs were "hidden" in its financial accounts, and were reported only under the "wider expenses for leasing in the management accounts".

It turns out the board was right to be suspicious. The memo revealed that one of SA Express’s divisional managers, Brad Dickson, was linked to one of the charter companies, Solenta Aviation, used extensively by SA Express.

Xaba says Dickson had "engaged directly with Solenta Aviation in securing charter services while Mr Dickson’s wife had been employed by Solenta Aviation in a role that had a direct relation to this service".

"Dickson’s declaration of interest on this matter was insufficient and presented a case for a conflict of interest," he says. Dickson was dismissed.

In June last year, Solenta went to court to liquidate SA Express for R87m it claimed it was owed for charter services. Xaba disputed this and the case went to arbitration. In the end, SA Express agreed that it should pay the company R39m, but disputed that it owed the remainder of the R87m.

That remaining amount is now the subject of an arbitration.

Bizarrely, the SA Express board seemed to believe Solenta’s liquidation application may have been driven by "acts or intentions of collusion between Solenta and SA Express employees and/or with the competition".

The board said it had received "intelligence" that SA Express "would be liquidated within three months" and that its competition was "gearing up" to snatch its routes. So it opened a criminal case against Dickson and Solenta.

This appears to illustrate the paranoia at the airline. Behind every apparently innocent decision — the R312m spent on charter flights, for example — there seems to be someone waiting to drain money from the state-owned company.

If the Hawks are ever able to decipher what happened to every cent of the R407m transferred from North West’s government to SA Express, it would be a good start at draining the swamp.

In Mahikeng, it seems time is up for Mahumapelo. And it may be the same story at SA Express.