BIGGEST DEAL IN SA AVIATION HISTORY WILL SEE PURCHASE OF 41 NEW AIRCRAFT WITH LIST PRICE OF $3,5BN Associate Editor SA Airways (SAA) dropped a bombshell yesterday, announcing it will replace its entire fleet of Boeings with 41 new Airbus aircraft at a list price of $3,5bn. The scale of acquisition the second biggest by the state after the controversial R52bn arms deal came as a surprise, because SAA had previously insisted it would be replacing only its long-haul fleet of up to 15 aircraft, at a cost of about $1,5bn. As part of the massive fleet upgrade which SAA said came with a "massive discount" SAA has agreed to ditch 21 Boeing 737-800s for which it paid R4,3bn just 18 months ago. The purchase was engineered by former SAA CEO Coleman Andrews, but the aircraft have proved to be unpopular with passengers and have not brought the promised cost savings. Andrews persuaded the SAA board to order the Boeings in the face of strong support for Airbus from Public Enterprises Minister Jeff Radebe and then Transnet chairwoman Louise Tager. Along with the news of Airbus's success came the announcement that Britain's RollsRoyce, the second largest civil jet engine maker, won a $400m deal to supply SAA with Trent 500 engines for some of the new aircraft. The new fleet upgrade is the largest transaction in domestic aviation history and is intended to restore the airline's competitiveness, reduce operating costs and ultimately turn SAA's R735m loss in 2000-01 to a profit. This will pave the way for a listing of the airline. Radebe said yesterday that a government team would soon begin work with SAA and its parent company, Transnet, to develop restructuring initiatives for the airline. He said the acquisition was part of a long-term strategy for SAA, designed to transform the company into Africa's predominant airline and the international airline of choice for business travellers and tourists. "The financing of the acquisition will be met from SAA's reserves in terms of particular arrangements negotiated with the successful bidder. The national treasury has been informed," he said. SAA CEO Andre Viljoen said the new fleet aimed to help attract tourists to the country and create more jobs. The upgrade means more seats will be made available to passengers flying both domestically and internationally. It will also allow SAA to broaden its route network and introduce direct flights to cities such as New York and Sydney, as well as destinations in Europe and Asia. The new fleet will consist of nine Airbus A340-600s, six A340-300Es, 11 of the A319-100s and 15 of the A320-200s, with the latter replacing the Boeing 737-800s. The Boeings will be replaced when their lease runs out between 2010 and 2012. Viljoen said that the fleet would be acquired via a mixture of outright purchase and leases. The first planes to arrive in the country will be three of the A340-600s which are scheduled for delivery in the fourth quarter of this year. Only the six A340-600s would be bought outright, and SAA would use its cash pile which stood at R3bn in December last year to pay for most of these. The rest were operating leases and SAA would use credit from international agencies to fund the outstanding balance. "The effect on SAA's balance sheet in terms of gearing is acceptable and is still way below other comparable airlines," he said. Viljoen declined to comment on the price paid by SAA, which is subject to a confidentiality agreement with Airbus. But industry analysts said the discount could be as high as 40%, leading to a price of about $2,1bn. In addition, Airbus had agreed to pay SAA a dollar price for its existing long-haul fleet of Boeings. This includes five 747-200s, six 747-300s and two 767s. Viljoen said the decision to phase out the new fleet of Boeing 737-800s was prompted by SAA's desire to have a common fleet with a single pilot pool and common set of spares. In addition, the aircraft had created a "bubble" in the fleet that had caused inefficiencies and led to higher costs. It was possible that one of the international leasing agencies could assist SAA in finding another airline to take over the leases earlier than the 2010-2012 expiry date, he said.