SOUTH AFRICAN EXPRESS BILL 2007 Select Committee on Labour and Public Enterprises Cape Town 7 November 2007

1. SOUTH AFRICAN EXPRESS BILL 2007 Select Committee on Labour and Public Enterprises Cape Town 7 November 2007

2. Table of Contents • Introduction • Overview of SAX • Separation of SAX • The Bill • Implications of the Bill • Conclusion

3. Introduction • In 2004 the Minister of Public Enterprises approved Transnet’s four-point turn-around strategy to focus on core freight services, namely the provision of rail, ports and pipeline • The four point turn-around strategy entails the disposal of non core businesses, which will help Transnet management focus on turning the company around into a focused freight logistics company • South African Express (Pty) Ltd (“SAX”) is not core to Transnet’s freight business. • The transfer of SAX to Government exits Transnet completely from the aviation sector, thereby cementing a key element of the four-point turnaround strategy.

4. Introduction (cont.) • Some of Transnet’s subsidiaries and business divisions that are strategic to the objectives of Government have been transferred to the State as shareholder or another public entity (indirect shareholding by the State) – eg SAA, Metrorail. • On 18 April 2007 a full cabinet meeting confirmed and approved the following: • separation of SAX from Transnet; • acquisition of the SAX shareholding from Transnet by Government represented by the Minister of Public Enterprises; • establishment of SAX as a SOE; and • submission of the SAX Bill to Parliament for adoption • The Department published the Bill for public comment in Government Gazette No.29879 of 11 May 2007. • No comments were received on the Bill and the Bill was certified by the State Law Advisors on 23 May 2007.

5. Overview of SAX • SAX is a regional airline operating smaller gauge aircraft (turboprop and regional jets) than those used by mainline airlines (traditional full service carriers) and low cost airlines that operate narrow-bodied and wide-bodied jet powered aircraft. • Regional airline air services are particularly well suited to many South African domestic and African regional geographic areas. • A number of thin routes that were loss making routes when operated by larger gauge of equipment are now operated successfully by SAX.

6. Overview of SAX (cont.)

7. Separation of SAX • Similarly to SAA, SAX will become a stand-alone SOE that will report directly to Government. • Government decided that SAX should be a stand-alone SOE rather than a subsidiary of SAA for the following reasons: • integrating SAX into SAA may have competition implications; • SAX has achieved a turnaround to sustainable profitability as a stand alone unit with its focus on its own mission rather than merely serving the primary objectives of SAA; • SAX has a clear focus on its regional service offering; and • focus SAA management on turning SAA around, in line with the decision to separate SAA from Transnet and make it a stand-alone SOE.

8. Separation of SAX (cont.) • DPE and Transnet held preliminary discussions to identify key principles of the separation. • DPE, National Treasury (“NT”) Transnet and SAX have formed a working group to execute the separation for the benefit of Government, Transnet and SAX. • The working group will seek to agree on issues such as the valuation of assets and liabilities,the transfer of guarantees and letters of support issued by Transnet between DPE, NT and Transnet. • The Minister of Public Enterprises will represent Government for purposes of the transaction. • The SAX Bill will constitute one of the key conditions for the close of the transaction.

9. The Bill • On 18 April 2007 Cabinet approved the draft SAX Bill • The draft Bill was published in Government Gazette No. 29879 dated 11 May 2007 • The purpose of the Bill is to provide for - • The transfer of Transnet’s shares, interests and claims in SAX to Government; • The future conversion of SAX into a public company with share capital. • The Bill records that the main objects of SAX are – • (a) provide transportation of passengers, cargo and mail, air charters and other related aviation services; and • (b) promote frequency of services on lower density routes and to expand regional air services capability, in the Republic and to the African continent and the surrounding islands. • This will be achieved by using smaller gauge aircraft than the main line and low cost airlines. • Subject to the Public Finance Management Act of 1999, SAX may borrow money, issue a guarantee, indemnity or security or enter into any transaction necessary to achieve its objects.

10. Implications of the Bill • The Bill authorises Government to acquire the shareholding in SAX from Transnet • The transfer of SAX to DPE will allow Transnet to focus on its core business and investment programme and avoid the potential negative impact on its balance sheet and credit rating • The future conversion of SAX into a public company will enable SAX to access funding from the private sector easily since public companies are generally recognised as the optimal corporate form to access capital markets • SAX will continue to run its business as usual

11. Conclusion QUESTIONS AND ANSWERS