SA's R6,4bn air-transporter deal hits flack

Government's decision to enter into a R6,4bn deal for military air transporters without a tender came under fire yesterday, but was defended by those involved as a unique deal and such an attractive investment that normal procurement processes were not required.

Trade and Industry Minister Alec Erwin's adviser on the project, Ian Phillips, and Airbus military spokesman Linden Birns said it would not have been possible to ask for tenders. "There is no use tendering if it is a one-horse race," Birns said.

SA is to acquire eight of the new-generation A400M military transporters, starting in 2010.

The plane, production of which began this year, will be acquired by seven European air forces. Australia and Malaysia also have the plane on order. The A400M cannot match the C-17, made by Boeing, in range and payload, but beats the Lockheed C-130 in these areas.

When the UK, a participant in the A400M programme, was considering its future military airlift requirements it asked for proposals and went through a tender process that included Boeing, Lockheed and Airbus.

Hennie van Vuuren, a senior researcher in anticorruption strategies at the Institute for Security Studies, said yesterday: "It should have been put out to tender."

He said a proper tender process would help put to rest any subsequent allegations about vested interests, particularly in such a large procurement deal. In light of the controversy over the strategic arms package, he said, one would have thought that government would have been more open.

"It may very well be a good deal, but that can only be proven once the opportunity is given to other suppliers to present what they have to offer," he said.

In terms of the deal, which Phillips described as an "investment", SA will pay R6,4bn for eight A400Ms and receive R3,14bn in work, mainly for Aerosud and the financially strained state-owned arms maker, Denel.

South African companies will also receive maintenance and upgrade work likely to be generated over the 40-to-50-year life span of the project.

According to Airbus, once the 242nd plane has been sold, SA will receive a "levy" on each further plane sold, in proportion to its 4,3% stake in the programme. The amount will be confidential.

"This offer was unique in terms of military procurement, which is normally based on the one-off manufacture of products to meet the detailed specifications of the purchaser," Phillips said.

"No other military manufacturer in the world would have offered such participation."

The World Bank and anticorruption advocacy organisations such as Transparency International and UK-based Corner House advocate straight purchases of military equipment, rather than deals which involve work-sharing arrangements. They say that work-sharing and other industrial offset arrangements complicate matters and are open to abuse.

Few details have been revealed about the offsets for SA's strategic arms package, but government has admitted that the German Submarine Consortium, led by Ferrostaal, has not met its midterm target for investment in civilian projects.

With acknowledgements to Jonathan Katzenellenbogen, Linda Ensor and the Business Day.