Revelations that a group of politically connected investors have sold off their share in military aviation contractor Aerosud - one of two South African partners in the controversial Airbus A400M aircraft joint venture - have shown up a paper-thin veneer of Black Economic Empowerment *1.

Independent Newspapers has established that the empowerment vehicle Phatsima Aviation - by the admission of its chairman Herman Mashaba - a purpose-designed entity, bought into the Aerosud operation via shares warehoused by the parastatal Industrial Development Corporation (IDC).

This was in accordance with government empowerment economic policies requiring a BEE component in state-backed joint venture deals - and led to Aerosud acquiring a 28 percent black shareholding.

On paper at least. In fact, the shares warehoused by the IDC were provided by none other than Aerosud Aviation - and now, while government reviews its investment (in the form of orders for eight of the aircraft) in the Airbus A400M joint venture, Phatsima Aviation has sold off its shares - leaving Aerosud without its BEE partner *2.

While it remains unclear who the buyers are, Mashaba told Independent Newspapers "the company I sold to is in the same kind of space as Aerosud". He put the divestment down to a business decision and said it had nothing to do with the government's Airbus dilemma.

Phatsima Aviation's 20 percent shareholding was acquired from the IDC in 2005.

Mashaba - the founder of the successful Black Like Me hair care company - received more than half (54 percent) of the 20 percent stake.

The high-profile BEE team that was cut into the Aerosud/Phatsima BEE deal also included Ronnie Mamoepa, now spokesman for the Home Affairs Ministry; Titus Mafolo, a former presidential adviser (8 percent); and the current Speaker of the National Assembly, Max Sisulu (3 percent). Sisulu is a former deputy CEO of Denel. Other shareholders in Phatsima include Jackie Mufamadi, former Communications Department spokesman Jerry Majatladi and financial expert Shane Ferguson.

The Phatsima BEE buy-in was in addition to an 8 percent shareholding acquired three years earlier by ANC Women's League treasurer and Deputy Correctional Affairs Minister Hlengiwe Mkhize.

Mkhize's stake is now valued at R9 million.

This would put estimates of the current value of the Phatsima sell-off at R20 million. The price paid was not disclosed *3.

This week, neither Phatsima nor Aerosud would cast light on the origins of the BEE deal and who the shares were acquired from.

Phatsima spokesman Brian Gibson, however, said the IDC had merely warehoused shares for a BEE investor from whom Mashaba had bought the shares. Gibson insisted that the Phatsima transaction with the IDC was purely commercial.

Asked for comment, Shakeel Meer, IDC divisional executive: industrial sectors, confirmed that the shares the corporation had transferred to Phatsima in 2005 had been warehoused for Aerosud, as part of an agreement that the company would undergo a BEE restructuring.

"We were involved with the transaction", Meer said. "It was done on the basis of facilitating a BEE acquisition for Aerosud. It was an arms-length *4 transaction between us and Phatsima. We had a relationship with Aerosud and part of the transaction that was prior to 2005 was that we agreed between ourselves that they would bring in a BEE partner. So we held a portion of the shares for the empowerment partner. All we did was conclude the transaction (when Phatsima was identified)."

He said that the IDC did provide funding for the transaction, but said this money was put up by Aerosud.

Meer could, however, not confirm whether Phatsima had paid a commercial price for the shares to Aerosud.

"Typically the BEE partners would gain something, but it was basically paid for by Aerosud *5. They may have had an arrangement between them. Our funding was paid for partly by Aerosud, so when Phatsima acquired the shares, we would have been paid a portion, but there might have been a payment to Aerosud."

The August 2005 BEE deal was concluded just months after the government signed a pre-purchase agreement with Airbus Military for eight of the new generation tactical freight planes. It boosted Aerosud's black participation to 28 percent. Aerosud was awarded the industrial participation contract with Airbus Military eight months later.

Meer said he was not aware of any state funding or involvement in the deal when the IDC facilitated the transaction.

Asked why he sold, Mashaba said: "The industry was not adding strategic value to our business... very technical. I decided that I couldn't add value *6. And the company I sold to is in the same type of space as Aerosud. So when they approached me, I said I was happy to dispose if they could add value."

He did, however, acknowledge that Aerosud could be affected if South Africa pulled out: "Well, it was a substantial part of their business plan. If they lose it, without any doubt it will hurt them."

Gibson said Phatsima had made a profit of about 13 percent since 2005, but this was used to pay back the transaction debt incurred in the deal. "There was no profit available for any of the shareholders," he said.

Both Aerosud and Phatsima declined to name the buyer.

Aerosud managing director Paul Potgieter said this week that it would be bad news for his business if South Africa pulled out of the Airbus deal. He would not discuss the Phatsima divestment, saying it was "utterly unrelated" to the Airbus deal. He would also not disclose the value of the contract or the BEE transaction.

The Airbus Military contract is seen as the company's biggest so far. As a risk partner, Aerosud will manufacture a range of parts, including wing tips and cargo and fuselage linings *7 for the A400M.

The company, formed in the early 1990s, started the BEE restructuring in 2001. Mkhize was appointed and Mashaba said she was the one who introduced him to the BEE opportunity. Mkhize has resigned as an executive director of Aerosud since she was appointed to government office in May. She declared her 8 percent stake in the company in Parliament's Register of Members' Interest, saying it amounts to "plus-minus R9 million shares and financial interests".

Warehousing is a procedure whereby funds are lodged with the warehousing institution by one party, and then made available to the other party - here Aerosud and Phatsima - without the two parties being seen to be in a direct relationship and without the shares being directly transferred. Such warehoused shares are usually subject to agreements outside of the occult transfer of benefits *8.

Part of the BEE transaction was the setting up of a trust to channel funds to train black engineers *9. Gibson said the trust will remain part of Phatsima.

Sisulu's entry into Parliament's Register of Members' Interests declared that he had held a directorship or partnership in Phatsima Aviation, but that the company was now dormant. The Speaker has tendered his resignation with a range of companies where he held interests since he ascended to Parliament's top position in May.

Aerosud dates back to 1990 when a group of top aerospace designers formed it to work on the Rooivalk Combat Support Helicopter, but later became involved in aircraft interior structures *9. Much of the company's work since 2004 had been from contracts with Boeing passenger planes and for British Aerospace.

investigations@inl.co.za

With acknowledgements to Christelle Terreblanche and Sunday Independent.