Cabinet held its ordinary meeting in Cape Town yesterday, 4 November 2009.
Cabinet decided to terminate the contract to purchase eight A400 Airbus strategic lift aircraft. This decision follows a review of the contract by the Ministries of Defence and Military Veterans, Finance, Trade and Industry, Science and Technology and Public Enterprises.
The termination of the contract is due to extensive cost escalation and the supplier’s failure to deliver the aircraft within the stipulated timeframes. Armscor will be instructed to terminate the programme as soon as possible.
The cost escalation would have placed an unaffordable burden on the taxpayer at a time when the national fiscus is under pressure due to the economic downturn. An amount of R2.9 billion will be refunded to National Treasury as per the contract provisions.
Cabinet believes that the interests of the South African taxpayer will be best served by not proceeding with the contract.
The Minister of Defence and Military Veterans will brief the Portfolio Committee on Defence about this decision this morning.
(EDITOR’S NOTE: South Africa is the first A400M customer to cancel its order and pull out of the program. The Cabinet’s decision follows several weeks of controversy enflamed by the claim that the cost of the eight A400M had ballooned from 17 billion rand in 2005 to 47 billion rand.
By the time Armscor's general manager of acquisitions Sipho Mkwanazi explained that the new 47 billion rand figure includes estimates for the full maintenance and life-cycle cost of the aircraft, including spare parts, as well as the cost of chartering private aircraft for six years until the A400M are delivered, it was too late for the issue to be debated on its merits.
Click here for earlier coverage of the South African A400M debate.)