The sale of SAA to a strategic equity partner could be in jeopardy as some government and ANC leaders seek a re-evaluation of the airline's value, and for the state to retain a majority stake in the carrier.
Business Times understands that there is a push within the cabinet and the ANC to review the deal as concerns have emerged that the strategic equity partner — Takatso — could be underpaying for an airline that has now resumed flying and is opening new routes.
Uncertainty over the ownership of SAA could compound the shortage of alternatives, especially on domestic routes. This follows a News24 report this week that Safair, which has captured 60% of the domestic air travel market, is under investigation and could be grounded for contravening its licence conditions that require a majority local shareholding.
Two of Safair's competitors have complained to the International Air Services Council (IASC), and one of them to the Air Services Licence Council (ASLC), that Safair may be in breach of the domestic ownership minimum thresholds. IASC will hold a hearing on the matter on April 11.
When the Takatso transaction was approved, SAA was grounded and in business rescue. It has since resumed operations and opened new routes, including launching with much fanfare its first intercontinental route, to São Paulo, Brazil.
But some ministers and ANC leaders now believe the deal was rushed and must be reviewed, despite the cabinet having given the department of public enterprises the green light to go ahead with the transaction in 2021.
If Takatso is still interested, they have come to terms with the possibility that they may not get 51%. The prevailing view is for SAA to remain a state asset with 51% while Takatso gets 49%
— Senior cabinet member
A senior cabinet member who asked not to be named said the new administration that emerges after the May elections would most likely review the deal. He said that given the airline could soon have a new valuation, the terms of the agreement could not be the same as they were four years ago when discussions started.
“If Takatso is still interested in pursuing the deal they have come to terms with the possibility that they may not get the majority of shares,” the cabinet member said.
The prevailing view was for SAA to remain a state asset with the state retaining a 51% stake while Takatso gets 49%, he added.
Another cabinet member concurred that the deal in its current form “did not work for them”.
“I think it should be looked into; it’s fine that it’s being sold but we would have preferred [the buyer] to have experience and expertise in the aviation sector, which these fellows don’t have,” the cabinet member said.
Thulasizwe Simelane, spokesperson for Takatso, declined to comment on Friday. “In the interests of preserving the integrity of the ongoing transaction and related negotiations, Takatso deems it prudent to refrain from any public commentary at this stage,” he said.
The Takatso consortium, originally made up of Harith General Partners and Global Aviation, was announced in May 2021 by public enterprises minister Pravin Gordhan as the strategic equity partner that would get 51% of SAA. In the deal, the government would retain 49% while the consortium pumped R3bn in to get the airline up and running.
Completion of the deal hinged on the government settling historical SAA debt owed to creditors and compensation to holders of tickets that could not be used before SAA went into business rescue.
Late in 2022 the relationship between the partners in the Takatso consortium soured, with Gidon Novick of Global Aviation publicly resigning from the Takatso board. In July last year, the Competition Tribunal approved the SAA acquisition on condition that the minority partners, Global Aviation and Syranix — owners of LIFT airline — exit Takatso.
Kgathatso Tlhakudi, who was dismissed as director-general of the department of public enterprises (DPE), then made a public submission to parliament alleging that the sale of 51% to Takatso for a nominal amount of R51, with the consortium obliged to invest R3bn in the airline, undervalued SAA. He alleged the deal was orchestrated in an irregular manner by Gordhan to benefit a few privileged individuals.
Gordhan has since been on a mission to disprove the allegations and to push for the deal to be finalised. But now his retirement from politics adds to doubts that the next administration will support the sale of a majority stake in the national carrier.
Finance minister Enoch Godongwana said in an interview this week that he has not been appraised of the details of the deal.
“I don’t know how much SAA has been sold for and what are the terms. That’s a decision of [the department of] public enterprises,” he said.
Asked whether he believed SAA was sold for R51 as alleged by Tlhakudi, Godongwana said: “I don’t know, depending on the assets of SAA. What I’m reading is that SAA assets are bigger than R51 and we have cleaned the debt, and paid all the debt. So somebody who would be buying SAA would be buying a clean asset without any debt obligation.”
The finance minister said it was always known that SAA had additional assets abroad, including properties, but he did not know why some of these assets were not included in the initial valuation. “Even the landing rights for Heathrow are about R600m, from what I’ve heard. But ask those questions of DPE,” he said.
We have said, thus far, we would need proof of funds. That’s our condition to release further funding to SAA, proof of funds from the equity partner
— Finance minister Enoch Godongwana
When pushed on whether he believed SAA still required a strategic partner, Godongwana said: “We have said, thus far, we would need proof of funds. That’s our condition to release further funding to SAA, proof of funds from the equity partner. If they provide that, it may well be that there’s nothing Treasury can do. However, they have got to cross another hurdle because the SAA Act has got to be passed by parliament.”
MPs who sit on the public enterprises portfolio committee have acknowledged that they will not conclude work on a bill that seeks to change the national carrier’s status as a 100% state-owned company before the elections. Without the repeal bill becoming law, SAA will remain in the hands of the state.
A senior Treasury official told the Sunday Times that it was odd that they, as purse-string holders, were not involved in negotiations that resulted in the deal with Takatso.
“We were not involved from the beginning. We would have wanted to be part of those talks, yes, given that we have given SAA more than R47bn in bailouts,” the official said.
Gordhan has been at loggerheads with the portfolio committee over whether the documentation supporting the transaction - which is being renegotiated - should be discussed in an open meeting.
He told reporters this week that his requests for confidentiality in accounting to the legislature about the SAA strategic equity partnership arrangement stemmed from the need to protect the integrity of the live transaction from market volatility and competitors.
“All of that information about when it happens, how it happens, which planes will be acquired, cannot be disclosed at this stage as it would give competitors information which they could use to outmatch these guys,” he said.
Parliamentary legal adviser Andile Tetyana told the portfolio committee this week that while other documents requested by the committee could be discussed openly, it was reasonable that the sale and purchase agreement be discussed under a confidentiality regime as the transaction was still live.
“There is no way the committee can compile a report without this document. Even if that happens, it would have to happen under a confidential regime. The nature of the information we are dealing with, including the SPA that the confidentiality regime the minister proposed is not something that can be rejected outright,” he said.
DA MP Mimmy Gondwe said the opposition party is against the confidentiality provisions being introduced to parliament’s oversight process and that the DA would remove itself from any confidential meetings regarding the transaction.
Dr Guy Leitch, an aviation analyst and editor and publisher of SA Flyer magazine, said the delays in closing the SAA transaction made little difference to South Africa's aviation industry, as the sector had implemented other plans to make the most of South Africa's post-pandemic travel market.
“The aim here [at SAA] was to simply privatise SAA or sell a 51% stake. The original intention was to bring in capital and skills, which it sorely lacked. [As to] the fact that the deal is not happening, the only consequence is that SAA's recovery will be further delayed,” he said.
