Sold! The bizarre case of SAA latest dubious deal

Silindile Phakathi
Tax Manager
April 17, 2023
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The disposal of the government's majority share in SAA has been above board. All the necessary legal processes were complied with, notwithstanding the regrettable efforts by many to sabotage or undermine what is an important project in recovering an SOE [state-owned entity] from the damage caused by state capture.

The minister's statement comes after doubt was cast on his department's role in the transaction when it emerged that the Treasury was allegedly cut out of negotiations — which saw the controlling stake in the national carrier being sold for a discount price of R51, in return for spending commitments and responsibility for operations.

Takatso will be required to inject R3-billion into SAA over two years. Takatso said the proposed transaction had been structured to give SAA the most excellent chance of success.

This structure is usually characterised by a low purchase price and significant future funding commitments. They are typically used for distressed assets such as SAA, which require extensive restructuring and recapitalisation to ensure a sustainable business model.

Something concerning is going on with South African Airlines.

After 17 months in administration, the airline finally emerged from the business rescue in April 2021. In June, the Minister for Public Enterprises, Pravin Gordhan, announced that 51% of SAA would be sold to the Takatso consortium, including Harith General Partners and Global Aviation.

This in itself was a red flag. SAA had turned away bids from Emirates and Ethiopian Airlines, two major and successful international airlines who would undoubtedly have whipped SAA into shape—having the financial muscle to provide a secure future for it.

None of that applied to Takatso, a local outfit of limited means.

Even odder was that although Gordhan announced that Takatso would buy 51% of SAA, it emerged that no price had been agreed upon and, indeed, Takatso had as yet made no offer in the first place.

Instead, it would now audit SAA and conduct diligence inquiries to see if it was worth bidding.

It's difficult to fathom how Gordhan could have announced that 51% of the airliner would be sold to Takatso, given that no actual offer had been made. Moreover, Takatso didn't have the funds to mount a bid – it would need to raise loan finance.

The cherry on top was that the Department of Public Enterprises had no authority to make such an announcement. Under the Public Finances Management Act, the DPE was required to obtain the prior approval and agreement of the National Treasury.

Unsurprisingly, this had not been done.

As a former Finance Minister, Gordhan must have been fully aware of this requirement. After that, Takatso continued its due diligence exercise and was reportedly far from impressed by what was discovered. Independent aviation economist Joachim Vermooten said the deal did not seem to be happening because SAA was insolvent.

"The fundamental issue is that SAA is probably not worth anything. It has liabilities more than assets. R90 billion from the focus has gone to SAA since 2007, and there is nothing left,"

Nonetheless, In August 2021, SAA announced it would re-start a very much truncated service on September 23. The airline had shrunk from 49 aircraft and was now down to 10 planes. Popular international routes to London, Frankfurt, New York or even Lagos were re-started. Instead, the airline would now be confined to the southern African region – Joburg, Cape Town, Harare, Mauritius, Kinshasa, Lusaka and Maputo. The only West African route would be to Accra. They don't have a business plan. They are adhering to the business plan is the one that the business rescue practitioners wrote to convince creditors that the airline had no real chance of success.

SAA is still trying to rebuild their airline on that basis; it's perturbing that they are predicted to not make money.

Nonetheless, in January 2022, Mr Kgokolo announced that SAA would re-start flights on the Joburg-Durban route on March 4. The most remarkable thing is that SAA has been re-launched, yet there is still no bid from Takatso;  the whole ownership structure of the airline is still up in the air.

This can mean that the government – the residual owner – must have decided to re-launch.