‘Takatso had the cash for SAA’

Takatso consortium chair Tshepo Mahloele has insisted the group would have been able to inject R3bn into SAA as promised when it was selected as the airline’s strategic equity partner, despite talk that it was struggling to raise the funds.

“From the beginning we always had commitment to put money into this thing. We always said this was going to come from Takatso and whatever other sources we were going to get to do that. And we were very comfortable that we would have met that,” Mahloele said.

Public enterprises minister Pravin Gordhan announced on Wednesday the deal had been terminated following a mutual agreement last week.

A new valuation on the national carrier’s worth was made in the wake of the Covid19 pandemic and it found the equity value had increased from negative to R1bn, he said.

The announcement brought to a sudden end a lengthy period of negotiations to secure capital for the ailing state-owned airline by way of an equity partner.

“We knew that we were in a position that on transaction closure we’d have the billion rand of equity, at least, on the table to do that at closure and then the other R2bn was going to be pumped into the entity over a 12-month and 24-month period from a working capital point of view. We had commitments. We had partnerships and engagements which were also going to make sure that the shortfall was going to be satisfied easily,” Mahloele said.

Business Times reported last week that there had been pressure from within the cabinet and the ANC to ditch the deal because some senior government and governing party leaders believed Takatso was underpaying for an asset that had resumed flights and added new routes such as Sao Paulo, Brazil.

In an interview on Friday, Mahloele said Takatso still believes it offered fair value for SAA. “There was a valuation done by government advisers which gave them a negative value. Over a billion [rand] in negative value. To try to make the transaction work, because it was not operating, we prepared ... to pump in R3bn on the back of the value you might have in the properties to give you that value. You can’t say that’s the behaviour of someone who didn’t want to bring value to the party,” he said.

“We’ve always had a commitment to put capital into the asset. This airline had a negative value but we were prepared to do that and say government retains 49%, for a business that was valued at zero, if you really think about it.”

He admitted political pressure had taken a toll but said the consortium was still confident because Gordhan backed the deal, and they assumed cabinet also supported it.

“As a business person, I can’t deny that the political pressure was immense, but it was not the political pressures that led to us finding ourselves at this stage. We do believe that even within the ruling party, there’s been different views about this, but we were really of the view that on the other side, from the leadership of this transaction by minister Gordhan, that we had the support of the cabinet,” Mahloele said.

After SAA resumed operations, a new valuation was conducted and Takatso agreed to pay R1bn equity value in terms of the new transaction structure emanating from the re-evaluation, he added.

We had commitments. We had partnerships and engagements which were also going to make sure that the shortfall was going to be satisfied easily

— Takatso consortium chair Tshepo Mahloele

“When it started operating, it is not the condition that we were at before it started operating. It was very different circumstances after liquidation, after the BRP process, a whole lot of contingent liabilities were in there. There were a whole lot of issues that we had to take into account, that we had to sort out legislatively and make sure that we were covered,” Mahloele said.

“The way we structured it would allow us to cover the liabilities as they arise and then we will be able to, on the back of that, inject R3bn of capital into the asset.

“After two years of flying of the asset and with all the allegations that their value and we were getting it cheap, we were agreeable to a new valuation of this asset.

Valuation came back, and on the back of that valuation, we made a compromise to agree that this is a billion rand. And this is now still an asset that was at negative two years ago,” he said.

He said the consortium had already spent R70m to prepare for the SAA acquisition in areas including technical support, memorandums of understanding with aviation partners, partner airline engagements, plans for recruitment of skills, a business plan, a market study and various levels of advisory.

Speaking at the post-cabinet briefing, minister in the presidency Khumbudzo Ntshavheni said the SAA balance sheet was stronger and its asset value had increased, so it could raise the necessary funding from the market and the other commitments that were made through the National Treasury.

She said the cabinet supported the termination of the partnership agreement.

“With a public asset, the government had to prioritise that fair value and the public interest was served. SAA’s assets are now worth far more than they were during the Covid-19 pandemic when Takatso was selected as the preferred bidder,” she said.

Aviation expert Linden Birns said the Takatso deal was supposed to unlock R3bn in capital for the airline, and SAA’s strategy now needed urgent funding while the auditor-general indicated the airline’s integrity governance remained a concern.

“Minister Gordhan and the finance minister saying the taps get closed in terms of state-owned company funding. The minister also said now the airline must embark on a corporate strategy, roll out routes, and resume routes. To do that, it must secure aircraft that it doesn’t have. That’s a capital-intensive venture,” Birns said.

Guy Leitch, an aviation analyst and editor and publisher of SA Flyer magazine, said with a half-decent balance sheet, SAA can lease aircraft, but the leasing market has become tighter in recent years. He said the airline faces an uphill battle to recover lost ground in the local sector.

“That [using SAA’s balance sheet] echoes what Gordhan said in his announcement that the government would not be funding any further bailouts for SAA. That is good news. [However], the answer is not satisfactory. Gordhan said they can use assets on their balance sheet for finance and that is frankly wishful thinking,” he said.

James Geldenhuys, head of aviation finance at Nedbank, said the aviation market had changed domestically and globally with rising price pressures.

“It is a capital-intensive business; new equipment is very costly. A lot of airlines are rightsizing their fleets after the Covid pandemic. Ideally, an airline should own at least 50% of their aircraft and lease 50%. Owning aircraft strengthens the airline’s balance sheet, however, the airline then takes the ownership risk,” he said.