Govt missed steal of a deal
SAA: BAILOUT INEVITABLE IN COMING MONTHS
→ Even at revised valuation of R6bn, offer was a bargain as Takatso was to invest R3bn in the airline.
The government’s withdrawal from the South African Airways (SAA) privatisation deal is devastating to South Africa’s economic reforms. When the deal was initially announced in June 2021, it was a big surprise as it was the first sign that President Cyril Ramaphosa was serious about implementing unpopular reforms. It was a clear shift to allow the privatisation, or the introduction of an “equity partner”, as the government semantically called it.
At the time, SAA was in trouble. It was in business rescue and on the verge of liquidation, and a significant liability to the state. During the preceding 12 years, the government wasted more than R48 billion of taxpayers’ money to bail out the struggling airline time after time.
That is a massive amount of money. SA spent R32 billion on the Gautrain and R18 billion on the e-toll highways. Thus, the bailouts equalled the total investment in two of the biggest productive infrastructure developments of the past two decades.
Drain on the fiscus
The reality was that SAA was worthless in June 2021 and a significant drain on the fiscus. The deal’s announcement was a big surprise and was even labelled as a blueprint for allowing the private sector to take responsibility for fixing other stateowned enterprises.
The state would also have retained a 49% stake, while Takatso would have invested R3 billion to resurrect one of the government’s most public failures.
Pravin Gordhan, minister of public enterprises, is critical in this mess. He said that the deal was pulled last week as SAA is now worth much more than in 2021.
Unfortunately, even at his valuation of around R6 billion, the Takatso deal was a steal. The consortium committed to invest R3 billion in the airline, precisely half of the R6 billion.
We’ve seen this movie before
A major development since the deal was signed is that SAA took to the skies again.
But we have seen this movie before. In September last year, National Treasury stated that the airline had suffered losses of R150 million between March and May of that year. This indicates the total losses for the full financial year could be much more extensive, possibly R1 billion plus.
The inevitable outcome is that, without another bailout, SAA will enter another business rescue process. Gordhan has promised that the airline will not receive another bailout. Still, I am willing to bet a good bottle of claret that when the inevitable bailout is announced in the coming months, it will also be declared another ABF.
Einstein’s definition of insanity, repeating the same thing over and over again and expecting a different outcome, rings true here. SA does not need a state-owned airline. The state has proven it cannot run an airline or any state-owned entity.
The much-flaunted “partnership” between the government and the private sector to fix the failures of Eskom, Transnet and the prosecution authorities shows that Ramaphosa realises that private sector intervention is needed to efficiently provide state services. This partnership seems to bear fruit, but why not apply the same approach to SAA?
There are claims that the deal involved shenanigans behind the scenes, but even then, why not announce a new process to get rid of the state airline?
There is much more to this story than Gordhan makes us believe.
Much more to this story than Gordhan makes out