Why SAA deal didn’t take off
CANCELLED: PROPOSED CHANGES TO 2021 TRANSACTION ‘NOT WORKABLE’ FOR TAKATSO
Shrouded in secrecy, failure of sale ‘inevitable given it was a bad deal from the beginning’ – DA.
Public Enterprises Minister Pravin Gordhan announced on Wednesday afternoon that the sale of a 51% stake in South African Airways (SAA) to the Takatso Consortium has been cancelled.
This comes almost three years after the consortium was announced as the preferred bidder to acquire the airline for R51 – implying a total valuation of R100 – and after a bitter fight by Gordhan to keep the details of his dealings with Takatso confidential.
Takatso was expected to inject R3 billion into the business, but that has not yet happened. Gordhan did not mention the terms of the cancellation or whether any payments were due to Takatso.
SAA is once again fully state-owned, but Gordhan said future operations will not be funded by taxpayers. The airline will look at other funding options for the expansion of its operations, including expanding its route network.
Gordhan explained that the original deal was done in the aftermath of the Covid pandemic when SAA had just come out of business rescue and was not flying.
At that point the assets of the company were valued at R2 billion – a liquidation value for the property and “not much” for the business.
Since then, the airline has resumed flying and has added routes. Late last year, a new valuation put the value of the business at R1 billion and its properties at R5.5 billion. Government started renegotiating the deal with Takatso, but late last week the parties agreed that the transaction must be terminated.
Gordhan put this to Cabinet on Wednesday morning and got the green light to implement the cancellation.
He said SAA can sustain itself for the next year to 18 months and there are other ways to get immediate financing, “but at no stage in the course of the months to come, will SAA get money from the fiscus”.
After Gordhan’s announcement, the Takatso Consortium said in a statement: “In 2021, when Takatso expressed its interest in acquiring the controlling stake in SAA, it was at a time when market conditions were conducive, and the aviation sector was poised for rebound opportunities, post-pandemic.
“Takatso was clear in its analysis even then that the opportunities presented by market conditions prevailing at the time were limited in such a competitive market, and time was of the essence in seizing them. At that time, SAA, which was in business rescue and had been grounded, had ambitions to restart operations.”
It said about six months ago – “and in recognition of the restart of operations and very different dynamics that were then at play, including that SAA was no longer in business rescue as it was when the transaction was first discussed and negotiated” – the parties “agreed to re-evaluate and re-open negotiations on the transaction structure and the current value of SAA”.
“These negotiations have been protracted, and the resultant revised transaction structure has introduced unacceptable levels of risk and uncertainty,” it said. “The terms of the proposed revised transaction are not workable for Takatso, and we could not, under those circumstances, allow this process to continue to drag on.”
The Democratic Alliance’s Alf Lees, a member of parliament’s standing committee on public accounts, who has been fighting for transparency on the deal since 2021, said the failure of the secret SAA-Takatso deal was inevitable given that it was a bad deal from the beginning.
“The taxpayer took on all SAA’s massive liabilities of some R15 billion, leaving SAA debt-free with considerable assets including a respected brand all of which had a likely value that exceeded R7 billion.
“For 51% of this debt-free SAA to be sold for R51 was outrageous and a slap in the face of taxpayers,” said Lees.