MAVERICK BUSINESS
New wind beneath the wings of SAA?
The Department of Public Enterprises has identified two investors that are set to acquire a majority shareholding in South African Airways (SAA), a move that will result in the government no longer wholly owning the troubled airline.
Public Enterprises Minister Pravin Gordhan, the current shareholder representative of SAA, announced on 11 June that investors will own a 51% majority shareholding in the airline. The government will hold a minority shareholding of 49% in SAA.
The two investors that will own a majority of SAA are part of a consortium that includes Global Airways, a local jet-leasing company, and Harith General Partners, which funds infrastructure development across Africa. Harith also owns Lanseria International Airport in Gauteng.
The consortium includes well-known figures in South Africa’s aviation industry and will be chaired by Tshepo Mahloele (CEO of Harith) and Gidon Novick, the former Comair CEO who recently launched low-cost airline Lift.
The consortium will initially inject more than R3-billion into SAA – funds that will be allocated to the airline’s working capital and help to restart its flight operations. SAA, which has been grounded since March 2020, recently emerged from a 17-month-long business rescue process. SAA’s interim management and board took control of the airline and are planning to restart domestic flight operations in July or August 2021.
The consortium will also fund the future funding requirements of SAA, helping to wean the airline off government bailouts for survival.
At a media briefing on 11 June, Gordhan reiterated
The objective of the consortium is to relaunch a viable and scalable
airline that is not dependent on the fiscus
that SAA will no longer depend on taxpayer-funded bailouts for survival.
“The objective of the consortium is to relaunch a viable and scalable airline that is not dependent on the fiscus,” Gordhan said.
SAA was last profitable in 2011 and the airline recorded cumulative financial losses of R17.7-billion between 2012 and 2017. And from 2008 to 2020, the airline received taxpayer-funded bailouts of R32.3-billion.
Gordhan said a memorandum of understanding relating to the consortium’s involvement/participation in SAA will be signed over the next few weeks. A purchase agreement regarding the sale of SAA shares to the consortium will also be completed over the next few weeks, he said.
It will be a long road before the consortium’s purchase of SAA shares will be concluded because the transaction will have to be concluded by the Competition Commission. The consortium will also want to conduct a due diligence process into the financial and commercial viability of SAA because the Covid-19 pandemic has wreaked havoc on the aviation industry.
An industry source raised concerns that Global Airways might not be a perfect match for SAA because it doesn’t have an extensive track record in running commercial flight operations – especially when it comes to operating domestic, regional and international flights.
Global Airways is mostly involved in the aircraft-leasing industry and operating charter flight operations.
The terms and conditions of the consortium’s participation in SAA – including the future funding of the airline, whether restrictions on flight routes and long-term labour (including pilots and staff) have been imposed – are not yet known. It is also not clear whether the government will give the consortium the space to make business decisions in SAA, without interference, which has previously contributed to the airline’s failure and high-level corruption during the State Capture years during which it incurred massive losses.
The announcement by Gordhan also marks a significant step change in the government’s approach to the ownership and management of state-owned entities.
The future ownership model of SAA will be similar to Telkom’s.
Telkom was once wholly owned by the government, which started the process in 2003 to partially privatise the company. According to Telkom’s 2020 annual report, the government owns 40.5% of the company.
Former SAA CEO Vuyani Jarana proposed a plan in 2018 to turn around the fortunes of SAA, including, among other things, exploring the possible privatisation of the airline. But the plan was not supported by the Department of Public Enterprises, resulting in Jarana’s resignation in 2019.
Dr Joachim Vermooten, an independent transport economist, said the partial privatisation of SAA is a good move, as it will bring private sector skills in efforts to turn the fortunes of the flailing airline around.
“The welcoming aspect of the transaction is that people from the airline industry and private sector will influence commercial decisions. This is a positive first step. It’s also an admission by the government that it doesn’t have the skills base or money to fix SAA,” said Vermooten.