BEE won’t fly at Comair

Airline’s deals on back burner as government backtracks

COMAIR, which operates British Airways and kulula.com flights in South Africa, says the government’s dithering over new empowerment rules has forced the company to suspend its plans to draw in new black investors.

This comes days after empowerment consortium Thelo, led by Ronnie Ntuli, made a handsome R160-million profit by selling its 6.1% Comair stake to HNA Group, a Chinese multinational recently touted as a potential partner for South African Airways (SAA).

Crucially, this leaves Comair without any BEE partner — and CEO Erik Venter says the airline would not do a new BEE deal any time soon because of the government’s mixed messages.

This is the first major casualty of the government’s botched “clarification” note a few weeks ago, which slashed the points awarded for broad-based BEE deals, instead awarding higher points for “individual empowerment” — rules which critics said favoured well-connected fatcats.

Days later, Trade and Industry Minister Rob Davies backtracked and said the “clarification” would be withdrawn.

But Venter said business was now unsure what to do, as there was “absolutely no guidance” on which deals would qualify for points. “It’s a big risk at the moment that you do a deal, and six months later you’re told it counts for nothing. There’s no point in doing a new BEE deal under those circumstances, never mind how good your intentions.”

This had not been good for employee share ownership schemes either, which have now fallen off the agenda, said Venter.

“A few months back, we were looking at putting in place an employee share scheme, but now these wouldn’t be recognised under this new BEE plan, so it’s fortunate that we didn’t go down that road,” he said.

But for the Thelo consortium — 87% controlled by Ntuli and 13% by Khutso Mampeule — the Comair deal has been a winner.

In 2007, Thelo effectively bought 29 million shares in

UP IN THE AIR: Erik Venter Comair for 1c each, putting an implied value of R290 000 on its initial investment.

This week, Thelo sold those 29 million shares to China’s HNA for R5.50 each — making R160million, nearly all profit.

Ntuli, a law graduate of Edinburgh University, is the CEO of Incwala Resources and deputy chairman of Comair. Mampeule is a former CEO of SA Express and the SA Post Office.

Contacted this week, Ntuli would not go into details, saying: “There was a commercial offer [from HNA] which we negotiated and accepted. That’s really it.

“It was purely a commercial decision. There was no semblance of bad blood, nor difficult terms,” he said.

Mampeule confirmed this, saying: “I’ve known the [Comair] board for 10 years. I will continue to sit on that board. I’m very actively involved with it and I think it’s a great organisation.”

Sandile Zungu, a vice-president of the Black Business Council and an economic adviser to President Jacob Zuma, said he supported Comair’s decision.

“Comair is correct in being cautious and guarded in doing any BEE deals, particularly around broad-based ownership and employee share schemes, until there is clarification from government,” he said.

Back in 2006, experts believed that Comair’s BEE deal would help it win a greater chunk of the R300-million spent every year by government departments on domestic air travel.

For airlines, Venter said, “there is a new focus by the licensing councils to look at BEE status before approving licences, but the rules are opaque, and the confusion over Davies’ new rules only adds to this uncertainty”.

Mampeule said the angst over recent changes to the BEE rules was inevitable. “The concepts are difficult, they are fraught with challenges, but they also carry some positives,” he said.

The HNA Group, which owns China’s fourth-largest carrier, Hainan Airlines, was rumoured to be in talks with SAA in April to set up a new African airline hub.

Will Horton, an analyst at Singapore’s Centre for Aviation, said HNA was probably “betting on Comair benefiting from African aviation growth, but the return benefit to Hainan is unclear”.

Venter said Comair would be exploring whether there is any potential to work with its new Chinese shareholder.

Zungu said the reversal on BEE “will not go unchallenged by black business”. The rule would have curbed fronting but, he said, “the minister responded to pressure somewhere”. Comment on this: write to letters@businesstimes.co.za or SMS us at 33971 www.timeslive.co.za