Will SAA deal finally take off?
MAYBE: TAKATSO, PUBLIC ENTERPRISES DEPT SAY PARTIES STILL COMMITTED TO BUY AIRLINE More than a year after announcement, some sources believe agreement is doomed.
If Takatso or the dept walks away from deal, it would not come as a surprise
When a marriage is not consummated in good time, rumours of divorce are inevitable. And it’s been a year and 60 days since the department of public enterprises and Takatso Consortium went on their first date to build a new relationship for South African Airways (SAA).
But both Takatso and the department say the parties remain committed to the transaction to buy the national airline. On the contrary, some sources at SAA believe the deal is doomed.
“Takatso is still committed to the SAA transaction and working with the department towards fulfillment of all the conditions precedent,” the consortium says, adding that it would issue “a more fulsome statement” next week.
The extended courtship between Takatso and government has seen precious little information shared.
South Africans know little, bar the R51 “lobola” payable to the state for 51% equity in SAA, along with the promise of up to R3 billion in working capital to be injected over two years, after inking the deal.
The value of the transaction remains a curiosity too, particularly compared to SAA subsidiary Mango. The budget airline, still in business rescue, is up for sale, but suitors are required to show funds of around R200 million to resume operations, according to its rescue plan.
Mango’s only asset – an engine valued at about R97 million – would have to be paid for. And if the airline is worth R1 plus the engine, that’s 1.9 million times what Takatso will be paying for SAA.
Analyst Phuthego Mojapele questions the abnormal period of time that getting the SAA deal across the line is taking. He cites the relative speed of Telkom’s privatisation as an example.
And because it’s taking so long, the Democratic Alliance’s Alf Lees expects another bailout may be on the cards. He reckons SAA is presently losing up to R500 million every month. “Continued taxpayer bailouts will continue with yet another R3.5 billion bailout likely to be included in the medium-term budget policy statement in October,” he says.
“If either Takatso or public enterprises walks away from the deal, it would not come as a surprise. But what it would do is force government to restart a more transparent and inclusive bidding process. We don’t have room in South
Africa for any more under-the-table deal-cutting.”
In June, Toto Investment Holdings said it would sue government for being excluded from what it described as an opaque deal. In response, the department said it would defend its position.
“The DA has grave concerns about the legality of the process followed to identify a private investor, as well as the likely unreasonable conditions forced onto potential private investors,” Lees says. “Even National Treasury, who were privy to the terms and conditions, had serious concerns but were simply excluded from making interventions.”
The continued secrecy around the deal, the time it is taking and yet another likely taxpayer bailout, says Lees, is government again giving South Africans, particularly the poor, the middle finger. Aviation analyst and SA Flyer editor Guy Leitch says should the deal proceed, people would have to be patient. He points out that the SAA Act would have to be changed in parliament, and that could add some time to the clock.
“Changes would also have to be applied for and approved at the Air Services Licensing Council and then, the Airline Operator’s Certificate would have to be amended, and that can take anything between six months to a year, at the very least,” he says.
This week, the Air Services Licensing Council finally raised its finger at SAA and ruffled some feathers when it threatened to revoke SAA’s operating licenses and route rights. However, the airline said in a statement it was committed to supplying detail of the deal to the council.
If it doesn’t, SAA loses much of its value and turns into a wannabe airline without the licenses required to carry passengers and sans the route rights to go anywhere.
But if that happens, or the deal sours, or SAA is shelved forever, would anyone care?
Economist Dawie Roodt doesn’t think so. South African skies are liberal enough to allow more privateers to compete and, he said, most of the capacity in the market is already filled by private airlines right now.
“If you think about it, the airways have been privatised by the private sector. And it’s happening in the security and postal sectors too, irrespective of state institutions. SAA is just another failed state-owned company that’s being replaced by the private sector,” says Roodt.
Lees says if the transaction fails “the SAA business rescue plan must finally be relegated to the dustbin where it should have gone right from its conception”.
“There should be no further taxpayer funding at all. The only moral and logical outcome is for SAA to finally be liquidated and the employees absorbed into the growing private airlines.”