South Africa: Insiders reveal what delayed SAA sale deal

By Xolisa Phillip, in Johannesburg
Posted on Friday, 18 March 2022 13:39

Passengers board a South African Airways plane at the Port Elizabeth International Airport in the Eastern Cape province
Passengers board a South African Airways plane at the Port Elizabeth International Airport in the Eastern Cape province, South Africa, September 30, 2018. REUTERS/Siphiwe Sibeko

Haggling over the price tag attached to a 51% stake in South African Airways (SAA) is understood to have been one of the main factors which delayed the sale and purchase agreement of the national carrier, The Africa Report has established.

Speaking to sources close to the matter, but who asked not to be named because of the commercial sensitivities surrounding the transaction, The Africa Report has been told that valuing the business and determining a suitable price were the main points of debate among the parties.

SAA is wholly owned by the South African government and accounts to the department of public enterprises, which is the shareholder representative.

In June 2021, the department revealed that the Takatso Consortium, comprising Harith General Partners and Global Airways, had been selected as the preferred strategic equity partner to acquire the 51% controlling stake in the flagship carrier.

However, it was only a few weeks ago – almost a year after the department’s pronouncement – when the South African government announced that “the sales and purchase process has now been concluded and signed by the department … and Takatso Consortium. The next step involves the approval of this transaction by various regulatory bodies.”

But no further details were provided. Both parties have been tight-lipped about what has happened between June 2021 and now, as well as the next steps for the business.

The Africa Report has been informed that because of the multifaceted nature of the business, a planned due diligence took time. “But also the valuation had to take place. It was not only a due diligence. It was also what value do you pay for this business. Haggling about that took a long time,” the sources said.

Pushed to disclose figures, the sources declined citing confidentiality and the sensitive nature of the background discussions.

“That’s all done and dusted – all signed. Now the only thing [remaining] is … going to the regulatory bodies – getting approvals from the IATAs [International Air Transport Association] and the Competition Commission … [That] should take place now,” said the sources.

The Africa Report understands that once the regulatory approvals are obtained a new SAA board will be instituted. That is expected to take place in a few months’ time “as soon as that regulatory process is confirmed.”

“Remember, there will be complete board control – [that control] will vest in the new entity [Takatso Consortium], not in government,” noted the sources.

The expectation with a new board and private control of SAA is that “you will be able to get faster decisions on getting things done. The board is important,” the insiders pointed out to The Africa Report.

Flying light

The Africa Report understands that the current management will be utilised. “But it will also be their choice if they want to continue under new conditions.”

The sources explained: “Going into business rescue, all contracts and old agreements [at SAA] are no longer valid. Each management employee will be negotiated with as far as that is concerned. The idea is to keep as much expertise as possible.

“The purging took place already. The staff is nimble. We don’t expect any job losses. The technical side already shed [jobs] from 6,000 to under 3,000. We don’t expect any [job] losses, we expect building rather.”

The SAA Group consists of SAA; low-cost airline Mango, which is in business rescue and faces an uncertain future; AirChefs; and SAA Technical, the technical division.

Asked about the eight-month silence following the announcement of the deal, the sources responded that: “When everything happened, everybody chipped in and had something to say. You then had to go quiet and get your wits about and do it in the right way. That is what took place.

“And then during that process a lot of negotiation took place in terms of the value placed on SAA. You can’t do those things in public. You have to buckle down and get it over the line.”

Moreover, “everybody weighed in and had something to say. A national asset always provokes a lot of discussion and debate. It’s all over and done, and signed, now.”

Crucially, “now that you have government sign off, it’s only the regulatory bodies’ [approvals that are outstanding]. There’s no competition [issue]. It’s not one airline acquiring another airline, so we don’t expect anything from the [competition authorities]. The biggest challenge is to get all our routes up and running again, and making them viable as soon as possible. A big emphasis will on the African routes,” according to the sources.

State of the business

SAA spokesperson Vimla Maistry said: “We are not commenting on the Takatso Consortium and the next steps. DPE [department] is the 100% shareholder at the moment.”

Maistry clarified further that: “We are not flying any of the international routes that we had before. It’s only domestic and regional flights. It’s Accra, Lusaka, Harare, Kinshasa, Lagos [and] Mauritius.”

Department spokesperson Richard Mantu did not respond to a request for comment.

At the beginning of March department director-general Kgathatso Tlhakudi told parliamentarians that: “The SAA Group has done well.”

Tlhakudi was briefing the portfolio committee on public enterprises about the department’s oversight on state-owned enterprises, including the SAA Group.

“We have transferred R2.3bn to the subsidiaries. SAA Technical has restructured, it is a much smaller business. All that was done without having to go to business rescue. The same applies for AirChefs. There was good co-operation from unions in that effort,” Tlhakudi said.

“Of course, we have Mango – it turned out to be a much bigger problem for us. Therefore, we needed to bring in a business rescue practitioner.  The business rescue practitioner must find a strategic equity partner for the business,” according to Tlhakudi.

In addition, SAA has started rectifying past audits. “The 2018 financial year audit has been concluded. We are now working on subsequent years: 2019 and 2020. Eventually, we will have 2021. The interim board has worked hard. The auditor-general has also thrown resources at SAA to ensure that it gets to path very soon,” Tlhakudi said.

Tlhakudi also revealed that SAA’s liquidity remains constrained because the “R3.5bn required to complete [the] business rescue plan has not been provided by government.”

Understand Africa's tomorrow... today

We believe that Africa is poorly represented, and badly under-estimated. Beyond the vast opportunity manifest in African markets, we highlight people who make a difference; leaders turning the tide, youth driving change, and an indefatigable business community. That is what we believe will change the continent, and that is what we report on. With hard-hitting investigations, innovative analysis and deep dives into countries and sectors, The Africa Report delivers the insight you need.

View subscription options