The Joe Biden administration is eager to start discussing how it can apply its ‘build back better’ mantra to commerce with Africa when it ... virtually hosts the continent’s trade ministers this week. For their part, America's African partners want to make sure that Washington doesn’t bulldoze their two-decade-old, duty-free access to the US market in the process.
The deal has been struck by the department of public enterprises (DPE), whose ministry is headed by Pravin Gordhan. The DPE is the government shareholder representative at South African Airways (SAA) and is responsible for the oversight of state-owned entities, including Denel and Alexkor.
The last time the government made such an ownership concession was in the early 2000s with Telkom, which used to be state owned and controlled but is now a Johannesburg Stock Exchange-listed telco that competes with other players in the sector.
The Telkom roadmap is widely considered a success because the listed telco is self-sustaining. A similar path is envisaged for SAA, however, that is a far-off reality because there are technicalities that must be addressed around the strategic equity partnership.
The Africa Report spoke to insiders, who asked not to be named because they are not authorised to talk to the press about what happens next following the DPE’s announcement that the Takatso Consortium is the government’s preferred strategic equity partner.
According to them, the consortium is conducting due diligence, which involves a careful study and consideration of SAA’s financial health and the state of the flagship carrier’s remaining skills base. It is anticipated that the process will take about four to six weeks.
Once the exercise is completed and other compliance requirements are fulfilled from both sides, the transaction between the consortium and the DPE will be finalised.
Insiders were able to confirm that the current interim board will be dissolved and a new one reconstituted. Tshepo Mahloele of Harith General Partners and Gidon Novick of Global Airways, who collectively represent the consortium, will sit on a new board structure.
Mahloele, who is the CEO of Harith General Partners, has been stitching together deals cross the continent in infrastructure, including rail and airport projects. Novick is the former joint CEO of Comair and the founder of Lift, a low-cost airline.
The Public Investment Corporation (PIC) owns 30% of Harith General Partners but has distanced itself from the deal and the Takatso Consortium. This was after speculation that the PIC would fund the 51% acquisition of SAA. The secrecy surrounding the financing details of the strategic equity partnership deal is what fuelled this speculation.
Although the reconstitution of a new SAA board was relatively clear cut, the situation with employees was more nuanced and fluid. Earlier in 2021, for example, the interim board appointed interim executives including a CEO and a CFO.
In terms of what the consortium would do with the interim executives, as the controlling and majority shareholder, “we can’t be definitive,” one insider told The Africa Report.
The general feeling is that “it’s too early to tell. The idea is to get through the due diligence, but the first prize is to retain skills.”
Preparing to take flight
The crux of the strategic equity partnership is to get a revamped SAA flying again. The timing will be influenced by how long the due diligence takes and how soon thereafter the consortium is able to get the carrier flight ready, as well as the Covid-19 situation in South Africa.
The country is currently in the grip of a third wave of rising coronavirus infections while its vaccine programme has stalled.
When these issues are taken into consideration, January 2022 is a more realistic time horizon, notwithstanding the fact that December would be more ideal for resuming operations as it is the peak travel and tourism season.
In addition, during the business rescue phase, SAA was unable to retain all its aircraft. New deals on aircraft will have to be struck to address this and this process will most likely take time.
When SAA eventually resumes operations, it will start with domestic and regional flights, then later, international flights.
Why Takatso, and not Emirates or Ethiopian Airlines
Over the last 24 months or so, SAA had a number of suitors, including Emirates and Ethiopian Airlines. However, none took the plunge, most likely because the government was reluctant to give up ownership and control.
Both Emirates and Ethiopian Airlines are non-South African entities, while the Takatso Consortium is South African owned and operated.
Under the strategic equity partnership arrangement with the Takatso Consortium, SAA will continue to fly the South African flag. This might have been a bone of contention for non-South African suitors, in addition to the government’s reluctance then to cede ownership and control of SAA, which it considers a strategic national asset.
In the new arrangement, the consortium will be responsible for the required capital to operate the airline and the carrier’s historical liabilities will be for the government’s consideration and account. Another important fact is that the Takatso Consortium understands the South African operating environment and the politics surrounding SAA.
Despite this, The Africa Report understands that the door may not be entirely closed to the likes of Ethiopian Airlines. Although nothing definitive is on the cards, dialogue will most likely continue around international routes.
Ideally, SAA would retain most of its international routes. However, where the flagship carrier was unable to offer connections it would seek partners, and that is where Ethiopian Airlines and other could be roped in. Ethiopian Airlines would mostly be key for the US market and other parts of the continent.
Scepticism around SAA still remains. Insiders believe that the airline’s brand could be repaired. “It can be resuscitated,” said one insider who however cautioned against booking flights on the airline now: “There’s nothing to book. There are no flights.”
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