SAA privatisation deal reaches the end of the runway, but fails to take off

After 2½ years of attempting to get the sale of SAA over the line and privatise the state-owned airline, Public Enterprises Minister Pravin Gordhan has called off the deal. 

On Wednesday, Gordhan announced that the sale of SAA to the Takatso consortium of private sector investors had been terminated — delivering a massive blow to President Cyril Ramaphosa’s reform agenda. 

Introducing private sector investors into beleaguered state-owned enterprises (SOEs) such as SAA was a centrepiece of Ramaphosa’s reform agenda, as it would pave the way for such investors to inject capital into SOEs to wean them off constant taxpayer-funded bailouts. 

In June 2021, Gordhan announced the sale of a 51% shareholding in SAA to Takatso, which initially included Harith General Partners (an infrastructure company that owns Lanseria Airport in Gauteng), Global Aviation and Syranix (both of which are partners in the aviation industry and co-owners of SA’s newest domestic airline, Lift). 

After a Cabinet meeting on Wednesday, Gordhan said the Takatso-SAA deal had been terminated by “mutual consent” as there was “no clear path for it”. 

The deal has been beset with problems since it was announced. 

First, the Competition Commission ordered Global Aviation and Syranix to exit the Takatso consortium and sell their 20% shareholding in the consortium, with the competition watchdog raising concerns that the companies would be a dominant player in the commercial aviation industry, owing to their exposure to Lift and possibly SAA.

Read more in Daily Maverick: Minority shareholders that plan to buy SAA will fight Competition Commission ruling

Daily Maverick understands that Global Aviation and Syranix had begun a process to sell their shares in Takatso and identified potential buyers. 

Second, the terms and conditions of the sale of SAA have been shrouded in secrecy, with Gordhan refusing to publicly disclose details of how it will be structured. The public remained in the dark about how much SAA (an asset in distress) was valued by the government or Takatso, or how much Takatso would shell out to the government for a 51% shareholding.

Read more in Daily Maverick: Pravin Gordhan doubles down on the need for secrecy around the sale of SAA

It was suspected that the assets of SAA needed to be revalued by the government because the airline’s valuation during the Covid pandemic (when the sale to Takatso was negotiated) is rumoured to be different than in current times. SAA emerged as a smaller airline after going through a business rescue process after the Covid lockdowns, with its fleet of 52 aircraft much reduced. 

The third problem was that Takatso (mainly Harith General Partners as the remaining investor in the consortium) promised to initially inject R3-billion into SAA to keep it going. This was believed to be the value ascribed to SAA and its assets. However, it remains unclear if Takatso has already raised the money, and even its growth strategy for SAA has been kept under wraps. 

SAA still carries a debt of at least R1.5-billion, which the government had to settle before the deal could be finalised. This was a condition that Takatso put in place before it injected the R3-billion.

Gordhan said that in a post-Covid lockdown world, the value of SAA was below the R3-billion that Takatso was willing to inject into the airline. He said a new valuation put SAA at about R1-billion, while its properties were separately valued at about R5-billion. However, properties take a long time to sell to free up cash and are not considered current assets. 

Peter Attard Montalto, the managing director at Krutham, is not surprised by the collapse of the deal. 

“Given that Takatso never had the money, could never have agreed to a higher valuation and had no aviation partner, the deal was always going to fail right from the beginning,” Attard Montalto told Daily Maverick. 

“The fact [that the deal] has been strung out this long raises many questions that will no doubt be answered soon and was a huge distraction to more important things at Eskom and Transnet, where leadership was needed.”

Attard Montalto said SAA did not have the financial resources to last and was likely to ask National Treasury for more financial support in the next two years. “Presumably it won’t get any money then and [will] fold.” DM