Slow-moving SAA privatisation process faces further delays

20 Jun 2023

Some of the private sector investors that have been handpicked by the government to buy SAA might be ejected from the deal on the grounds of competition problems, sending it back to the drawing board.

The process of privatising SAA, which has been two years in the making, might take even longer to conclude as it faces more approval hurdles from SA’s competition authorities.

This is because there is now a tussle among the private sector investors picked by the government in June 2021 to buy 51% or a majority shareholding in SAA, through a consortium called Takatso. The government, through the Department of Public Enterprises, would retain the remaining 49%.

Some of the handpicked private sector investors might be ejected from the deal on the grounds of competition problems, sending it back to the drawing board.

To recap: the Takatso Consortium comprises 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.

Harith owns 80% of the Takatso Consortium and would be responsible for providing funding for SAA’s capital needs, while Global Aviation and Syranix own the remaining 20% (10% each), becoming minority shareholders. In the consortium, Global Aviation and Syranix would be responsible for providing the technical expertise in the running of SAA.

Competition problems with the deal

The privatisation of SAA drew a step closer to completion in May when the Competition Commission recommended that it be approved by the Competition Tribunal, but imposed a condition that would significantly change the shape of the deal.

The commission wants Global Aviation and Syranix to exit the deal by selling or “divesting” their shareholding in the Takatso Consortium because their involvement in the airline might potentially limit competition in SA’s aviation industry. The commission is worried that Global Aviation and Syranix have exposure to Lift and, through SAA, will have exposure to a competing airline.

The commission said the involvement of Global Aviation and Syranix in SAA would probably result in a substantial lessening and prevention of competition in the domestic passenger airline market, and the pair would have access to competitively sensitive information belonging to SAA.

The merits of the commission’s recommendation for Global Aviation and Syranix to be ejected from the deal were heard on Tuesday by the Competition Tribunal, which acts as a court on competition and antitrust matters.

At the hearing, the Takatso Consortium supported the booting out of Global Aviation and Syranix. The consortium’s senior counsel, Mike van der Nest, said the consortium was “in agreement with the need for divestiture”, and was prepared to find other investors to replace Global Aviation and Syranix.

Van der Nest said the technical expertise that would have been brought by Global Aviation and Syranix in the running of SAA could easily be found elsewhere.

“The existing SAA technical expertise – in-house – will provide the service. The airline has existing capacity, through its management and advisers. Takatso has technical advisers on board to help SAA [when Global Aviation and Syranix exit]. Takatso has lined up three advisers,” he said.

Advocate Tembeka Ngcukaitobi, who is part of the panel adjudicating the hearings at the tribunal, raised concerns that Takatso would have to start a new process to find new private sector investors, who will have to be first approved by the government, and then assessed again by the Competition Commission. The matter would have to return to the tribunal. This suggests that the deal might take at least two more years to conclude, judging from the same duration it took for the deal to reach competition approval processes.

The introduction of private-sector players in SAA’s ownership model is significant as it is set to serve as the blueprint and litmus test for privatisation in the state-owned enterprise (SOE) universe. If privatisation is successful at SAA, then the same ownership model could be introduced at other SOEs, including Eskom and Transnet.

The fate of the deal hangs in the balance, with advocate Wiri Gumbi, representing the Competition Commission, warning that it “might fall flat if the parties don’t find another partner”, adding that this is something that doesn’t concern the commission, which is tasked with regulating competition dynamics in SA’s economy.

Further battles

But Global Aviation and Syranix are not prepared to exit the deal or sell their minority shares in Takatso Consortium. Gidon Novick, who represents the minority shareholders and is a founder of Lift, recently told Daily Maverick that Global Aviation and Syranix would fight against any attempts to boot them out of the deal.

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

Majority shareholder in the Takatso Consortium, Harith General Partners, has promised to inject R3-billion into SAA to recapitalise it and support its ambitions to add more flight routes. Novick argued that he had not seen any evidence of Harith having the money. Van der Nest, acting for the Takatso Consortium, said Harith still had to raise the money for SAA.

The tribunal reserved its ruling on the matter. DM

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Competition problems with the deal

Further battles