The SAA Takatso sale – is it still on?
Guy Leitch
In May 2021 the South African government announced that it had selected a preferred private sector ‘strategic equity partner’ to acquire a majority state in the then moribund state-owned South African Airways. That partner is the Takatso Consortium.
The partial privatisation of SAA is significant as it is set to serve as the blueprint and litmus test for privatisation in other state-owned enterprises (SOE). If privatisation is successful at SAA, then the same ownership model could be introduced at other SOEs, including Eskom and Transnet.
The Takatso consortium comprised Harith General Partners (an infrastructure company that owns Lanseria Airport), Global Aviation and Syranix, who are co-owners of South Africa’s newest domestic airline, Lift.
The Takatso deal was commended as it combined Harith Capital Partners access to capital with the airline operational know-how of Global Aviation and Lift, which was founded by Gidon Novick, who had proven his ability as the founder of kulula.com Airline.
The deal is to sell 51% of SAA for a notional R51,00 in return for Takatso providing the airline with a capital injection of R3 billion over two years. The SA government’s Department of Public Enterprises (DPE), retains 49%. Even through it would be a minority shareholder, the SA government would continue to have a ‘golden share’ veto on certain key decisions, such as selling the airline.
Progress in concluding the sale has been far slower than anticipated and the delay raised increasing criticism. The terms and conditions around Takatso’s involvement in SAA have largely been kept secret, with the government and Harith arguing that the details are ‘commercially sensitive’.
Then two years after its announcement, Gidon Novick unexpectedly resigned from the Takatso board, saying he was being kept in the dark by Harith about, among other things, the R3-billion capital injection that the company promised SAA.
A key unresolved question is when Takatso will actually have to pay the R3 billion – and where will they get it from? There is a fear that, as Takatso partners with Harith Fund Managers, which also administers the Public Investment Fund, they will use state pensions for this capital injection. This has however been repudiated by Takatso and the Department of Public enterprises.
The government minister responsible for the Takatso transaction, Pravin Gordhan, has made numerous promises about a completion date for the deal. But these have proven to be wildly optimistic. A key reason for the delay was that the deal was subject to Competition Commission approval. This approval was conditionally granted in 2023, however the Commission required Global Aviation and Syranix to exit the deal by divesting their shareholding in the Takatso Consortium. This is because the involvement of Lift Airlines was seen to be anti-competitive. It said the Lift co-owners, being part of the consortium, could result in “the exchange of competitively sensitive information between SAA and Lift, through Global Aviation and Syranix having shareholding and the ability to appoint directors to Takatso’s board of directors”.
Syranix and Global have agreed to withdraw, leaving unresolved the vexed question of what their combined 20% shareholding of Takatso’s 51% is now worth. The airline declared assets of R13 billion in 2019, and so 10% would in theory be worth R1.3 billion, which would be an extraordinary return on the notional R20.00 invested. Gidon Novick and the Syranix have said they will use business consultants to determine an appropriate value.
The long delay in the sale has raised questions as to whether the SA government is indeed committed to the sale. SAA claims that it is trading cash positive, which means the Takatso deal is now far less urgent. However, the airline is still in urgent need of the additional R3 billion funding and capital injection to increase its fleet for long haul operations.
The scepticism as to the government’s real intention was not helped by the DPE expressing interest in buying the shares of the departing minority shareholders (Global Aviation and Syranix). In a recent appearance before Parliament, Deputy Public Enterprises Minister Obed Bapela stated that government was interested in becoming a majority shareholder in the airline, and thus holding more than 49%.
If the government has an undeclared intent to still be a majority shareholder in SAA, it means that the taxpayer would still be on the hook for bailouts for the airline, to keep its operations going.
There are still substantial obstacles in the way of the sale being finalised – notably the Act of Parliament which creates SAA has to be redone. And then, eventually, in December 2023, it was announced that the whole SAA Act is being repealed.
A further key obstacle is that the airline’s Aircraft Operating Certificate (AOC) and Air Service Licencing Council licences will have to be amended. These normally require 18 months to accomplish, yet government appears determined to tackle then consecutively, rather than simultaneously.
Nonetheless, the deal is slowly progressing, and government assures beleaguered taxpayers that it will be completed and that SAA will thus be effectively privatised.