SAA deal fallout an embarrassment

The government’s termination of a deal to sell South African Airways (SAA) is an embarrassment and an example of what not to do when restructuring a state asset.

This is the view of Business Leadership South Africa CEO Busi Mavuso, who was initially supportive of the SAA deal.

For years, the government had been in talks to sell SAA to the Takatso group – an investment consortium made up of closely held Global Airways and private equity firm Harith General Partners.

Takatso acquired a controlling stake in SAA in June 2021, with the consortium set to own 51% of SAA, while the government would own the remaining 49%.

Takatso, under the original deal, would purchase 51% of the company for R51, with the airline having a total value of R100.

Takatso agreed to invest about R3 billion in the airline as part of the deal, a commitment that remains in place despite the deal having been scrapped.

Public Enterprises Minister Pravin Gordhan pushed this deal through following SAA’s entry into the business rescue.

However, the airline’s valuation has been criticised within the government and by other cabinet ministers.

In particular, Finance Minister Enoch Godongwana has been vocal in his criticism, saying, “What I’m reading is that SAA assets are bigger than R51, and we have paid all the debt.”

“So somebody who would be buying SAA would be buying a clean asset without any debt obligation.”

However, the government has also been hesitant to give SAA any further funding after giving it R51.7 billion in bailouts.

“We have said, thus far, we would need proof of funds. That’s our condition to release further funding to SAA, proof of funds from the equity partner,” Godongwana said.

This and other uncertainties surrounding the deal saw Gordhan announce last week that SAA will revert to being 100% owned by the state. 

“We are convinced that SAA can sustain itself in the next year to 18 months and that there are various other ways in which immediate financing can be obtained,” he said. 

“But at no stage will SAA get money from the fiscus.” 

‘Somewhat of an embarrassment’

When the government announced in 2021 that it would sell a controlling stake in SAA, Mavuso described it as a “massive step in the SOE reform agenda”.

She said it was a pragmatic resolution of a situation the state had manifestly been unable to resolve on its own. 

“However, last week, after the deal that was purportedly done fell apart, and government has said it will continue to hold 100% of the airline,” she said. 

“This is an example of how not to restructure a state asset and is somewhat of an embarrassment.”

Mavuso said the restructuring of state assets is a priority if South Africa wishes to move past the era of perpetual bailouts. 

In its most recent reported financial year, 2022, when it was barely flying, SAA lost R3.6 billion, bringing its cumulative losses to over R60 billion.

This is money that the state has had to pump into the airline to keep it flying, Mavuso said. 

“That money could have been spent on service delivery instead of trying to compete where there is no conceivable public benefit to the state operating an airline,” she said.

“I am left wondering where the disposal of a majority stake went wrong. A better and more transparent disposal process should have been followed, in which potential buyers submit offers, and the state chooses the best one.” 

This process may not have resulted in much money for the government, but it could have “taken a headache off its hands”. 

She explained that, given SAA’s performance, it would not have been worth much, regardless.

However, this matter goes beyond how much money the state could or could not have made from the sale of the airline. Rather, it shows how potential future disposals of state assets could go.

“The failure of the disposal will leave the private sector cautious about any future engagement regarding state assets,” she warned,