Business Maverick

Government gives up its majority ownership of SAA

By Ray Mahlaka 11 June 2021
Caption
A passenger passing a South African Airways (SAA) plane and the tailfin of another at OR Tambo, Johannesburg's international airport, South Africa, 05 July 2013. (Photo: EPA/UDO WEITZ)

This marks a step-change in the government’s approach to the ownership of troubled state-owned entities. The future ownership model of SAA will be similar to Telkom’s. 

The Department of Public Enterprises has identified two investors that are set to acquire a majority shareholding in SAA, a move that will see the government no longer wholly owning the troubled airline. 

Public Enterprises Minister Pravin Gordhan, the current shareholder representative of SAA, announced on Friday, 11 June 2021 that investors will own a 51% majority shareholding in the airline. The government will hold a minority shareholding of 49%. 

The two investors that will own a majority of SAA are part of a consortium, which includes Global Airways, a local jet-leasing company, and Harith General Partners, which funds infrastructure development across Africa. Harith also owns Lanseria International Airport in Gauteng. 

The  Takatso consortium, which includes well-known figures in South Africa’s aviation industry, will be chaired by Harith CEO Tshepo Mahloele and Gidon Novick, the former Comair CEO who recently launched low-cost airline Lift. 

The consortium will initially inject more than R3-billion into SAA – funds that will be allocated to the airline’s working capital and help the restart of its flight operations. SAA, which has been grounded since March 2020, recently emerged from a 17-month business rescue process. Its interim management and board took control of the airline and are planning to restart domestic flight operations in July or August 2021. 

The consortium will also fund the future funding requirements of SAA, helping to wean the airline off government bailouts for survival. Gordhan reiterated on Friday that SAA will no longer depend on taxpayer-funded bailouts for survival. 

“The objective of the consortium is to relaunch a viable and scalable airline that is not dependent on the fiscus,” Gordhan said at a media briefing. 

SAA was last profitable in 2011 and recorded cumulative financial losses of R17.7-billion between 2012 and 2017. From 2008 to 2020, the airline received taxpayer-funded bailouts of R32.3-billion.

Gordhan said a memorandum of understanding relating to the consortium’s involvement/participation in SAA will be signed over the next few weeks. A purchase agreement regarding the sale of SAA shares to the consortium would also be completed during this time.  

The terms and conditions of the consortium’s participation in SAA – including the future funding of the airline, whether restrictions on flight routes and long-term labour (including pilots and staff) have been imposed – are not yet known. It also isn’t clear whether the government will give the consortium the space to make business decisions in SAA, without interference, which contributed to the airline’s failure and high-level corruption during the State Capture years.  

The announcement by Gordhan also marks a step change in the government’s approach to the ownership and management of state-owned entities. SAA has been owned by the government since it was founded 87 years ago. 

The future ownership model of SAA will be similar to Telkom’s. 

Telkom was once wholly owned by the government, which started the process in 2003 to partially privatise the company. According to Telkom’s 2020 annual report, the government owns 40.5% of the company. DM/BM

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All Comments 22

  • NO more gov. bailouts. HA HA. Famous last words? Interested to hear where the consortiums initial 3 Billion
    will come from.. PIC ?

      • PIC I’m sure. There has to be some angle that the cANCer can score on. Goutrain, Hitashi, Telkom. Thankfully the citizens closed down their e-Toll scam. When, if ever, all the cancer has been cut out there will be NO body to bury.

  • No doubt there will be those that are very cynical, but this an excellent decision by the governing party, whom many has been pleading for, for a very long time. Off course, the selection of an equity partner is vital, but if it is handled well, SAA would be able to compete once the pandemic is under control. Two days in a row I see the governing party makes the right decision, the other being the energy issue.

    • Agree on your second point re energy crisis. To get CR to actually act just shows how bad the crisis actually is…
      and yes, I am very cynical, but can you blame me?

    • I am cynical for sure and do not believe for one moment that the taxpayer is yet free of this burden. As John mentions the source of the initial R3 billion is key and is likely sourced through IDC/PIC. Also, what is the magnitude of the current government debt guarantees? Guess that Harith will soon transfer the remaining assets, at a bargain, onto their own balance sheet and then lease it back to the new SAA at an extortionate rate. Then they list on the JSE, forcing the GEPF and all passive index tracking funds to invest, while they divest and wait for it to fall in a heap. Yep, the taxpayer is not safe.

      • Yes, while it is very encouraging to have a partnership arrangement entered into, the details of this deal with the Takatso consortium and Harith General Partners must be carefully examined, what connections there are to the ANC, and who will actually be paying for the costs. This arrangement cannot be accepted at face value. It may be a mechanism to use the PIC to continue to fund SAA, as the PC is the only remaining huge pot of money available in the SAA.

  • Think how much this process has cost SA since Dudu turned down the Emirates merger some 6 years ago…….think of a damages claim on that delinquent director

  • Dear Pravin,
    Please explain how this is possible!! The public finance act dictates that any SOE can only offer 30% of its share holding to private investors. 51% is illegal. Is this just more fake news/smoke screen?? Time will reveal all.
    Why this announcement from you and not the President and also while he is out of the country??

    • Off course not John, but if the government does not have a majority share, they at lease can’s dominate the parth forward. But the right equity partner is vital, but I see anyone investing that amount of money if there is no possibility of rewards on the long term. But at least the tax payer will be less than 50% accountable for the losses whick might accrue.

    • Sorry, DM placed my previous reply under your name, not John’s. But that being saidm you have made a most interesting observation. Would love to know the answer here as well.

  • Ian you’ve made a good observation there but there must be a mechanism to change the status of SAA from an SOE into a normal company. I’m thinking that that could be done by changing the MOI.

  • Gordhan delivers in the end, despite all the political “hoo ha” and naysayers. Also an aviation experienced CEO to run the new entity.

  • That is a good start- perhaps this is the beginning of government -private partnership in a more developed way. With Gideon Novick involved , it seems like a good idea. We shall see!

  • Good going, Pravin. Which of the public enterprises is next? The Post Office as we know it is belly up, the SABC needs a new funding model, Denel has had it, Eskom’s new structure is perhaps the one. Take a double Bells, a deep breath and pick one that will make a huge difference in everyone’s lives.

  • I just wonder if the ticket I bought in feb 2020 will still be valid. On the website it said so but is the new management going to honour those promises.

  • Although the government is a minority shareholder I trust they won’t be entitled to free travel anymore. If I am wrong then the airline will not succeed.

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