AILING AIRLINE
SAA privatisation in a tailspin as key player Gidon Novick resigns
Gidon Novick has resigned as the CEO and board member of a consortium that plans to buy 51% of SAA. Novick was frustrated by being ‘kept in the dark’ about important information on the deal — 18 months after it was announced. But other consortium shareholders have accused him of a potential conflict of interest.
The introduction of private-sector investors in the ownership structure of state-owned airline South African Airways (SAA) has been thrown into a tailspin after a key architect of the ongoing and delayed deal walked away from it.
Gidon Novick has resigned as the CEO and board member of a consortium that plans to buy a majority shareholding (about 51%) in SAA from the government, which announced 18 months ago that it wants to give up control of the ailing airline. This plan was dealt a blow after Novick resigned, citing a lack of information and transparency from the consortium’s largest shareholder about the terms and conditions around the purchase of SAA.
To purchase 51% of SAA, a consortium named Takatso was formed. The consortium consists of an infrastructure investment firm, Harith General Partners, which is the largest shareholder of the consortium, owning 80%.
Other minority shareholders own the 20% balance, and consist of Global Airways, an aircraft leasing company that is invested in the domestic airline Lift, and an airline management company founded by Novick. Novick, who co-founded Lift, represented the minority shareholders on the Takatso board and became the consortium’s CEO. In the consortium, Harith would be responsible for raising capital for SAA to fund its operations. Meanwhile, Global Airways and Novick’s airline management company would commit aircraft, technical skills and support to SAA.
Butting heads with Harith
Novick told Business Maverick he couldn’t fulfil his fiduciary duties as the CEO and board member of the Takatso consortium because he was “kept in the dark” by Harith about certain information regarding the SAA deal.
“There is a lot of complexity when a deal involves a state entity or the government — like SAA does. But there is an added layer of complexity when you don’t have any line of sight regarding information around the consortium and transaction. We have been completely in the dark.
Read in Daily Maverick: “Few details, no deadline on SAA purchase deal leaves public spending watchdog in the dark”
“We didn’t have a choice but to walk away. I can’t have a fiduciary responsibility [as the CEO and board member] in an environment of not knowing what is going on. The fundamental issue is the lack of information,” said Novick.
He laid the blame squarely on Harith, which as a majority shareholder of the Takatso consortium was the “driver” of the SAA deal, often being in discussions with the government about the airline, its financial position, and the legalities around introducing private-sector investors in its ownership structure.
Novick said information that the minority shareholders of Takatso didn’t have access to and which was ultimately withheld by Harith included how Harith plans to raise the initial R3-billion it promised to inject into SAA and recapitalise the airline, and a business plan once SAA was majority-owned by private sector investors.
“As shareholders, we are also entitled to that information. It comes with our fiduciary responsibility as directors. It is just really about understanding what is going on,” said Novick.
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As the CEO of Takatso, Novick was often the public face of the consortium’s plans to buy SAA. He was asked for details about the SAA deal, notably when it would be concluded, as it has been in the making for 18 months — answers which he didn’t have because he was allegedly kept in the dark by Harith.
The Department of Public Enterprises, the sole SAA shareholder, has shifted the deadline for the completion of Takatso’s purchase from “early 2022” to “early 2023”. Asked if this shifted deadline was realistic, Novick quipped: “Who knows? I know as much as the public. I wish I knew more.”
Novick’s resignation raises further concerns about whether the SAA deal might be concluded or whether it still has any merit. Novick said his company intended to retain its shares in the Takatso consortium.
The net effect of this is that Novick’s company and Global Airways will still be involved in the SAA deal, but Novick has relinquished responsibility as a director in the consortium. Novick is no longer the public face of the consortium, but is willing to provide support to SAA and still sees merit in private-sector investors taking control of the airline.
“We still believe in the ability to cooperate with SAA. The scope for airline cooperation is significant because the domestic aviation market is now smaller. Lift, for example, has great strength in the local market and SAA has the potential to regain strength in the African region.
“I still see the merits of SAA becoming independent of the South African fiscus. That must still happen.”
Takatso board hits back, accusing Novick of a potential conflict
The Takatso consortium board said it appreciated Novick’s resignation and deemed it “appropriate” because of his “inherent conflicts of interest” regarding his involvement in Lift and the Takatso consortium, which is pursuing SAA. This conflict had become a problem because Lift was seeking a business relationship and opportunities with SAA, said the Takatso consortium in a statement. These opportunities were being pursued outside of the consortium.
Novick’s involvement at Lift and Takatso might give the impression that he has access to commercially sensitive information about SAA, which could give Lift (a competing airline) an advantage in whatever opportunities it pursues with SAA.
Because of this, the Takatso consortium said it had to manage Novick’s potential conflict by not sharing information with him about the SAA deal “in the spirit of maintaining fair competition in the South African airline market and in compliance with South Africa’s competition regulations”.
“Mr Novick’s resignation will therefore assist Takatso in managing these inherent conflicts of interest and maintaining confidentiality over sensitive information on a continuing basis,” said the Takatso board.
The Takatso board said it was working closely with the Department of Public Enterprises to conclude the SAA deal, develop a business plan for the airline, and introduce additional technical skills since it identified Novick’s potential conflict of interest. No deadline for the completion of the deal was offered by the Takatso board. DM/BM
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This whole deal is so dodgy. Why all the secrecy?
I will never fly SAA again out of pure principle.
Haven’t used them for decades. We should all boycott them.
Novick obviously has a very keen sense of smell….if it smells rotten it probably is. SOE should mean “Steal Our Equity”…seems to be the state of things. I certainly would not leave my investment in the hands of those that “ maintain confidentiality over sensitive information on a continuing basis!”
Even the village policeman could see that there was a potential conflict when the deal was announced. This isn’t news. Good for Novick for walking away – I suspect the whole deal will collapse and once again SAA will rest on the weary shoulders of the taxpayer as yet another example of how whatever the ANC touches turns to dust. I too will never set foot on an SAA aircraft as a matter of principle (not to mention the safety concerns).
Gidon is a rare dynamic leader in a difficult industry, always challenging the status quo. I suspect without him SAA will try the same old, same old and like Einstein’s parable of insanity indicated, foolishly expect a different result.
Methinks there is a smell about this deal, which reaches to the gates of Heaven. Mr. Novak is well out of it. How can a CEO be fed censored information? It means that, from the start, he is already shackled to a business in which he must make decisions without full and open information. This is totally intolerable. Early 2050 would be a more appropriate decision date, unless 2024 steps in the way and changes the picture meaningfully?
If Novick had a conflict of interest then why did the board appoint him?
Privatisation… I think not!… would be interesting to see where the ANC Cabinet Ministers are woven into Takatso, and equally interesting to hear from Novick why he is resigning for lack of information/inclusion but clearly knows enough to keep his money in the deal for his 20% minority stake!
I too, have sadly not flown with our “National Carrier” for many years, and see no motivation to ever do so.
This is a major blow to the airlines prospects. Novick has been around the block in this industry and probably knows more about it than the rest of the board members combined, so stepping down now is a very big warning bell-nay, a blaring siren. Run.