Business Maverick

AILING AIRLINE

SAA’s planned privatisation looks unlikely to take off soon

SAA’s planned privatisation looks unlikely to take off soon
(Photo: Gallo Images / Jacques Stander)

Takatso consortium CEO Gidon Novick’s resignation sheds some light on what is delaying the conclusion of the airline deal. Money seems to be the biggest problem, although there’s a whiff of conflict.

The unexpected resignation of Gidon Novick from a private sector-led initiative that wants to buy South African Airways (SAA) is just one of many problems troubling the serially delayed plan to privatise the ailing state-owned airline.

In June 2021, Public Enterprises Minister Pravin Gordhan announced that a group of private sector investors had formed a consortium that would buy 51% of SAA, with the government remaining a 49% shareholder.

The plan, if successful, would shift the responsibility of funding SAA’s operations to private sector investors instead of burdening taxpayers. After all, taxpayers have provided cash bailouts to SAA of R35.5-billion since 2008, and it has failed to be profitable since 2011.

The consortium, named Takatso, consists of an infrastructure investment firm, Harith General Partners, which is its largest shareholder, owning 80%. Other minority shareholders in the consortium own the 20% balance and consist of Global Airways (an aircraft leasing company) and an airline management company founded by Novick.

Harith would be responsible for raising capital for SAA to fund its operations, while Global Airways and Novick’s company would provide aircraft and technical skills.

It was agreed among the consortium partners and shareholders that Novick would lead the consortium as its CEO and take a seat on the board.

Novick is not a lightweight. He is a respected aviation expert who led Comair, the now defunct company that operated Kulula and British Airways flights during its highly profitable years. Novick recently co-founded Lift, a nifty domestic airline that has managed to gain a 5% market share. This is arguably impressive considering that Lift was launched at the height of the Covid-19 pandemic, which has fundamentally changed how people travel.

Problems at Takatso and SAA

Novick was appointed as the CEO of the Takatso consortium with the hope that his deep aviation knowledge and experience would turn SAA’s fortunes around and return it to profitability without relying on a cent from the government.

But the consortium’s plan to buy SAA has been stuck on the runway for 18 months, without any visible sign that it will be concluded soon.

Novick’s surprise resignation from Takatso on Monday, 14 November provides some insights into the behind-the-scenes chaos at the consortium, which has caused delays — mostly to do with money — in the conclusion of the SAA deal.

In an interview with DM168, Novick said leading Takatso had many moments of frustration because he was “kept in the dark” by Harith about certain information regarding the SAA deal, mainly how it planned to raise the R3-billion that would initially fund the airline’s operations over the next two years.

“As minority shareholders in the consortium, 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.

He laid the blame squarely on Harith for the frustrations and, surprisingly, not on Gordhan or his department, which Novick said he didn’t “have direct dealings with since the genesis of the SAA deal”.

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Novick believes Harith is struggling to raise the R3-billion, which is a make-or-break condition that the government set in the deal. Harith is unable to raise and conclude the funding until the government pays SAA’s historical and outstanding debt.

It was always understood that private sector investors that wanted to invest in SAA would demand that this historical debt be paid because it would enable them to manage the airline with a clean slate.

But SAA still has outstanding debt payments of R3.5-billion that were identified during its business rescue process, which the airline exited in April 2021. The government committed R16.4-billion to fund the business rescue process and help the airline pay its debt. Of this amount, R3.5-billion is still outstanding.

Finance Minister Enoch Godongwana dashed SAA’s hopes in his Medium-Term Budget Policy Statement when he didn’t allocate the required money. Commercial banks and other lenders, DM168 understands, are not interested in providing Harith with money for SAA until its debt is fully paid.

The Department of Public Enterprises said the government had agreed and still planned to provide SAA with any outstanding monies “in due course”.

“All the regulatory processes are currently being complied with and will be completed as soon as possible,” it said.

If the historical debt is not paid and Harith fails to raise money from banks, the SAA deal is as good as dead.

Novick potentially ‘conflicted’

But Harith and the Takatso consortium say Novick resigned because of a potential conflict of interest owing to his link to Lift, which created tensions. But when Novick became Takatso’s CEO, it was known that he had co-founded Lift and was involved in its operations.

This problem was only raised when Novick suggested that Lift and SAA collaborate in the aviation industry. After all, they are competing airlines and it may give the impression that he has access to commercially sensitive information about SAA that could give Lift an advantage.

Novick said he still believed Lift and SAA should work together and add more flight capacity in SA’s aviation market ahead of the busy festive season. The collapse of Kulula, British Airways (in southern Africa), Mango Airlines and SA Express means few seats are available, while the demand for flights has increased and consumers are paying a premium for flights.

Novick said Lift had added flight capacity, expanding its flight routes to Durban in addition to Cape Town. He was hoping to expand SAA’s flight capacity for domestic and regional routes. Airlines such as Fly­Safair and CemAir have also added flight capacity ahead of the holidays. DM168

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Comments - Please in order to comment.

  • Schalk Burger says:

    The SAA takeover would have been concluded by now if it was a good deal. The latest challenge is just confirming the inevitable, sadly for SAA. To be honest, we do not need a national airline to move government staff around.

  • Jane Crankshaw says:

    STOP THE STEAL! Taxpayers have had enough and SA no longer has a reputation as a thriving economy that has to be upheld by having a National Carrier….those days are long gone! We are a 3rd World failed State…nothing to boast about so stop this silly, expensive ego trip.

  • Rg Bolleurs says:

    What on earth is the business case for buying into SAA with the SA government as your major partner?

    It’s pretty clear, there isn’t one. This deal will never go down

  • Graeme J says:

    “The collapse of Kulula, British Airways (in southern Africa)…”

    This is factually entirely incorrect. British Airways did not collapse. Comair, the franchise holder for BA in South Africa went bust. This had nothing, whatsoever, to do with British Airways itself. I suggest you publish an erratum.

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