Business Maverick

CLEARED FOR TAKE-OFF

Privatisation of SAA passes crucial competition hurdles

Privatisation of SAA passes crucial competition hurdles
(Photo by Gallo Images / Netwerk24 / Lulama Zenzile)

However, the introduction of private-sector investors in the ownership structure of the troubled airline still has a crucial obstacle. The deal could collapse if SAA’s historical debt of R3.5bn is not fully settled.

The privatisation of state-owned airline SAA has now been cleared for take-off.

From a regulatory perspective, a group of private-sector investors has been cleared by SA’s competition authorities to purchase a majority stake in SAA.

The Competition Tribunal, which acts as a court on competition and anti-trust matters, has approved the purchase of a 51% shareholding in SAA from the government, which will retain the remaining 49% stake in the airline. This was a big hurdle for the SAA deal, which has been two years in the making.

The introduction of private-sector players in SAA’s ownership model is significant as it is set to serve as the blueprint and litmus test for privatisation in the state-owned enterprise (SOE) universe. A privatisation model is already being introduced at the state-owned transport group Transnet, which announced last week that a private-sector company will run a container terminal at its port in Durban.

Read more here: Philippine logistics firm to the rescue: Transnet embraces private sector as partner for delivery

Similar reform measures are also expected at Eskom as President Cyril Ramaphosa’s administration is pushing for private-sector players to partner with SOEs, inject money into them, and wean them off taxpayer funds for survival.

Further steps

There are more steps before private-sector investors can be introduced into the ownership of SAA. In approving the deal, the Competition Tribunal has imposed conditions, including that the private-sector investors do not cut jobs at the airline. Another big condition imposed by the tribunal is that two private-sector companies, which were part of a consortium that is purchasing the 51% stake in SAA, are booted out of the deal.

The consortium, called Takatso, comprised Harith General Partners (an infrastructure company that owns Lanseria Airport in Gauteng), Global Aviation, and Syranix, both of which are partners in the aviation industry and co-owners of SA’s newest domestic airline, Lift.

Harith owns 80% of the Takatso Consortium and would be responsible for providing funding for SAA’s capital needs, while Global Aviation and Syranix own the remaining 20% (10% each). In the consortium, Global Aviation and Syranix would be responsible for providing the technical expertise in the running of SAA.

The tribunal upheld a recommendation by the Competition Commission that Global Aviation and Syranix should not be part of the SAA deal, and should sell their shares in the consortium.

The tribunal and commission are worried that Global Aviation and Syranix have exposure to Lift airline and, through SAA, will have exposure to a competing airline. The concern is that the involvement of Global Aviation and Syranix in SAA would probably result in a substantial lessening and prevention of competition in the domestic passenger airline market, and the pair would have access to competitively sensitive information belonging to SAA.

Gidon Novick

In an interview on Wednesday, Gidon Novick, who represents the minority shareholders in the consortium and is a founder of Lift, said the minority shareholders had agreed to sell their shares and exit the SAA deal.

“We have agreed to remove ourselves from the SAA deal so that it should not be delayed further,” Novick told Daily Maverick, adding that his next move would be to focus on growing Lift, which is still a new airline. 

Novick said the minority shareholders had appointed local and international advisers who will help to identify potential buyers of their shares in the Takatso Consortium. These advisers will also help ascribe a value to the shares held by the minority shareholders.  

Public Enterprises Minister Pravin Gordhan, who handpicked the Takatso Consortium and the private-sector investors that are part of it, has welcomed the tribunal’s approval of the deal.

“The Competition Tribunal has affirmed our belief as government that a revitalised and a well-capitalised SAA presents the country with significant opportunities to boost economic connectivity and strategic reach that should benefit our economy and our people for years to come,” Gordhan said in a statement.

Although Finance Minister Enoch Godongwana allocated R1-billion to SAA in February when the 2023/24 Budget was presented, it is not enough to settle the airline’s historical/legacy debt, which is R3.5-billion. If this debt is not fully settled by the government, the SAA deal might collapse. Future financial injections into SAA have not been ruled out by the government.

The private sector investors who are part of the Takatso Consortium, mainly Harith, would want to take over an SAA that does not have historical debt before they start pumping money into the airline. Harith alone has promised to pump R3-billion into a debt-free SAA. DM

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Comments - Please in order to comment.

  • oreilly says:

    who owns Harith General partners

  • William Stucke says:

    “Ramaphosa’s administration is pushing for private-sector players to partner with SOEs, inject money into them, and wean them off taxpayer funds for survival.”

    As Maggie famously said, “The trouble with Socialism is that eventually you run out of other people’s money.” So, now that the ANC has run out of our taxpayers’ money, they are suddenly espousing sensible politics? Why did it have to take 30 years, and the ruination of the country first?

    • Roelf Pretorius says:

      The answer is that until now the ANC has been blinded by ideology – by African Nationalism. And even now the nationalists are trying to prevent the leaders led by Ramaphosa from successfully breaking away – even to the point of the corrupt being prepared to destroy the whole organisation and their whole lifestyle with it. We have actually been fortunate that the UDF and Robben Island factions were able to dilute the influence of that ideology to the extent that SA have been able to sustain itself to an extent. But let us see what the voters will do next year – maybe they have just become wiser and the initial indication by them in the local elections of 2021, namely that the majority have shed their obsession with African nationalism, is true.

  • Roelf Pretorius says:

    Are we in SA not overlooking the obvious? That the current market for airfare is completely overloaded? When SAA was such a prosperous, prestigious airline, it was the ONLY airline in SA, with only Comair that did a limited number of flights on the East Rand, and thus did not really pose any threat to SAA’s dominance in the market place. But more recently an avalanche of other private airlines beside Comair, including Comair’s affiliate which name now evades me because both of them folded about a year ago, and also including a number of foreign airlines, took away a lot of the space that SAA had in the market. Now if the numbers of operators increase in the same market space, it is obvious that SAA should, like all others, be allowed to adapt its’ operations to keep it profitable with the deminishing market share, including reducing its’ work force. But what I heard and saw in the media tells me that the government prevented it from doing so, as with all the other government SOE’s. If an operators space in the market place becomes smaller then I can’t see how it can stay profitable if it is not allowed to reduce manpower. And it is no excuse to say that workers’ jobs are on the line – with so many more operators I would say nothing prevents ex-employees that are laid off to apply with some of these new competitors for a job; in fact their expertise should be very welcome on the other side. So all these problems are the result of disastrous government policy in my view.

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