Gidon Novick, an aviation industry veteran who founded domestic airlines Kulula and Lift, is ready to pull out of an unprecedented deal to purchase part of state-owned airline South African Airways (SAA) from the ­government.

“It’s disappointing to walk away from the deal. Being involved in SAA would have been great, especially turning around an airline with a chequered past [that] has been a huge liability for the country for decades,” Novick told Daily Maverick.

“There was no doubt in our mind that SAA could be turned around to be a viable, profitable and sustainable airline, helping it move away from its past of financial losses, poor management and corruption.”

Novick has no choice but to walk away because South Africa’s competition authorities ejected him from the deal to privatise SAA, which is one of President Cyril Ramaphosa’s measures to reform state-owned enterprises (SOEs) and for them to embrace private investors as partners for delivery.

The Competition Tribunal, which acts as a court on competition and antitrust matters, has approved the sale of SAA to private sector investors, taking Ramaphosa’s reform measure a step closer to completion.

But the tribunal has raised concerns about the involvement of Novick and other private sector investors in the purchase of SAA, saying it creates a ­conflict-of-interest scenario.

This is because Novick and his other business partners are involved in Lift, a new competing domestic airline, and could have access to sensitive information belonging to SAA, potentially sharing it to benefit the former airline and lessening competition in the domestic airline industry.

The tribunal recommended that Novick and other investors he is associated with be booted off the SAA deal.

Early moves to privatise SAA

Novick’s interest in buying a piece of SAA goes back to 2021, after the airline completed its business rescue process. At the time, the government wanted a group of private sector investors that would buy a majority stake or 51% in SAA. The private sector investors would be mainly responsible for pumping money into the airline, funding all its capital and expansion needs and weaning it off taxpayer-funded bailouts for survival. After all, the government has provided SAA with bailouts amounting to R70.5-billion since 1994 — money that went into a perennially loss-making airline.

After giving private-sector investors 51% of SAA, the government would retain the remaining 49% shareholding, becoming a minority shareholder in the airline.

To participate in the sale of SAA, the private sector investors formed a consortium called Takatso. The consortium comprised three private sector investors: Harith General Partners, Global Aviation and Syranix. The latter two are partners in the aviation industry and co-owners of Lift.

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

The Competition Tribunal now wants Global Aviation and Syranix, because of their links to the Lift airline, to sell their minority shareholding in the Takatso Consortium, effectively exiting the SAA deal.

Novick, who represents the minority shareholders in the consortium, said they had agreed to sell their shareholding and were on the prowl for a buyer.

“We have proactively started the process of selling our shares, which I imagine will take some time,” said Novick, adding that the universe of potential buyers might be small because investors still see the aviation industry as risky after the Covid-related lockdowns.

The minority shareholders in the Takatso Consortium have appointed local and international advisers to identify potential buyers of their shares.

“The advisers are directly in contact with the majority shareholders, Harith. We have removed ourselves from the process, as we are sensitive about confidentiality and information on SAA,” Novick said.

Value of shares and a potential buyer

There is no value yet ascribed to the shares of the minority shareholders. Novick said the valuation would take into account SAA’s significant portfolio of properties and its subsidiaries, including SAA Technical (aircraft maintenance), Air Chefs (catering) and SAA Cargo (air freight movement).

“There are some real assets in the company. But the real way to value a business is its going-concern status and the value of its future earnings. We believe we will get a fair offer for the shares.”

A potential buyer of the shares could be Harith, which has made an initial pledge to pump R3-billion into SAA. Harith did not respond to Daily Maverick’s questions about whether it is prepared to take over the shares of the minority shareholders, which would increase its shareholding in the consortium beyond 80%.

Although the SAA deal has been approved from a regulatory perspective, there are a few steps to pass before it is completed. SAA still has historical or legacy debt of R3.5-billion, which the government is likely to be on the hook to settle. Private-sector investors want all of SAA’s historical debt to be paid before they are involved in the airline.

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 debt. If this debt is not fully settled by the government, the SAA privatisation deal might collapse.

Future financial injections into SAA have not been ruled out by the government. DM

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R29.