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HIGH STAKES

SAA clings to hope that its private sector investment plan will fly

SAA clings to hope that its private sector investment plan will fly
SAA interim board chair Derek Hanekom. (Photo by Gallo Images / Brenton Geach)

State-owned SAA wants to engage with investors keen to take up to 20% of the airline and provide fresh capital. This is after the government’s SAA privatisation attempt recently failed.

The government and South African Airways (SAA) are still open to embracing private sector investors that would, this time, take up a minority ownership position in the state-owned airline and pump capital to reduce its reliance on taxpayer-funded bailouts.

In an interview with Daily Maverick, SAA interim board chair Derek Hanekom said the airline is still keen to be partially owned by private sector investors after a similar attempt to sell a majority stake in the airline recently flopped.

SAA wants potential investors to buy a minority stake of up to 20% in the airline, while the government would retain the remaining 80%. Hanekom also said SAA wants to return to debt capital markets by borrowing R1-billion to fund the airline’s expansion, which includes acquiring eight aircraft (bringing its fleet to 21) and potentially opening more international routes to London, Frankfurt and North America in the next two years.

Hanekom conceded that finding potential investors will be tough because of SAA’s tainted history of corruption during the State Capture years, the government often meddling in its operations and the airline’s affairs being drastically restructured through a business rescue process. And goodwill around SAA has been knocked after a nearly three-year process to sell 51% of the airline to the Takatso Consortium – made up of Global Aviation and Syranix (related aviation companies) and Harith General Partners (a private equity company) – was called off by Public Enterprises Minister Pravin Gordhan in March.

“SAA is more stabilised, effectively running well and expanding. But even with all of this, to get anyone to buy a minority shareholding in a state-owned company is a tough ask. Investors would also still be subjected to the whims of the government. SAA is not a quick profit-making business. So, you’d have to have investors with a long-term vision,” said Hanekom.

He was appointed the SAA interim board chair a year ago by Gordhan, who asked him to come out of semi-retirement to help the airline to transition towards the now aborted plan of it being privatised.

SAA privatisation sale cancelled

After a Cabinet meeting in March, Gordhan cancelled the sale of a 51% stake to Takatso, saying there was “no clear path for it”. The deal has been beset by problems since it was announced in June 2021.

Read more in Daily Maverick: SAA privatisation deal reaches the end of the runway, but fails to take off

First, the Competition Commission ordered Global Aviation and Syranix (both are partners in the aviation industry and co-owners of SA’s newest domestic airline, Lift) to exit the Takatso Consortium and sell their 20% shareholding in it. The competition watchdog raised concerns that the companies would be a dominant player in the commercial aviation industry because of their exposure to Lift and possibly SAA.

Second, the terms and conditions of the sale of SAA have been shrouded in secrecy, with Gordhan refusing to make public details of how it would be structured. The public remained in the dark about how much SAA (an asset in distress) was valued by the government or Takatso, or how much Takatso would shell out to the government for a 51% shareholding.

Read more in Daily Maverick: Pravin Gordhan doubles down on the need for secrecy around the sale of SAA

The third problem was that Takatso (mainly Harith General Partners as the remaining investor in the consortium) promised an initial injection of R3-billion into SAA to keep it going. This was believed to be the value ascribed to SAA and its assets. However, it remains unclear whether Takatso has already raised the money, and even its growth strategy for SAA has been kept under wraps.

Hanekom was neither surprised nor disappointed that the Takatso deal fell through, saying the Competition Commission order was the first sign that it would go awry. Some people in government are still opposed to the privatisation of state-owned enterprises and are still suspicious of the private sector, which made it difficult for the SAA deal to go over the line.

“A number of Cabinet ministers have never been enthusiastic about selling off a majority shareholding and SAA effectively losing its national carrier status in many respects,” said Hanekom.

Stabilisation plans

Without a private sector partner (for now), Hanekom said the SAA board was focusing on stabilising the airline’s leadership, governance and financial affairs.

It is also not clear whether SAA has lately turned its situation around, from perennially recording financial losses to being profitable. In October 2023, SAA submitted its financial statements for 2022/23 for auditing and this audit is still in progress with the Auditor-General. Financial statements for 2023/24 are also outstanding.

Hanekom said the airline was showing “a modest profit at this stage and no loss is expected” for the 2022/23 financial year. A similar situation is expected for the 2023/24 financial year, with early indications being that the airline is “cash positive [meaning, more money is coming in than going out]”. However, the situation could markedly change after the audit.

In its latest report, the Auditor-General painted a picture of SAA still being in a mess, saying the airline’s “continued dependency” on funding from the government for its operations remains a key risk to its “going concern” status. The going concern test is one that companies must pass to secure a clean bill of health from their auditors.

Rookie errors are still being made at SAA. The Auditor-General also found that SAA “does not have an adequate record-keeping system”, which compromises its ability to produce accurate financial statements.

Hanekom said SAA is dealing with the concerns raised by the Auditor-General, including making permanent appointments at the airline for senior roles. As to whether his role as the interim SAA board chair would be made permanent, Hanekom said it would depend on the new public enterprises minister after the general elections. DM

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

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  • Fanie Rajesh Ngabiso says:

    It’s rumoured that a certain Kamikaze Inc. may be interested…

  • Barry Taylor says:

    Kamikaze INC will be teh only company that would be interested
    After reading this and then being asked to invest in SA must be the dumbest person ever. No financials many errors, no proof of a profit
    Rather invest the money in an Escort agency and receive some value for your money.
    SAA wil never make a profit again. Just like it is impossible to bite your elbow so it is impossible for SAA to make a profit

  • Trevor Pope says:

    Welcome to the alternate reality of the ANC, SACP and COSATU.

  • Jimbo Smith says:

    Phew! The crazy SAA merry go round keeps spinning but this time we have a new “genious” at the wheel in the form of Hanekom ( can anyone recall what he achieved as a “Cabinet Minister”. Given the catastrophic failure of his ANC brothers in the destruction of SAA , the term delusional springs to mind if he thinks “private enterprise” is going throw money at SAA. Only a matter of time before Hanekom goes cap in hand seeking another bail out. Einstein summed it up perfectly! MADNESS.

  • Andre Stols Stols says:

    You must be joking- who in their right minds will ever do business ( any type business)with the ANC- what a joke!!!!!!!!!!

    • Keith Zulu says:

      Example – companies after “state capture” would be happy to do business with the ANC. They are in their “right minds” since they get a benefit out of the relationship. The Guptas were in their “right minds” I think.

  • Richard Baker says:

    Credit to Hanekom for telling it like it is(and tragic for the country that the rest of his former cronies don’t have any understanding of business).
    Who would be crazy enough to invest good and otherwise beneficial monies for a minority stake in a South African State Owned Entity( the word “enterprise” is a joke)-still in dire financial straits and being supported by the state-just to provide free flights to politicians.
    SAA in previous guise caused immense damage to the aviation industry and never paid the awards made in favour of Kulula and Airlink.
    The notion of a flag-carrier is to do with egos not common sense.
    The airline deserves to fail and life can then move on.

    • Keith Zulu says:

      Dial up his wikpedia page. He developed as, and was, and is, and will always be a huge proponent of Marxism. But he would be quite happy to “scam” the enemy (capitalist democracy) into providing some money to support the Marxist ANC. He sees it as a legitimate act in the war on capitalism. Now which members of the capitalist democracy will fall for this? Perhaps if he offers an element of “state capture” to the mix – like allowing only a contract for aircraft supply with Airbus overpriced A330’s (with the kickback going to…….). Oh yea, that was tried before – but could the public be that stupid to support it again?

  • G O says:

    Who, or which company would settle for a 20% stake in a South African company controlled by the thieving ANC? It’s a pipedream.

  • Nicol Mentz says:

    Calling all Tenderpreneurs , Great BBBEE investment opportunity. Now is your chance to shine!

  • Beyond Fedup says:

    The only positive issue coming out of this is that Hanekom is being honest – a true oddity & rarity in the wicked, thieving and useless party that he belongs. The rest is pure delusion – who in their right mind would invest a cent in a SOE run and controlled by this hugely despicable and wholly corrupt government. Not one of the scumbags who brought the airline to its knees and stole it blind has been jailed, let alone account for their for their grand theft and rape of SAA. Get rid of the damn thing – it is nothing but a huge ball & chain around our necks and only serves to stroke the hugely brittle and false egos of the vile anc, its elite and cadres, and for free flights of course. Lets not forget the main objective. All those billions can be redirected for housing, roads, schools, hospitals, broken water and sewage infrastructure etc.

  • Geoff Coles says:

    One wonders whether the Competition Commission involvement was not a basic problem given the 20%,ostensibly, external interest in Lift caused it to withdraw…..indeed has the CC ever got things right.

  • Alan Watkins says:

    SAA as a business is still spinning downward out of control, with black smoke streaming from its engines, to soon meet with the ground with a thump and an explosion. There is little hope of it being able to recover as a business with even the best managers/owners in control after injecting substantial funds, and absolutely no hope of it recovering with the ANC government in control financing it with the smell of an oil rag.
    In the meantime, please ensure that your loved ones and friends do not travel on SAA because it is literally a crash waiting to happen.

    • Middle aged Mike says:

      “In the meantime, please ensure that your loved ones and friends do not travel on SAA because it is literally a crash waiting to happen.”

      Hear bloody hear! The idea that they are upholding standards of quality in maintenance and safety is ridiculous. I wouldn’t fly SAA for free.

  • Rae Earl says:

    Go into business with the ANC as a minority shareholder? You gotta be joking! They’ll take your R1 billion and channel it into comrade’s back pockets quicker than you can say air disaster. It’s something they’re really good at, stealing from state assets.

  • Christopher Attwood says:

    Hilarious – I love the comments. It does illustrate how clueless the ANC are.

  • Middle aged Mike says:

    Ah yes, the good old ANC. The worlds finest organised criminal stand up comedy organization. I pity an oke like Hannekom who seems to mean well for being so utterly delusional. I wonder if it will ever occur to him that he’s been on the wrong side for at least the last 20 years.

  • Random Comment says:

    Why on earth would you trust your life flying with a company that cannot, “produce accurate financial statements”?

    Another ANC success story.

  • Andrea Naude says:

    “does not have an adequate record-keeping system”, Good lordie, but that says it all!!!!!!! What a farce – no, a hapless, helpless bunch of through eaters. I can just shake my head in disbelief

  • Jack Russell says:

    Yet another reminder that we live in a country run by the really stupid……. and if that’s not bad enough uncaring and dishonest.

  • Eberhard Knapp says:

    Ahhh – and then there is the probability of an ANC / EFF – coalition come June 2024… :-). As Mr. Lesufi is showing us all… (after having destroyed the NGO-world in SA!!)
    Derek – dream on!

  • Steve Daniel says:

    Saa will never see my money – ever

  • Michael Thomlinson says:

    The words “rookie errors” says it all. With all the huff and bluff it looks like SAA still has deployed cadres running it with no credentials and no idea how to run a big company like this. The idea that someone might be interested in buy a 20% stake, where you would have absolutely no control over the running of the company, is ludicrous. Only a BEEEE partner with access to PIC funds might be interested and then only to facilitate the purchase of fancy German cars and posh houses stocked with Johnnie Walker Black Label. SAA should be sold off for what they can get for it. I have heard that it may take 1-2 billion Rand to shut it down but better to pay that and have shut with it in the long term.

  • Tim Price says:

    Reading between the lines, perhaps they don’t have up to date service records for those airframes? Won’t catch me on one of them ever again.

  • D'Esprit Dan says:

    SAA should not only be seen in the context of a commercial airline – there are many around the world that don’t make a bottom line profit, but are used in the pursuit of ‘soft power’ and extending commercial reach: Turkish Airlines flies to 340 destinations globally (more than any other carrier) and flies to more destinations in Africa than any other. Not all those routes are, strictly, profitable – but they allow Turkish companies easy access to new markets and for tourists from across the globe to get to Turkey easily and spend money on hotels, transport, food, leather jackets and whatever else you want. Turkey is also building more embassies in Africa than any other country (I think they have around 40 at the moment), largely for the same purpose – to develop business ties and tourism links. Has it worked? Just based on trade data, it would appear so – Turkey’s exports to Africa grew from $12bn in 2016, to $24bn in 2022 (last recorded year), despite having a lousy currency (like us). Ours grew from $22bn to $29bn, so not bad, but not shooting the lights out either. I’ll bet that their exports overtake ours within 3 years.

    Ethiopian Airlines runs a number of other airlines in Africa – in Malawi, Chad, Togo, Mozambique, and Equatorial Guinea, putting its management and engineering expertise to good use and generating cash. Ethiopian’s cargo division flies to dozens of destinations globally too. Bottom line: a properly run SAA should be a national asset, not embarrassment.

    • Rod H MacLeod says:

      Oxymoron = a rhetorical term that describes words or phrases that, when placed together, create paradoxes or contradictions.

      “… a properly run SAA …” = an oxymoron. QED.

    • Middle aged Mike says:

      A properly run South Africa would be less embarrassing too. Sadly it’s a basket case for the same reasons that SAA is, i.e. they are both run by kleptocommies.

  • michael james says:

    The main shareholder has always been the obstacle. Private investors would as it stands always have goverment making it dificult. Air lines are extremely hard to make profitable having non business people who generaly know nothing seems an tmposible venture.

  • Andrew Tuenbull says:

    Why would anybody invest in an soe at 20% or less where there is no minority protection under the companies act.

  • Keith Zulu says:

    The difficulty here is the Hanekom has zero credibility in the business or investment community. As a contemporary of Hanekom (I was born in JNB 3 weeks after him) there is nothing than he has done that demonstrates or has ever demonstrated that he knows anything about how to run as successful business in a capitalist envirnment. An early member of the ANC he has consistently learnt, adopted and resolutely practices Marxism as his method of Government/Governance of SA and now SAA. He is one of the people within the ANC cadre believe that SAA should be an SOE; just like he believes that all mining, farming etc should be SOE’s but with 20% funding from the capatilists. Are the capitalist that stupid? I don’t think so.

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