The South African government has ended its agreement to sell 51% of South African Airways (SAA) to the Takatso Aviation consortium. The termination according to Pravin Gordhan was due to a new market-related valuation of ZAR6.5 billion rand of the national carrier, and a mutual agreement between the parties that there was no clear path forward for the current transaction.
On March 13, Public Enterprises Minister Pravin Gordhan announced the mutual decision by the Department of Public Enterprises (DPE) and Takatso to cancel the existing sale and purchase agreement. Gordhan held a media conference in Cape Town where he briefed the Cabinet on this development. He also blamed Takatso for failing to comply with South Africa's Competition Tribunal's order to ensure its minority partner Global Aviation Operations/Syranix sold off its 20% stake in the consortium after concerns were raised over Global's ownership of domestic competitor Lift Airlines.
"Over some time, we inquired with Takatso if it was executing what the tribunal had asked it to do, and we could not see any evidence of that," Gordhan said.
Global/Syranix director, Gidon Novick, revealed that the minority shareholder found a buyer for its stake in Takatso, including its 10.1% expected share in SAA.
According to the minister, the value of SAA has increased significantly. In 2020, when it was in business rescue and not flying, its evaluation was R2.4 billion. However, in late 2023, it reached a new high of R1 billion for its business and R5.5 billion for its properties. This valuation was based on a professional assessment that took into account the post-Covid economic and market conditions.
Since SAA is a public asset, it is crucial to attach fair value to the 51% sale of the airline. The minister emphasized that public interest must be secured, and SAA must be left in a more sustainable condition than it was when it entered business rescue in late 2019.
"From the new valuations that emerged last year from reputable professional firms, we are convinced, in terms of the numbers available to us, that SAA can sustain itself for the next year to 18 months - and that there are various other ways in which immediate financing can be obtained," Gordhan said. However, he reiterated that "in no way will SAA get money from the Fiscus" going forward. "There's no going back to the past; there is no reliance on government itself. It must run its operations as efficiently and profitably as it can, and sustain itself as we go forward."
The minister has given his assurance that the current and future administration of South Africa will work with the SAA board to ensure that no staff loses their job and that the airline's corporate business plan will continue to be executed. The plan involves the airline's growth from 19 to close on 40 routes in the next five years.
"Similarly, it will have the capacity to lease more aircraft, both for domestic use and within the continent, and for intercontinental flights as well. All of these plans will be rigorously examined with the necessary aviation expertise to ensure that jobs are secure, that the airline is secure, and that there is a future for SAA and its flag to be seen continuously within the country, within the continent, and across continents as well," he concluded.
After the briefing, Takatso confirmed that the sale was terminated by mutual consent. Takatso initiated the termination process on March 8th by indicating its intention to trigger the termination by mutual consent provisions of the parties' share purchase agreement. The Department of Public Enterprises then agreed to the termination.
Takatso has stated that the extended negotiations for a revised transaction structure have resulted in "unacceptable levels of risk and uncertainty". This has led to a significant reduction in the opportunities to invest in the aviation sector, which was one of the objectives of the tie-up. Discussions about the deal and the current value of SAA have been resumed six months ago.
"Takatso has therefore concluded that the revised transaction terms are no longer in the best interests of its stakeholders, especially in light of further, as-yet-unfulfilled transaction closing conditions. These include the cumbersome divestiture conditions imposed by the Competition Tribunal, the need to receive further necessary legal and regulatory approvals, and the repeal of the SAA Act, whose bill was withdrawn from parliament last month."
Takatso has reiterated that the deal is unlikely to be fulfilled by March 31st.
March 31st is the latest date in a series of long stop dates that had been extended multiple times over the past two years. Takatso has reviewed the proposed revised terms and has deemed them to be unfeasible. As a result, the company has decided to halt the process.
According to the cancelled deal, Takatso, which is led by the Black Economic Empowerment firm Harith General Partners, was set to obtain a 51% controlling stake in the SAA Group for a nominal price of R5. This would have been done in exchange for investing R3 billion in operational capital over two years. As per the deal, the government would have received R3 billion worth of preferred shares while retaining a 49% equity stake in the airline. This would have ensured a long-term national interest in the airline.
