Minister insists SAA privatisation deal alive despite woes

South Africa’s Public Enterprises Minister Pravin Gordhan insists the semi-privatisation deal of South African Airways (SA, Johannesburg O.R. Tambo) remains “alive”, but a partner in the investment consortium says it cannot raise the necessary funds until the government settles the airline’s outstanding debts.

Gordhan was called to brief the parliamentary oversight Standing Committee on Public Accounts (SCOPA) on November 15, during which he dismissed as “argy-bargy” the resignation of Gidon Novick as board member and Chief Executive Officer of the Takatso Consortium, the preferred strategic equity partner (SEP) the government has been negotiating with for almost two years to sell a 51% majority stake in SAA. Novick – a seasoned industry professional and co-founder of South Africa’s first budget carrier Kulula Air – resigned a day before, citing a lack of transparency and concerns about whether the consortium could raise the capital committed, casting doubt over the drawn-out deal.

Novick represents ACMI specialist Global Aviation Operations (GE, Johannesburg O.R. Tambo), which remains the minority partner in the Takatso consortium and is supposed to bring technical expertise to the negotiating table. Global has been kept out of the loop on the transaction’s progress, ostensibly due to an increasing conflict of interest between Novick’s role at Takatso and as co-founder of Global’s scheduled airline brand Lift Airlines (GE, Johannesburg O.R. Tambo), which competes with SAA.

Harith General Partners, the majority partner in the consortium, must raise the necessary ZAR3 billion (USD173.6 million) for the deal. But, Chief Executive Officer Tshepo Mahloele told News24 the black economic empowerment investment firm could not raise the final funding until the government paid SAA’s outstanding debt. Takatso would not commit until the finalisation of all historic debt and full compliance with the SAA’s business rescue plan. “We have been developing various relationships with possible international partners, but we cannot take over the management of SAA until all conditions precedent have been fulfilled, including competition authorities’ approval having been granted and the transaction is closed. Government is still having to satisfy some of the conditions and processes,” Mahloele said.

Responding to questions in parliament, Gordhan criticised Novick for “having your cake and eating it” for remaining part of the consortium. “Mr Novick was a small and relatively minor party in a transaction. Just because he happens to be somebody with experience somewhere in his past, as all of us do, doesn’t discredit everybody else, nor does it mean that what he puts on the table is something that one must take seriously,” Gordhan said. “Issues have emerged in the public domain over the last 24 hours, but that is an internal matter as far as the consortium is concerned and is part of the argy-bargy of such a transaction. The transaction remains both alive and live,” he was quoted by News24.

Gordhan insisted that details could not be revealed as negotiations with Takatso were commercially sensitive and under “non-disclosure terms” until finalised.

Still, opposition party Democratic Alliance (DA) lawmaker Alf Lees insisted on full disclosure of SAA’s financials and the SEP transaction. “This cannot be a closed process. Who has Public Enterprises been speaking to in that Takatso Consortium if it has excluded the CEO of that consortium? How can you speak to an entity and not speak to the CEO?”

Gordhan responded that whilst SAA remained a public entity, it operated within a highly competitive industry that had become even more cut-throat with the collapse of Comair (South Africa) earlier this year. “That [is the] context which must be kept in mind,” he said.

Gordhan said SAA’s revenue has exceeded its budget so far this year, but it remains financially vulnerable, reported Business Day. “The fact that you see positive news coming from SAA does not mean that it can sustain itself. It will still need external input, financially speaking. We have to start injecting more cash into SAA, and it is not going to come from the fiscus,” he stated.

Addressing scepticism amongst lawmakers about Takatso’s ability to raise the necessary funds, Gordhan said sufficient work had been done to assure the government that the consortium would come to the party.