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Public Enterprises Minister Pravin Gordhan announced on Wednesday afternoon that the sale of a 51 percent stake in South African Airways (SAA) to the Takatso Consortium has been cancelled.

This comes almost three years after the consortium was announced as the preferred bidder to acquire the airline for R51 – implying a total valuation of R100 – and after a bitter fight by Gordhan to keep the details of his dealings with Takatso confidential.

Takatso was expected to inject R3 billion into the business, but that has not yet happened.

Gordhan did not mention the terms of the cancellation or whether any payments were due to Takatso.

SAA is once again fully state-owned, but Gordhan said future operations will not be funded by taxpayers. The airline will look at various other funding options for the expansion of its operations, including expanding its route network.

Gordhan explained that the original deal was done in the aftermath of the Covid-19 pandemic when SAA had just come out of business rescue and was not flying at the time.

  At that point the assets of the company were valued at R2 billion – a liquidation value for the property and “not much” for the business.

Since then, the airline has resumed flying and has added routes. Late last year, a new valuation was carried out, putting the value of the business at R1 billion and its properties at R5,5 billion.

The government started renegotiating the deal with Takatso, but late last week, the parties agreed that the transaction must be terminated.

Gordhan put this to cabinet on Wednesday morning and got the green light to implement the cancellation.

 He said SAA can sustain itself for the next year to 18 months and there are various other ways to get immediate financing, “but at no stage in the course of the months to come, will SAA get money from the fiscus”.

Gordhan, who earlier announced his exit from politics after the election on 29 May, said the government, and the new administration, will consider different ways of going forward, which may include code sharing, partnerships, and an equity partner.

He gave assurance to SAA staff that their jobs were safe.

After Gordhan’s announcement, the Takatso Consortium said in a statement: “In 2021, when Takatso expressed its interest in acquiring the controlling stake in SAA, it was at a time when market conditions were conducive, and the aviation sector was poised for rebound opportunities, post-pandemic.

“Takatso was however always clear in its analysis even then, that the opportunities presented by market conditions prevailing at the time were limited in such a competitive market, and time was of the essence in seizing them. At that time, SAA, which was in business rescue and had been grounded, had ambitions to restart operations.”

It said about six months ago – “and in recognition of the restart of operations and very different dynamics that were then at play, including the reality that SAA was no longer in business rescue as it was when the transaction was first discussed and negotiated” – the parties “agreed to re-evaluate and re-open negotiations on the transaction structure and the current value of SAA”.

“Despite the fact that the parties had already signed a valid, binding and enforceable Share Purchase Agreement in February 2022, Takatso agreed in good faith to this re-negotiation, because it was committed to trying to find solutions, and was determined to ensure that the transaction would continue to be founded on fairness and recognition of the strategic value of SAA.

 “These negotiations have been protracted, and the resultant revised transaction structure has introduced unacceptable levels of risk and uncertainty,” it said.  – Moneyweb

Given the magnitude and materiality of the proposed changes, it had also become clear that the transaction would possibly need to be re-submitted for competition regulatory processes, which would have further compounded the complexity and drawn out the process even further.

“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 condition imposed by the Competition Tribunal, the need to receive further necessary legal and regulatory approvals, as well as the repeal of the SAA Act, which bill was withdrawn from parliament last month.

“These conditions were unlikely to be advanced significantly or met by the date of 31 March 2024, the latest in a series of long stop dates that have been extended multiple times over the past two years in order to try and achieve satisfaction of conditions precedent to the deal,” it added.

“The terms of the proposed revised transaction are simply not workable for Takatso, and we could not, under those circumstances, allow this process to continue to drag on.”

What the DA says

The DA’s Alf Lees, a member of parliament’s Standing Committee on Public Accounts (Scopa), who has been fighting for transparency on the deal since 2021, said the failure of the secret SAA-Takatso deal was inevitable given that it was a bad deal from the beginning.

“The taxpayer took on all SAA’s massive liabilities of some R15 billion, leaving SAA debt-free with considerable assets including a respected brand all of which had a likely value that exceeded R7 billion.

 “For 51 percent of this debt-free SAA to be sold for R51 was outrageous and a slap in the face of taxpayers,” said Lees.

“Currently SAA is running at massive losses that amounted to some R760 million in the first three quarters of this year. This incompetent SAA management will now result in these massive and ongoing losses leading to yet more taxpayer bailouts.

“There is no strategic need for a state-run airline that diverts limited state funding away from the desperate need to stimulate economic growth.

“SAA must be cut loose and be sold. The airline industry has recovered, and a willing private buyer should be easily found.”

Mimmy Gondwe, DA Shadow Minister of Public Enterprises, said the cancellation came as no surprise – it was veiled in secrecy, which made proper parliamentary oversight impossible.

SAA is a public entity, and the public is entitled to transparency, she said. Moneyweb