It has been eight months since the Department of Public Enterprises (DPE) announced that South African Airways (SAA) has selected a preferred strategic equity partner  - the Takatso consortium - to enable the State-owned flag carrier to operate without further government bailouts.

The DPE and SAA told Fin24 this week that the sale and purchase agreement are at an "advanced stage" and that once finalised, government would inform the public.

Takatso also confirmed that negotiations with the DPE to buy a 51% stake in SAA are ongoing.

"The parties are committed to concluding the deal in a timely manner in the interests of SAA as a key national asset," Takatso said. According to Takatso CEO Gidon Novick, Global/LIFT is the technical partner to the consortium and is standing by for when the deal is finalised.

Takatso consists of Global Airways, which owns low-cost airline LIFT, and infrastructure investment firm Harith. It is not yet involved in the running of SAA. Rather, the plan is for Takatso, which is 51% black-owned, to obtain a majority stake in SAA and invest about R3-billion over three years. 

SAA was in business rescue for more than a year, from December 2019 to April 2021, and started domestic commercial flights again on 23 September 2021. It had stopped commercial flights in May 2020, when the rescue practitioners indicated that there were insufficient funds to continue with these.

But it is still unclear how far the process to finalise the deal between SAA and the Takatso consortium is and who is bearing the costs accumulating in the interim. In SAA's business rescue plan, provision was made for R2-billion as working capital for SAA.

It is unclear how much of that is still left.

In order to enable SAA to exit business rescue, a receivership was created to house specific liablities amounting to about R3.5-billion, which SAA still owed to certain creditors in terms of its rescue plan. It is as yet unclear where this money will come from.

Aviation economist Joachim Vermooten told Fin24 that the longer it takes to finalise the deal, the more difficult it will be for the private sector partnership to have much sway when it comes to major decisions like which routes to fly, capital equipment expenditure and staffing matters.

Already in November 2021, a key strategic partnership framework was signed between SAA and Kenya Airways, which the DPE regards as a milestone towards starting a Pan-African airline group by next year.

But Vermooten is concerned about SAA in the meantime. "Currently SAA is a small airline, and it is difficult to say if it is sustainable. In fact, load factors in the airline industry as a whole is low compared to before the pandemic," he says.

Vermooten notes that, while the airline claims to be solvent, its annual financial statements are outstanding, with the airline having missed a September deadline to present these to Parliament. "That still needs to be verified, since no financial statements have been released to back this up," he says.

Fin24 also spoke to four other industry insiders on condition of anonymity due to their positions in the industry. One expressed "a lot of skepticism" regarding whether the deal would be finalised and the sustainability of the airline.

Unanswered questions

"There are so many unanswered questions. For example, how did the unexpected identification of the Omicron variant impact SAA's bookings and to what extent did it affect the valuation of the airline? Furthermore, the fuel price has gone up a lot since last year and SA does not make jet fuel locally anymore and has to import it. So, what does that mean for the cost to run the airline?"

Another speculated regarding the status of negotiations. "I think it has come down to 'deal fatigue' after the parties initially went in guns blazing," he said.

But another pointed out that government processes might just be grinding along slowly.

A fourth aviation expert said there was no reason why SAA should not be sustainable, provided inefficiencies were dealt with.

"If SAA cleans up inefficiencies and use the right operating model, there is no reason why the airline cannot be viable in the long term.

"Maybe that is the ultimate decision for government to take: is the real intention to have a viable commercially sustainable model or not? If a sustainable model is used, it will potentially attract private capital, but if the wrong model is used, private capital will not be interested," he said.

In August 2021 the DPE told Parliament that due diligence was at an advanced stage and should be completed "in the next week or so". The DPE said at the time that a draft sale and purchase agreement (SPA) had been produced and was being negotiated

At the same time, Takatso announced that its due diligence process was "substantially complete and no material issues had been identified".

When Public Enterprises Minister Pravin Gordhan announced the proposed deal in June 2021, he said the idea was for government to retain a "golden share" in SAA to ensure it remains domiciled in the country and transformation goals are prioritised – with a possible view to a listed vehicle in the longer term.

In September 2021, the DPE told Parliament that neither the Public Investment Corporation nor the Development Bank of SA had been approached to fund SAA.

Towards the end of November 2021, both the DPE and Takatso reiterated that the due diligence process was complete and no material issues were identified. Gordhan said at the time that government expects to conclude the Takatso deal early in 2022, adding that there were "a few more regulatory hoops to jump through".