By Lehlohonolo Lehana.
Deputy President Paul Mashatile says government should pursue selling its stake in the South African Airways (SAA) to private sector investors to reduce its reliance on taxpayer-funded bailouts.
SAA is one of many state-owned enterprises (SOE) that has received bailouts in recent years.
Speaking to the Sunday Times, Mashatile said: “I think the government reached the stage at some point where it asked itself a question: do we want to own an airline, what’s the point?”
Mashatile added that where it made sense, government should open the doors to the private investors who can revitalise the SOEs.
“The right approach would have been to bring the private sector in even much earlier. There are many people in the private sector who want to invest in an asset like that, “Mashatile said.
Government planned to sell 51% of SAA to the Takatso group for R51—made up of closely held Global Airways and private equity firm Harith General Partners—before the deal was called off by former Public Enterprises minister Pravin Gordhan.
One of the central disagreements was that of the re-evaluated value of SAA – which was predetermined during Covid (when the airline was on the verge of being liquidated).
It became clear in the negotiations of the revised transaction structure [that it] must take into account public interest and fair market price; however, these requirements were not met in the renegotiations,” said Gordhan.
Although the deal did not take off, Mashatile said that while the airline’s performance seemed to be improving, the original plan to bring the private sector on board to make the airline profitable was the correct move and should be explored again.
Interim board chairperson of SAA, Derek Hanekom said 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.
He said, the objective of a private equity partner is to secure capital to help stabilise the airline’s finances, reduce its dependence on taxpayer-funded bailouts, and ultimately propel it to new heights.
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.
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.