South Africa’s national airline, South African Airways (SAA) is to be sold off for ZAR51 rand (USD3) to the private sector Takatso Consortium. This is according to a clarification of the financial aspects of the privatization deal provided by Public Enterprises Minister Pravin Gordhan, who said an independent expert valuation had placed the total consideration due to the government at ZAR3, 000,000,051 equivalent to USD185, 201,801.
The purchase price details were disclosed for the first time during the Finance and Public Enterprises Ministers’ joint May 10 briefing to the country’s public spending watchdog Standing Committee on Public Accounts (SCOPA) and in a subsequent “clarification” statement. SCOPA had called the two Ministers to account and provide a status report with details of the transaction.
The Takatso consortium comprises black-empowerment investment fund manager Harith General Partners and ACMI specialist Global Aviation Operations (GE, Johannesburg O.R. Tambo), which owns the domestic Lift Airlines brand.
The face value of the transaction, according to media reports, was just $3, which the Takatso Consortium paid the South African government for control of South African Airways. The government, in turn, assumed huge liabilities carried over from the company’s previous phase.
Takatso, in a statement on May 12, said that structures of this nature are usually characterized by a low purchase price and significant future funding commitments and are typically used for distressed assets such as SAA, which require extensive restructuring and recapitalization to ensure a sustainable business model.
SCOPA lawmakers pointed out to the ministers that any alteration to SAA’s ownership structure required the amendment or repeal of the SAA Act, under which terms the airline was incorporated and established. The political process for this, including public comment and parliamentary debate, has not yet begun.
According to a Bloomberg article, South Africa’s National Treasury issued a report citing that the contractual terms were grossly distorted for the buyer. The document had been published but was later taken offline by the South African government.
According to the report, the contract has loopholes that oblige the South African government to take on other responsibilities if the private investor so chooses. As could not be otherwise, the matter has generated controversy and it is not yet known how the next steps will be developed.
The Auditor-General, Treasury, and SCOPA have also raised concerns over the continued delays in finalizing SAA’s financial reports for 2018-19, 2019-20, 2020-21, and 2021-22. Civil society group, the Organization Undoing Tax Abuse (OUTA), and some SCOPA members have questioned how Takatso could conduct proper due diligence of SAA in the absence of audited financials.
SAA is currently operating flights from Johannesburg O.R. Tambo to Cape Town, and Durban King Shaka (South Africa), Kinshasa N’Djili (DRC), Lusaka (Zambia), Harare Int’l (Zimbabwe), Accra (Ghana), Lagos (Nigeria) and Mauritius.
Last year in 2021, the government announced the sale of control of the company. According to the announcement, the state will no longer have any financial obligation to the company after the transfer of control. In turn, Takatso will be required to invest up to US$258 million over the next three years.
