A 51% stake in South African Airways was sold for just $3

South Africa’s decision to sell a majority stake in the country’s loss-making national airline for just over US$3 represents an ongoing financial risk to the state as the terms were skewed heavily toward the buyer, the National Treasury said. 

The finer print of the deal that saw the Takatso Consortium take a 51% shareholding in South African Airways last year represents a “contingent liability,” the Treasury said in a document emailed to Parliament’s Standing Committee on Public Accounts that was later withdrawn.

That’s partly because Takatso – made up of a local jet-leasing company and private-equity firm – has the right to assess whether any ongoing liabilities in SAA be settled by the government, the Treasury said in the document seen by Bloomberg.

The sale of SAA was announced in June last year after the airline emerged from lengthy bankruptcy proceedings, during which its planes were grounded for well over a year and the workforce cut by 80%.

The airline, which used to serve destinations across Africa and a number of major global cities, hasn’t made money since 2011 and received state bailouts that totaled billions of rand.

The National Treasury said it was not consulted on the sale of the stake, which it said cost 51 rand ($3.16), and remains in the dark about a number of other agreements such as Takatso’s proposed issue of preference shares to the DPE. It’s also concerned that government guarantees on SAA’s debt remain in place, according to the document.

The finance minister at the time of the sale, Tito Mboweni, clashed repeatedly with Gordhan over SAA, maintaining the company be allowed to go bankrupt and airlines operated by private companies. He was replaced by Godongwana in August.

“The strategic equity partner may assume very minimal shareholder risk for the acquisition of a majority shareholding a the purchase price of 51 rand,” the Treasury said.

Takatso consists of Johannesburg-based Global Airways, which owns domestic airline Lift, and private-equity firm Harith General Partners.

Takatso plans to invest as much as 3.5 billion rand (US$258 million) over the next three years, Lift co-founder Gidon Novick and Harith Chief Executive Officer Tshepo Mahloele said in an interview in June 2021.

“Government will have no further financial obligations to the company, outside of the existing liabilities that they will settle,” Novick said. “Route networks we are still working on, and it will be a phased roll-out based on demand re-emerging post Covid.”

Seeking a 'sustainable airline'

The carrier is among a number of South African state-owned companies to have deteriorated into a state of financial distress over the past several years, in large part due to mis-management and corruption.

However, the SAA disposal marks the first effective privatization of a major entity since the sale of former phone monopoly Telkom about two decades ago.

A longer-term goal is to list the carrier on a stock exchange, Gordhan said. In the meantime, the government will retain special voting rights to ensure the airline remains in the country, among other national priorities.

The deal represents a triumph of sorts for Gordhan, who has argued for the revival of SAA with the help of private investors while others were calling for it to be liquidated.

Global Airways started Lift in December last year under Novick, a former head of Comair, which operates the South African low-cost airline Kulula.

Harith also invests in infrastructure across Africa, and is the co-owner of Lanseria Airport north-west of Johannesburg.