SAA’s new equity partner raises concerns among aviation experts

Aviation experts have raised concerns about Takatso Consortium as the new strategic equity partner for South African Airways (SAA).

On Friday, Public Enterprises Minister Pravin Gordhan announced that the consortium will hold a 51-percent stake in the airline, and government the remaining 49-percent.

Minister Gordhan’s briefing on SAA:

Industry experts say the deal is not transparent and question why due diligence was not completed before the deal was concluded.

The Takatso Consortium will invest just over three-billion rand in the new SAA. Government says once the consortium has completed due diligence into the business, a sale and purchase agreement will be signed before the official launch of the new SAA.

But industry experts are wondering how the deal was finalised without due diligence being completed.

Wits University Professor Tshepo Mongalo elaborates, “When I heard that there would be no money exchanging hands as a result of this transaction I realised that this is probably a financial assistance transaction, the equivalent of vendor funding. As South African Airways is regulated under the Company’s Act there is a need to comply with Section 44, they must be compliant with solvency and liquidity tests and that the transactions must be in the best interest of the company. SAA just came out of business rescue and it may not be complying with the solvency and liquidity test as required. And on top of that, I wonder how much due diligence has been done to see if this transaction is in the best interest of the company.”

Mongalo also believes the transaction might have been rushed.

“I think this transaction might be questioned on a regulatory basis and I hope this can be satisfied. When the financial assistance is taking place it is not the shareholder or the majority shareholder who helps the incoming shareholder but it is the company that assists the shareholder, therefore, the board of the company has to be satisfied that the company satisfied the insolvency and liquidity test. Therefore I hope that the due diligence will prove that this is in the best interest of the company.”

Meanwhile, unions NUMSA and the South African Cabin Crew Association (SACCA) believe the deal was done without transparency. They say the Department of Public Enterprises has failed to answer some pertinent questions.

NUMSA Spokesperson Phakamile Hlubi- Majola, “We have been asking since last year for DPE to be transparent about the process to appoint an equity partner for the sake of the future of SAA. But they refused to disclose. SAA was collapsed by mismanagement and rampant corruption which happened under the watch of DPE and Minister Gordhan. If we have to make a break from the past then transparency is a key factor in ensuring good governance and in ensuring that the same problems that brought down SAA are not repeated.”

Chief Investments Officer at Inkunzi Investments Owen Nkomo says there are questions around the deal but the country should be glad that the majority of SAA is being put into private hands.

Nkomo says the most important question is the valuation of the transaction:

The Competition Commission says it will not be commenting on this transaction at the moment. It has also not been notified of the SAA acquisition for approval.