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SAA privatisation not yet done and dusted

As SAA emerged from business rescue, government made provision to pay returning staff as well as creditors, and to ensure that ‘interim flying’ can take place – and that is happening at the moment: Public Enterprises Minister Pravin Gordan.

This interview was originally aired on RSG Geldsake (in English).

RYK VAN NIEKERK: Pravin Gordhan, the minister of public enterprises, confirmed in parliament yesterday [Tuesday] that the government had signed an agreement with the Takatso Consortium regarding the sale of a 51% stake in South African Airways [SAA], but that the transaction has not been finalised.

The deal was initially announced in June 2021. A few months later SAA resumed operations without any operational involvement of Takatso.

Pravin Gordhan joins me now. He is the minister of public enterprises. Minister, thank you so much for joining me. The deal was announced nearly a year ago. Why is it taking so long to actually finalise this transaction?

PRAVIN GORDHAN: I’m afraid these processes in a commercial environment do take time. Firstly, good evening to you and good evening to your listeners.

When ordinary companies do these sorts of things it takes a long time for, firstly, agreement on the term and secondly the various legal processes that we have to go through, which include undertaking due diligence on both sides of the relationship, doing valuation of certain assets, and any other methods actually involved.

Secondly then, moving on to the next stage, various regulatory processes, for example getting the approval of the Competition Commission, are undertaken as well. So those are the reasons. Then some lawyers move fast and some lawyers move slightly slowly. So I’m afraid these are processes [that] are in the hands of the legal fraternity as well.

Read: Taxpayers’ last gift of R3.5bn to SAA

But we are all hoping that this process will be finished sooner rather than later, and that the partnership will begin to work because there are many advantages for SAA, for the staff that have been retained within SAA, and for the expansion of flights and routes that SAA can undertake as well.

RYK VAN NIEKERK: SAA started operations again late last year and, as I said in the introduction, without operational involvement from Takatso. How is the airline performing currently without a partner? Is it profitable, for example?

PRAVIN GORDHAN: Well, what we have done is we have ensured that there was some provision, as it emerged from business rescue, not only to pay the staff that had to be returned, to pay creditors that were being owed money, and so on, but also provisions to ensure that what we call ‘interim flying’ could take place – and that is what is happening at the moment.

The partner only comes on board once all of the legal processes have been concluded.

So the South African routes are doing extremely well, as anybody who may have travelled on SAA would’ve seen. I’ve done a fair amount of travelling to Cape Town for parliamentary responsibilities, and to Durban during the floods, and most of those flights were fairly full.

But there are also seven or eight African routes that have been opened up and, depending on what this virus called Covid-19 does, hopefully those routes will begin to attract a fair amount of passengers as well.

So it’s on its way to doing reasonably well.

RYK VAN NIEKERK: Is the deal a done deal, because very little is known publicly about the terms of the agreement between the government and the Takatso Consortium? What we know is what was announced last year – that Takatso will receive a majority stake of 51%. They will have full management control and they will provide a capital injection of R3.5 billion over a period of three years. Have you agreed to those terms?

PRAVIN GORDHAN: Yes.

RYK VAN NIEKERK: I just want to get to the point of the delay in actually approving the whole transaction: is that purely administrative and regulatory, or is there still horse-trading between Takatso and government?

PRAVIN GORDHAN: No, there’s no horse-trading. These are entirely legal and regulatory processes that are taking up our time. As I said, I would’ve preferred all of this to have been done and government would’ve preferred all of this to have been done earlier this year. But unfortunately this has taken a bit of time.

Just to answer your other question, this is a commercial transaction; it’s not just the procurement of some machinery or something like that, and this is a transaction that takes place in a competitive market.

So some of the terms, as we said in parliament yesterday, will remain confidential because they would prejudice the operations of SAA and its success as well if we say too much about that at this particular point in time.

But what we can reveal to the public [is that] these are all decisions not taken by any individual or any individual minister. Ultimately all of the approvals have to have cabinet consent, which is what we have obtained over a period of time.

RYK VAN NIEKERK: There have been reports that, of course, government allocated a final payment of R3.5 billion to SAA, and that these commitments have been labelled as ‘final’. You’ve said as much yourself, that there will be no new bailouts for SAA. But there were reports that government may still have exposure to the airline, for example to subsidise unprofitable routes which government sees as essential. Is this the case?

PRAVIN GORDHAN: Let’s separate the issues. As far as the future operations of SAA are concerned, the consortium takes full responsibility for all of what we call ‘operational capital’. That’s the R3-odd billion that you referred to earlier on.

In addition to that, SAA as a company itself will have to pay for the assets that have been retained in the company through preferential shares as it makes profits as a company itself.

Thirdly, government doesn’t contribute a cent towards the operational capital or operational expenses of SAA once this transaction is actually over.

Read: SAA remains a financial burden, Treasury warns

So we must be absolutely clear that there are no such commitments in the first instance as far as the future financing is concerned. We’ve said repeatedly – and I don’t know where the misunderstanding keeps creeping up from – that one of the major objectives of this exercise is to actually ensure that we do not have SAA being a burden on the taxpayer and on the fiscus any longer.

PRAVIN GORDHAN: The second point, though, is that what we have said is that, for example, if government thinks that ensuring that South African business people can travel to a particular destination overseas – and that that route will be important to increase trade, to increase commercial exchanges, and perhaps even tourism to South Africa and to a particular destination – if it is a route that does not immediately make profit, and if government wants SAA to fly that particular route, then government might have to subsidise that.

That’s sometime in the future.

If such decision is made, it’s about not financing SAA, it’s about ensuring that the tourism and economic advantages that we are to gain as a country have been proven, and therefore it’s worth investing in a route, not in SAA.

RYK VAN NIEKERK: I think the concern of many taxpayers is what if, in the current environment – which is a very, very difficult environment for any airline business – SAA under the leadership of the new Takatso Consortium goes bust. Does that mean it’s the end of SAA then?

PRAVIN GORDHAN: Clearly, if it goes bust, it goes bust. The Takatso Consortium, one part of it has very successful investment projects all over the African continent and elsewhere – I think in the world as well – so these are very experienced business people who know what they are actually doing.

Normally the South African public will say ‘Leave it to the business guys to actually run enterprises like this’. Well, here’s an opportunity for business-oriented people, or people in business, to run this airline with the knowledge, as you correctly say, that aviation is a competitive industry.

On the one hand, it’s an industry that provides very thin margins of profitability as well. And that’s precisely why we cannot have a flabby SAA. We need a lean and efficient operation that will ensure that we don’t head in the kind of direction that you’re talking about.

RYK VAN NIEKERK: Thank you, minister. That was Minister Pravin Gorhan, the minister of public enterprises.

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