What is happening with SAA?

RW Johnson asks who will be covering the losses of the relaunched national airline

Something decidedly strange is going on with South African Airlines. After 17 months in administration the airline finally emerged from business rescue in April 2021 and in June the Minister for Public Enterprises, Pravin Gordhan, announced that 51% of SAA would be sold to the Takatso consortium which included Harith General Partners and Global Aviation.

This in itself was odd. SAA had turned away bids from both Emirates and Ethiopian Airlines, both major and successful international airlines who would undoubtedly have whipped SAA into shape and also had the financial muscle to provide a secure future for it. None of that applied to Takatso, a local outfit of limited means.

Even odder was the fact that although Gordhan announced that Takatso would buy 51% of SAA it then emerged that actually no price had been agreed and, indeed, Takatso had as yet made no offer at all.

Instead it would now audit SAA and carry out due diligence inquiries to see if it was worth bidding for, It is impossible to see how Gordhan could have announced that 51% of the airliner would be sold to Takatso given that no actual offer had been made. Moreover, Takatso didn’t have the funds with which to mount a bid – it would need to raise loan finance in order to do that.

On top of that the Dept of Public Enterprises had no authority to make such an announcement. Under the Public Finances Management Act the DPE was required to obtain the prior approval and agreement of the national Treasury – and this had not been done. As a former Finance Minister Gordhan must have been fully aware of this requirement so one has to conclude that he knowingly broke the rules.

Thereafter Takatso continued with its due diligence exercise and was reportedly far from impressed by what it discovered. As the independent aviation economist, Joachim Vermooten, put it, the deal didn’t seem to be happening because SAA was insolvent. “The fundamental issue is that SAA is probably not worth anything. It has liabilities more than assets. R90 billion from the fiscus has gone to SAA since 2007 and there is nothing left.”

Specifically, Vermooten pointed out, SAA had debts of R14 billion. The government had promised R10 billion towards that and it had also committed R2 billion to help SAA re-start its services. Takatso was talking about putting in R3 billion over three years. It didn’t really add up.

Nonetheless, In August 2021 SAA announced it would re-start a very much truncated service on September 23. The airline had shrunk from 49 aircraft and was now down to 10 planes. None of the big international routes to London, Frankfurt, New York or even Lagos were to be re-started.

Instead, the airline would now be confined to the southern African region – Joburg-Cape Town, Harare, Mauritius, Kinshasa, Lusaka and Maputo. The only West African route would be to Accra.

These flights duly started again in September but aviation experts were highly sceptical. Initially there has been much talk of SAA’s cargo business but now there was no mention of cargo. Moreover, SAA had only an “interim CEO”, Thomas Kgokolo.

Guy Leitch, the managing editor of the magazine, SA Flyer, was extremely dubious:

“They don’t have a business plan. The business plan they are adhering to is the one that was written by the business rescue practitioners to convince the creditors that the airline had no real chance of success. They’re still trying to re-build the airline on that basis, so I’m really worried that it’s just not coherent and they’re not going to make money.”

Nonetheless, in January 2022 Mr Kgokolo announced that SAA would re-start flights on the Joburg-Durban route on 4 March.

The most remarkable thing of all is that SAA has been re-launched and yet there is still no bid from Takatso, so the whole ownership structure of the airline is still up in the air. This can only mean that the government – the residual owner – must have taken the decision to re-launch and must be footing the bills.

This without any word to Parliament or the public about how this is to be afforded or which budget the money is coming from, or which budget is to be cut in order to find the money for SAA. Without the say-so of the Treasury or, apparently, anyone else, this legendarily losing airline is flying again – straight towards financial disaster.

And let there be no doubt about that. Before the re-launch it was soberly estimated that in its first two years of resumed service the airline would generate a negative cash flow of R60 billion.

It is worth pointing out that even if Takatso does make a bid, it has absolutely no means of meeting a bill of that size. But there must be grave doubt now whether the Takatso deal will go ahead, although it claims that negotiations are at an “advanced stage”.

Many of the aviation experts who have watched SAA’s prolonged nosedive have said quite bluntly that SAA was trading recklessly and irresponsibly for many years – that is, it was losing money and was taking on more and more debt without any means of paying it.

Everything suggests that this is now happening again, perhaps even more irresponsibly than before. Who, after all, is going to pick up a bill for billions of rands in losses? And how can one possibly start up an airline without a workable business plan? Pravin Gordhan must have given the OK to all this but there is still no sign that the Treasury has agreed to any of it.

How can one explain this? There can really be only one answer. Ever since 1994 ANC ministers, MPs and other notables have all enjoyed free business class travel on SAA. No other airline will provide them with free travel and our political elite is deeply attached to its perks and privileges.

For many of them this is the very meaning of liberation. Collectively they form a pressure group of considerable weight and it seems only too possible that this whole preposterous relaunch of SAA is occurring because the government lacks the nerve to tell these Politically Important People that their days of wine and roses are over.