The South African government has terminated a deal to sell 51% of South African Airways (SA, Johannesburg O.R. Tambo) to the Takatso Aviation consortium, citing a new market-related ZAR6.5 billion rand (USD350 million) valuation of the national carrier and a mutual agreement between the parties that there was no clear path forward for the current transaction.

This was announced by outgoing Public Enterprises Minister Pravin Gordhan at a media conference in Cape Town late on March 13, after he had briefed the Cabinet on the mutual decision by the Department of Public Enterprises (DPE) and Takatso to annul the existing sale and purchase agreement.

Gordhan also blamed what he claimed was the failure of Takatso to ensure that its minority partner Global Aviation Operations/Syranix sold off its 20% in the consortium as directed by South Africa's Competition Tribunal last year following antitrust concerns over Global's ownership of domestic competitor Lift Airlines (GE, Johannesburg O.R. Tambo).

"Over a period of time, we inquired with Takatso if it was executing what the tribunal had asked it to do, and we could not see any evidence of that," Gordhan said.

However, Global/Syranix director Gidon Novick told ch-aviation that the minority shareholder had found a buyer for its stake in Takatso and its 10.1% expected share in SAA.

The minister said SAA's evaluation had risen from ZAR2.4 billion (USD129 million) in 2020, when it was not flying while in business rescue, to a new high in late 2023 of ZAR1 billion (USD53.9 million) for its business and ZAR5.5 billion (USD296 million) for its properties, based on a professional evaluation amid new post-Covid economics and market conditions. Bearing in mind that SAA is a public asset, fair value must therefore be attached to the 51% sale of the airline, public interest must be secured, and SAA must be left in a more sustainable condition than it was in late 2019 when it entered business rescue, Gordhan explained.

"From the new valuations that emerged last year from reputable professional firms, we are convinced, in terms of the numbers available to us, that [SAA] can sustain itself for the next year to 18 months - and that there are various other ways in which immediate financing can be obtained," Gordhan said, though he reiterated that "in no way will SAA get money from the Fiscus" going forward. "There's no going back to the past; there is no reliance on government itself. It must run its operations as efficiently as it can and as profitably as it can, and sustain itself as we go forward."

The minister gave his assurances that the current and future administration - South Africa's general elections are scheduled for the end of May - would work with the SAA board to ensure that no staff lose their jobs and that the corporate business plan will continue to be executed. This would entail the airline's continued growth from 19 to close on 40 routes in the next five years.

"Similarly, it will have the capacity to lease more aircraft, both for domestic use and within the continent, and for intercontinental flights as well. All of these plans will be rigorously examined with the necessary aviation expertise to ensure that jobs are secure, that the airline is secure, and that there is a future for SAA and its flag to be seen continuously within the country, within the continent, and across continents as well," he concluded.

Takatso dropped the deal

In a statement following the briefing, Takatso confirmed the sale was terminated by mutual consent, although Takatso made the first move on March 8 by signalling its intention to trigger the termination by mutual consent provisions of the parties’ share purchase agreement. The Department of Public Enterprises then consented to the termination.

Takatso said that protracted negotiations for a revised transaction structure had introduced "unacceptable levels of risk and uncertainty" and that opportunities it had sought in the aviation sector to exploit with the tie-up had "greatly diminished" in the two years since the share purchase agreement was signed. It revealed that talks on the deal and the current value of SAA had reopened six months ago.

"Takatso has therefore concluded that the revised transaction terms are no longer in the best interests of its stakeholders, especially in light of further, as-yet-unfulfilled transaction closing conditions," it said. "These include the cumbersome divestiture conditions imposed by the Competition Tribunal, the need to receive further necessary legal and regulatory approvals, and the repeal of the SAA Act, whose bill was withdrawn from parliament last month."

It added that the conditions necessary for the deal were unlikely to be fulfilled by March 31, the latest in a series of long stop dates that were extended multiple times over the past two years. The proposed revised terms were deemed unfeasible for Takatso, leading to the decision to halt the process.

In the terms of the cancelled deal, Takatso, led by Black Economic Empowerment firm Harith General Partners, would have acquired a 51% controlling stake in SAA Group for a nominal ZAR51 (USD2.75) purchase price in exchange for investing ZAR3 billion (USD162 million) in operational capital over two years. The government would have received ZAR3 billion worth of preferred shares and would have retained a 49% equity stake, ensuring a long-term national interest in the airline.