Can South African Airways soar after sale falls through?

The fate of South African Airways is uncertain, as a deal to secure its future fell through. The Takatso Consortium had expressed interest in acquiring a majority share of the airline, but unfortunately, the negotiations did not succeed.

The crisis at South African Airways (SAA) is unlikely to be resolved soon after the termination of talks for a majority stake purchase last week.

South Africa’s Parliament has chosen to forward the failed agreement to the independent Special Investigating Unit (SIU) for further investigation into corruption within state entities, aiming to uphold accountability and transparency.

The Department of Public Enterprises had been in discussions with the Takatso Consortium since 2021 to acquire a 51% stake in South African Airways, aiming to put an end to the need for recurring bailouts. The uncertainty surrounding SAA’s future has raised concerns among those working in the country’s airline industry, especially considering the airline’s previous close call with liquidation and subsequent entry into bankruptcy protection in 2019.

The COVID-19 pandemic has further exacerbated the crisis, severely impacting the aviation industry and depleting SAA’s already limited cashflow. As a result, the government is now actively searching for a strategic equity partner to help sustain the airline.

Why did the talks for the takeover fall apart?

Many experts had anticipated that the potential agreement was the only solution to rescue the airline from its ongoing troubles.

The government insisted that the consortium pay an additional €100 million ($108 million) compared to their initial offer, thereby increasing the cost for a controlling stake in the airline to €242 million.

Pravin Gordhan, the South African Public Enterprises Minister, explained to Parliament that the higher price was necessary due to the airline’s increased value.

Gordhan mentioned the importance of determining a fair value for the sale of the 51% shares in this deal.

Throughout the three-year negotiation period, the government faced criticism for attempting to privatize the airline. However, they have now declared that South African Airways will return to full state ownership and have ruled out providing financial assistance to South African Airways in the coming months.

Growing Frustration as Talks Continue to Drag On

The Takatso Consortium had to reassure stakeholders about their financial stability to finalize the majority stake acquisition in the airline following the government’s reassessment.

Thulasizwe Simelane, the consortium’s spokesperson, emphasized to The Diplomat News that the main issue was not the lack of funds to complete the transaction, but rather the extended duration of the negotiation process.

“In the end, it wasn’t about political pressure or external noise. It boiled down to the business aspect – as an investor, does it still make sense for your stakeholders to prolong this process?” Simelane explained.

Are South African Airways jobs safe?

Pravin Gordhan, in a reassuring statement, emphasized that the jobs of South African Airways employees are secure and that the company has the financial stability to sustain itself for the next year to 18 months.

Pravin Gordhan reassures South African Airways staff that they do not need to be concerned about their jobs or the well-being of their families. We commit to collaborating closely with the board and management to ensure South African Airways’ long-term sustainability. Additionally, we’ll enhance the developed corporate plan.

Aviation expert Guy Leitch, however, pointed out that the airline’s recovery will be a lengthy process due to the recent breakdown of talks. He explained, “For the past two decades, South African Airways has faced significant challenges, including limited capital and difficulties in attracting top talent and expanding routes.”

Leitch further added, “The impact of COVID-19 has made the situation even more challenging. The airline is starting from a much lower point, having lost many skilled professionals and a significant number of aircraft. Rebuilding from this point will require considerable effort.”

The government has revealed its upcoming strategy, which involves a step-by-step approach to expanding operations, as stated by the Minister of Public Enterprises.

South African Airways has devised a strategic plan that entails a progressive expansion of their route network in the coming years. Presently, the airline serves approximately 19 routes, but this number is expected to expand to 40 routes within a five-year timeframe,” he explained.

Contrasting Reactions to Failed Negotiations

Opinions differ on the termination of negotiations. According to Zwelinzima Vavi, the Secretary General of the South African Federation of Trade Unions, the defeat of the privatization plan is great news. He believes that there was no genuine reason to collapse South African Airways, which used to be the top airline globally. Vavi hopes that the defeat of the privatization agenda will be permanent.

On the other hand, Chris Shabangu, the deputy president of the South African Cabin Crew Association, suggests that the government should bail out the airline instead of involving the private sector. He believes that as a national carrier, the government should not hesitate to invest in it, as the airline’s mandate is not solely focused on making money.