South Africa needs SAA and 'serious players' are interested in its value, says acting DG

(Gallo Images)
(Gallo Images)
Gallo Images/Jacques Stander

Yes, South Africa needs a national flag carrier. But it needs not be controlled by the state, Kgathatso Tlhakudi, acting director-general of the Department of Public Enterprises, has said.

The department represents the government as shareholder of South African Airways. 

On Thursday, the creditors of SAA will meet to decide whether or not to accept a plan proposed by the business rescue practitioners which involves the government having to raise more than R10 billion to keep the airline from going under.

Local banks hold government guaranteed loans of R16.4 billion already allocated in prior national budgets.

The national airline went into business rescue in December last year following years of losses and repeated state bailouts. The business rescue practitioners published their rescue plan earlier in the month after repeated delays. 

Since Finance Minister Tito Mboweni did not allocate any additional funding for the embattled airline in his supplementary budget on Wednesday, the implementation of the rescue plan would now appear to depend on the government finding a strategic equity partner. 

But if no such private sector partner or further state funding are found by July 15, the practitioners have stipulated the rescue plan will then be deemed unimplementable.

This could mean liquidation of the 86-year-old airline, and the loss of its valuable operating licences.

However, Tlhakudi, speaking to Fin24 on Wednesday, said a number of "serious players" were interested in investing in SAA.

Some are international investors who see value in it. Others are people active in the aviation industry and others who have funded major projects in the past and want to take a strategic shareholding in specific sectors. He did not provide any names. 

South African law stipulates there cannot be more than a 25% stake held by an international investor in a domestic airline. That is why some of these potential international investors would be willing to partner with a local investor.

"We have a team allocated to look at the investment proposals. We need to find a solution very soon about funding," said Tlhakudi.

SAA's financial losses totalled more than R10 billion over the past two years, according to documents submitted to Parliament earlier this year. Over the past decade, the government has bailed out the airline with almost R30 billion.

For economist Peter Attard Montalto of Intellidex, the fact that Mboweni did not allocate any new funds to SAA in his supplementary budget meant the only two options for the airline were liquidation or finding a strategic equity partner.

"However, while the department talks about a minority stake for themselves, they would want to retain a veto right on key issues which would likely mean no strategic equity partner would agree," cautioned Attard Montalto.

Developmental role

Tlhakudi said it was important a national airline plays a developmental role as well as being commercially viable. In his view, it is possible to achieve this with a "new SAA".

"Government's policy about having a national carrier remains, but the private sector needs to come to the party too. If we can get a decent deal [from a private investor] they can have management control. We are not obsessed by that," he added.

"We are very clear that the management and board brought in for a new SAA will be well-respected individuals."

Air connectivity provided by a national carrier is important given South Africa's location at the southern tip of Africa, far from its trading partners.

"Now, during the Covid-19 pandemic, SAA could bring in essential supplies to the country. Also, without air access a country cannot get investment," said Tlhakudi.

"If you have a national carrier, even where the state has minority control, you can become creative. Flying is not just for the elite."

He used as an example a route between Johannesburg and Umtata. If there is a need for it, yet it is maybe not commercially viable on its own, the government can say it is important from a developmental point of view. Then it can see if such a route cannot perhaps be subsidised.

"We need to understand that, when you have a business the size of SAA, you have to try and protect it. When other international airlines occupy the routes, it does not mean the money from their operations comes to SA," said Tlhakudi.

Asked whether the government would be able to resist interfering in the running of a new SAA, he added one should not get confused due to the past era SAA went through when bad decisions were made.

"We have learnt from that era. We need professionals to run the airline and if there are also developmental and political aims, we would have to pay for them," he said.

"I know there is a lot of distrust among the public about government interventions, but our decisions to date have been responsible to try and undo the bad decisions of the past."

He wants South Africans to know SAA is "their" airline.

"Yes, it has taken a lot of resources over the years, but it is very important that SAA continues to exist going forward - even if it could lose money in the short term but will make money in the long term," Tlhakudi said.

"We believe there is more upside than downside. Government wants to ensure there is a solid base for future value creation."

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