Should government have to accept that it will have to relinquish the right to appoint the board, CEO and even management if it wants to attract an investor for South African Airways? That's the question the state has to consider as it now warms to the idea of once again introducing a private shareholder into the ailing airline.
The introduction of a new shareholder isn't a foreign concept to government, which sold a 20% stake in the airline in the late nineties to SR Group, which was the parent company of, amongst others, Swissair. But in 2002, the state had to buy back this stake after SR Group ran into financial trouble.
In 2015 there were talks between SAA and Middle Eastern Airline Emirates about the possibility of an enhanced commercial relationship, involving expanding their code-share arrangements, among other things. Nothing came of it due to interference by then chair Dudu Myeni.
Warding off investors has been the collapse of governance at the airline over the past decade under Myeni, who was declared a delinquent director last month.
With Finance Minister, Tito Mboweni, and his department no longer willing to fund yet another bailout for the airline, the state has no other option but to find a strategic equity partner to help with the more than R10 billion the latest rescue plan requires. Acting director general of the Department of Public Enterprises, Kgathatso Tlhakudi, this week told FIN24 the state may be willing to give up a majority stake in SAA to a suitable investor.
What lies in a stake?
Aviation expert Andreas Spaeth says any kind of government interference will put off almost all potential private investors.
In his view, the dire financial situation SAA finds itself in, is actually an example of the negative influence of government involvement.
"There are many opportunities right now around the world to become a major shareholder in major airlines for a steal. So, I doubt any reasonable investor would pick SAA out of all the options for a potentially viable investment right now. I see a very low chance for this to happening," comments Spaeth.
"South Africa as a market is, of course attractive, but mostly for regional travel and just if an airline is allowed to act freely as a fully private enterprise, not burdened with all the baggage SAA carries with it, in whatever form it might emerge."
For aviation expert Linden Birns, managing director of consultancy Plane Talking, the interest in SAA from a potential investor would come down to how much of a share they would have and what sort of voting rights it would come with it. Any majority stakeholder would be entitled to appoint the board of SAA, for instance.
"Investors would want to know what they are buying, what they are getting for their money, and how many of the problems the airline has they would have to shoulder," he said.
"Also, if government says they will sell a stake in the company, what are they selling? South African law puts a cap of 25% on any foreign ownership of a domestic airline, yet, there are no such similar limitation in other industries, so why is aviation singled out?"
SA law also stipulates that effective control and day-to-day management of an airline must be in majority South African hands.
"Bringing in someone from outside SA is not necessarily a panacea. There are some very clever people in this country capable to run an airline effectively. It has been done before," says Birns.
Potential equity partners
As for potential equity partners, he is of the opinion that one can forget about expecting interest from other airlines in the current state of the airline industry, devastated due to the impact of the coronavirus pandemic and related lockdowns and flight bans.
"And in any event, foreign airlines would have one objective and that is to drive traffic onto their own networks," says Birns.
Even Middle Eastern airlines, where governments are usually wealthy enough to cushion financial blows, are seeing Emirates laying off thousands of people, while Etihad Airways already got its fingers burnt when it invested in Alitalia.
Air France-KLM has received coronavirus relief from the French government and Lufthansa got help from the German government in return for relinquishing some equity, but on condition of the government not getting any voting rights.
"Yes, if you set aside all the financial troubles and governance issues at SAA and looked at its function before it started cutting routes, it was generating a benefit to the SA economy. That is why government can say it is a strategic asset, but all the airlines in the country can and should be regarded in the same way," explains Birns.
"Johannesburg is geographically well placed as connecting hub into the rest of Southern Africa and maybe buying a stake in SAA could be a golden opportunity for a BBBEE investor or consortium of investors?"
And, if government is willing to relinquish a majority stake in SAA, Birns wonders why then not just let SAA be liquidated and allow private investors to start a new long-haul airline without using taxpayers money?
"Investors, by nature, want a return on their investment. Their approach will be commercial," says Birns.
"How do you marry something viewed by government as a development tool against investors' requirement to make their money back with a higher return than if they put it somewhere else? That is what it boils down to."
Up for a steal
For a reliable source in the aviation sector, who wants to remain anonymous, the proposed business plan for SAA appears sub-optimal and is based on unclear assumptions about the market.
"A restructured SAA with the right cost to income ratios will in the medium to long term attract investors," says the source.
"Covid-19 presents opportunities to restart the airline and reset its cost base without any pressures as no airline is operating at capacity currently. There is a scope to develop a more pragmatic plan for SAA."