By After three years of negotiations to sell and acquire 51% of South African Airways (SAA), the Department of Public Enterprises (DPE) and Takatso Consortium have come to a mutual agreement to terminate negotiations on the transaction.
The DPE explains in a statement that, time has lapsed and things are not the same as they were three years ago, the value of SAA has appreciated significantly compared during the COVID-19 pandemic period, which impacted the aviation sector as it brought operations to a halt. At that point, SAA was on the verge of being liquidated. But since then, the airline’s assets have grown in value.
As the global economy opened up and operations began following the closure and opening of boarders across the world, the South African government required to search for a strategic equity partner as directed by Cabinet, the DPE identified Takatso Consortium as the preferred strategic equity partner to enter negotiations with.
According to the Spokesperson of the department, Mr Ellis Mnyandu, three key areas needed to be noted. SAA is a public asset that has grown in value between 2019 to 2024; secondly, recognizing that it is a public asset and that any sale of shares has to be at a fair market value and thirdly; the process must result in the sustainability of SAA and its growth, in terms of its aircrafts and routes that it needs to fly.
“There were two valuations that were undertaken. The first valuation was undertaken during the COVID-19 period. And that valuation took place when the airline was not flying. The business and the properties were valued at a liquidation asset valuation methodology and this amount to R2,4 billion. And the business was valued at between 0 and negative,” explained Mnyandu.
Mnyandu says market conditions have since change and the economy has improved and the demand for flights has increased formidably, as a result, a new valuation needed to be done on the airline, which showed a drastic improvement.
“The business valuation came out at R1 billion and the property valuation at R5.5 billion. This meant that there was a net increase in the property by R3,1 billion in the value of SAA. The equity value had increased from 0 to R1 billion,” said Ellis Mnyandu.
“It took almost a year for the Competition authorities to approve the transaction. The Competition Tribunal approved the transaction subject to certain conditions including the divesture by Takatso of its minority shareholders, before the implementation of the transaction.
It became clear in the negotiations that the revised transaction structure must take into account public interest and fair market price. However, these requirements were not met in the renegotiations. As a consequence, a mechanism to terminate the Sale of Shares Agreement by mutual consent in terms of clause 10.1.1 of the Agreement was put into effect. It was then decided late last week that there was no purpose in continuing with further negotiations,” explained the Spokesperson.
The DPE briefed Cabinet on Wednesday, 13 March 2024, that SAA will remain a 100% state owned enterprise and the board of the airline will have to come up with a corporate plan to keep SAA afloat and grow it and introduce more routes and more aircrafts.
“The new corporate plan will embrace more routes and more aircraft. In order to support these next steps an aviation strategy advisor will be brought to support the Board and management. The Board needs to be strengthened further,” he said.
“As a consequence we announced today that the engagement with Takatso has ended, and that there will be further steps taken both by this 6th administration and the 7th administration, to stabilize SAA. We are confident that SAA will continue to fly and grow in terms of the number of routes and aircraft that it is able to lease.
Furthermore, a new form of raising finances on the basis of the assets of SAA will be explored with financial institutions. We will address the staff on Friday to fully take them on board on this matter. There were lots of lessons to be learned both during the business rescue and in the process of these negotiations. SAA now enters a new chapter of its life,” concluded Mnyandu.
