SAA sale controversy: Parliamentary meeting may reveal details

The details about the sale of South African Airways (SAA) for R51 to the Takatso Consortium that Public Enterprises Minister Pravin Gordhan is desperately trying to keep secret may come out in a meeting of a parliamentary portfolio committee on Wednesday, depending on legal advice and whether the documents he provided warrant a closed sitting.

The sale was announced in June 2021, and it was only under the threat of being subpoenaed that Gordhan last week provided the relevant documents to the portfolio committee on public enterprises.

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However, he insisted that the meeting take place behind closed doors and that members sign non-disclosure agreements. 

The committee agreed to an in-camera meeting but refused the non-disclosures.

It is busy investigating the transaction after Kgathatso Tlhakudi, former director-general of the Department of Public Enterprises, accused Gordhan of orchestrating the transaction to benefit people he favours.

Committee ‘not comfortable with secrecy’

In a letter to Gordhan, the chair and fellow ANC member Khayalethu Elvis Magaxa emphasises that the committee “will not give the nod to any attempt to unlawfully curtail its constitutionally entrenched oversight role”.

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He adds: “The committee’s acquiescence to an in-camera meeting with you should not be read as an exaltation of secrecy above accountability, particularly where public funds are involved.”

Gordhan arrived at the meeting last week with a file prepared for every committee member containing, among others, the shortlist of bidders for SAA, the RMB valuation of the airline, and the shareholder agreement.

The committee then decided to refer the content to parliament’s legal office to determine whether the content warrants a closed meeting.

“The committee is not comfortable with such secrecy,” says Mimmy Gondwe, DA shadow minister of public enterprises.

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She says committee meetings must be open to the public as part of the participating democracy that the constitution requires. 

Moneyweb learnt that committee members have, in the meantime, voluntarily handed in their files pending legal advice. If it does not support a closed meeting, the veil of secrecy may at last be lifted.

R51 deal ‘outrageous’

The 51% stake in SAA was awarded to Takatso only six weeks after the airline emerged from business rescue.

Takatso, with Gidon Novick – former Comair CEO, Kululu co-founder and new airline Lift co-founder – as CEO at the time, was to inject R3 billion into SAA, but that has not yet happened.

READ MORE: Govt accidentally reveals SAA’s real value and it’s less than you think

The main player in Takatso is the African infrastructure investment group Harith General Partners, and Global Aviation would have brought the airline expertise. Global Aviation and Novick have since left the consortium because they were kept in the dark about developments at SAA.

DA MP and member of the standing committee on public accounts (Scopa) Alf Lees says the ANC in parliament is very likely hoping that the parliamentary legal advice on the Takatso deal will give them an excuse to maintain the secrecy around the deal that Gordhan seems to want to maintain. 

“From the outset of the Takatso deal, the DA has maintained that the R51 to be paid for the 51% of SAA shares was outrageous given that SAA was debt free and retained its assets including its fixed properties, routes and subsidiaries that are worth billions of rand.”

He adds: “The [R3 billion] supposedly to be made available by Takatso is not an equity injection but a provision of working capital, very likely in the form of a secured loan, over a three year period. This R3,0bil loan will likely be the first in line for profit allocations and/or dividends from bankruptcy payments.”

ALSO READ: Gordhan denies he interfered in Takatso deal to purchase SAA

Lees says there seems to be no doubt that Gordhan’s secrecy around the Takatso deal “is because it is a bad deal and very possibly in violation of the law, as claimed by Tlhakudi”.

“The Takatso deal is dead in the water and SAA must be fully privatised before the operational losses result in further taxpayer bailouts and that scare private buyers away.”

Promising expansion plans

Despite question marks about its ownership, SAA is planning large-scale expansion.

According to interim CEO Professor John Lamola, the airline plans to almost double its current fleet of 11 aircraft, all leased, to 21 by the end of this year. The optimal fleet size is 40 to 50 aircraft, he told Aviation Week Network. 

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While in business rescue, SAA scrapped almost all of its routes outside of Africa but has since resumed flights to São Paulo in Brazil and plans to resume its Perth route next month. Lamola says SAA will then rebuild a strong European network with 50% wide-bodied and 50% narrow-bodied aircraft by 2028/29.

Aircraft leases

Financially, things are however not looking good.

In the nine months to the end of December, SAA expected a profit of R92 million but instead recorded a loss of R776 million. 

This comes as aircraft leases are more costly than ever. The two big manufacturers, Boeing and Airbus, are battling to deliver on orders, and airlines can wait eight years from placing an order to taking delivery. 

During a recent webinar hosted by the aviation data service OAG, Deirdre Fulton, partner at Midas Aviation, stated that an increasing number of aircraft used by airlines are being leased. Due to the increased demand, lessors can now pick and choose who they do business with and thereby limit their risk, according to Jon Howey from the China Aircraft Leasing Group.

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This situation may continue for another four years, said Mark Dunnachie, head of commercial at ACIA Aero Leasing, at the same event. 

Aviation economist Joachim Vermooten says against this background lessors will be looking for certainty and the lack of it regarding SAA’s ownership may count against it.

Lees says SAA is, in his opinion, once again insolvent, but lessors may bank on some more government bailouts and proceed with leasing aircraft to the airline – but will provide for a hefty risk premium. 

The portion that can be recovered through ticket sales is limited due to market forces, which means the taxpayer will have to pick up the tab.

This article was republished from Moneyweb. Read the original here