eBusiness Weekly
This week, Public Enterprises Minister Pravin Gordhan appointed a new board at South African Airways (SAA).
The interim board – to be led by former tourism minister Derek Hanekom – replaces a skeletal structure that has been in place since the end of the business rescue process and was so threadbare its chair – John Lamola — simultaneously served as its CEO.
The state of SAA these days is largely a tale of the unknown. In December 2019, the airline was put into business rescue as a consequence of years of underperformance and mismanagement where bailouts were the only instrument keeping it afloat.
As the appetite for funding what has been regarded as a vanity asset diminished, National Treasury took the view that SAA’s continued existence has to be funded organically, rather than politically through bailouts.
But as the airline had ceded market share to low-cost airlines locally and to big international airlines globally, and also become notorious for declining cabin service quality, turning it around was a mission that eluded multiple boards and CEOs over the years.
The decline into business rescue, in the aftermath of the end of a long litigation process regarding SAA’s anti-competitive conduct that resulted in a R1.1 billion settlement in favour of Comair, represented the logical terminus for the airline.
Pandemic
Ironically, within weeks of the start of the business rescue process, the entire aviation sector came to a standstill as the Covid-19 pandemic kickstarted a global shutdown in human mobility and discretionary travel.
This period should have given SAA breathing space to address its affairs and decide its future scale and shape, while all competitors remained idle.
Regrettably – and rather unsurprisingly – the business rescue process became a tedious terminal tug of war between the creditors, unions, government and the rescue team.
A process envisaged by the Companies Act to take less than three months to avoid bleeding a wounded animal further took more than a year as various permutations were explored – with government’s insistence on saving it at all costs the primary point of contention.
In spite of the government’s hostility towards private enterprise taking ownership stakes in public entities, the Department of Public Enterprises (DPE) finally announced that it had undertaken a process of finding a strategic equity partner who would take up to a 51% stake in the ‘new’ airline.
Secrecy
The lack of details about the transaction and the department’s ongoing commitment to applying a private secrecy code in dealing with this public asset meant that not even parliament was able to explain the nature of the deal.
The mooted transaction price — R51 — for the Takatso Consortium to acquire a 51percent stake naturally invited uproar as the public struggled to understand what the value of the airline was and whether the transaction made sense. What became clear was that the transaction completion hinged on the state honouring one last set of payment obligations, incurred before the business rescue process when the state was the only shareholder.
In light of competing demands on the fiscus and the DPE’s information blackout, selling the idea of a few more billions going the way of SAA was so difficult, Treasury simply refused to even try. As a result, although multiple budget statements have been issued since the announcement of the Takatso deal, the public funds that have been made available to complete the process are nowhere close to what was requested.
More curiously, the airline continues to operate …
If one has to work on the assumption that Takatso is not involved in the current operations and the airline is running profitably, it has to be asked whether there is still a case for Takatso to actually get involved at all.
If the airline — whose financial statements are regarded as an optional extra by its board — is running profitably, it indicates that after many years of trying, the government has found a formula for running the airline.
If not, it simply means that the old, accumulated liabilities that have been the point of contention between the DPE and Treasury are actually increasing with every loss-making flight that takes to the skies. Both propositions invite further complications.
If the case is that the government has finally found the formula of running an airline, the foundations of that formula would be all the difficult decisions that the government previously blocked for political reasons that were only implemented by the business rescue team.
In this case, given the fact that the business rescue team is gone and the politicians are still there, all we have is a temporary reprieve until the next set of political figureheads screw it all up again.
The interim nature of this new board suggests the DPE still believes a deal will materialise that will result in the reconstitution of the board to involve the strategic equity partners.
Skullduggery
Last week, the suspended director-general of the DPE Kgathatso Tlhakudi – who previously championed and defended the secrecy clause on the SAA deal and insisted that absolutely everything was above board — suddenly had a Damascus moment and suggested the entire transaction was allegedly subject to skullduggery. Given Tlhakudi’s dual role as the enforcer and defender of the secrecy where not even parliament could access the information, it is difficult to know where the facts end and invective begins.
The good fortune for SAA so far is that its historical backlog in producing financial statements means it can simply argue that even the current state of financial health cannot be disclosed until the prior years have been resolved. This merely buys breathing room that in the long run gets us nowhere.
Eventually, this new board will have to provide the annual financial statements of SAA in its current form —Moneyweb
