JAUNDICED EYE

It’s extremely rare for governments to make major announcements late on a Friday, just as everyone is settling into a weekend stupor.

If they do, it’s either war has broken out or, more likely, some devious politician is trying to slide something past our TGIF-addled brains. So Public Enterprises Minister Pravin Gordhan’s pre-weekend Happy Hour news regarding the fate of South African Airways, deserves the scepticism that is slowly overtaking the relief with which it was initially met.

At first sight, what’s not to be happy about?  Not only had Gordhan found a consortium to untangle the dead SAA albatross around the taxpayer’s neck — R10.5bn in bailouts in the past decade, with another R57bn going back to 1994 — but these nice gentlemen are giving us some magic beans for the privilege of shouldering that foulsome burden. 

In any case, not just a handful of beans. A cool R3bn of them. 

Disappointingly, in the thin, mean light of a wintry Monday morning, it became clear that the deal wasn’t quite the financial coup that our Marxist Titan of Wall Street had pitched it as. 

First, they weren’t actually buying SAA; the R3bn would be “put into” SAA over three years, as the consortium’s CEO Gidon Novick carefully phrases it. Second, the taxpayer wasn’t actually getting rid of SAA as a single, rusting hulk but only the bits that could conceivably be knocked into an aeroplane shape; all its considerable existing liabilities remain the responsibility of the Treasury.

And, by the way, the 49% stake retained by the state comes not only with the golden share privileges that Gordhan is trumpeting — guaranteed race transformation, South African domicile, and retention of the name — but also with the normal drab responsibilities of any shareholder. In other words, the South African government remains the final point of call if the new entity runs short and needs a cash injection or, heaven forbid, to guarantee a loan. ___STEADY_PAYWALL___

There’s some murkiness, too, on how Takatso got the nod. Hiding behind “routine” non-disclosure agreements, Gordhan’s department is cagey about who was interested, who was shortlisted and how Takatso was chosen. It says about 30 expressed some form of interest at some time or another and, in the end, it came to “about five”. 

There’s some suspicious evasiveness here. One can understand someone referring to “about a million”, or “around a thousand”, but not “about five”. In spite of South Africans’ notorious lack of numeracy, even the most challenged government spokesperson should be able to say whether it was four (one hand at use) or six (two hands at use).

The Takatso consortium should more accurately be described as a suitor than a buyer. It still has to perform financial due diligence — the commercial equivalent of sifting through the bride-to-be’s dowry and sneering at the poor quality of the linen — which in SAA’s case will be the challenge of deciding which set of dubious accounting to believe from which set of creative financial executives. 

One suspects there’re lots of grubby undergarments that are going to be snuck into this particular trousseau. SAA’s most recent set of audited financial statements dates back to 2017, aptly the year that the Gupta Leaks brought the phrase “state capture” into our national vocabulary. Only draft financials were produced for 2018 and 2019, and 2020’s accounts remain perpetually “about to be finalised”, with 2021’s accounts now due.

Aviation industry experts I spoke to this week were uniformly pessimistic about the long-term sustainability of the deal. As one put it, “Sure, SAA will get lift-off, but can it still fly?”

An obvious problem is funding. Airlines burn money — about a third of a well-run operation’s costs are fuel — and when the fleet that you are inheriting is old and stale, there are daunting cost implications.

In the usual manner of those facing bankruptcy, SAA sold the silverware first. When it hit cash flow turbulence, SAA got rid of its modern aircraft.

While it can now enter into so-called ACMI (aircraft, crew, maintenance and insurance) arrangements, that’s typically the strategy of startups and budget airlines, not quite the style of a national carrier “flying the flag”.

This seems to be what Novick, whose Global Airways is one of the two legs of the Takatso consortium, is considering. He talks enthusiastically about the deals that can be done in an industry hard hit by the Covid pandemic. Given that he is a former CEO of Comair, who then co-founded Kulula and, more recently, LIFT, one can understand the appeal of some kind of “power-by-the-hour” arrangement.

However, it would probably mean outsourcing beyond our borders the flying crew and maintenance functions. That would sit uneasily with Takatso’s commitment to the government to prioritise transformation, especially since a jobs bloodbath already looms. SAA is proportionately, person-to-plane, one of the most over-staffed airlines in the world.

The unions may, however, spring into action long before that stage is reached, since they claim to have been kept entirely in the dark about the negotiations. As labour attorney Michael Bagraim points out, if this is true, the government hasn’t followed its own laws —   In terms of Section 197 of the Labour Relations Act a takeover of this nature has to be consulted and a memorandum has to be drawn up after the consultation.

In a US dollar-denominated industry, Takatso’s R3bn is not much of a “put in” for an airline. Even adding the R2bn that the Treasury previously committed to getting SAA flying by July, but which may already have been spent— it is speculated, to surreptitiously keep its Mango subsidiary and SAA Technical afloat — there’s not much room for manoeuvre.

Another challenge is destinations. While SAA was grounded, Qatar, Emirates and Turkish are among the airlines nibbling into the traffic to its most profitable international destinations. Regionally, Kenya, Ethiopia and Airlink have done the same.

That leaves domestic travel, where the market is crowded and the customers jaded. 

SAA will be competing with itself (Mango), as well as LIFT (a joint venture between Novick and Kulula), Kulula itself, Airlink, and FlySafair. This makes for highly competitive ticket pricing at the same moment that passengers (except for freeloading parliamentarians and government officials) are increasingly reluctant to pay a premium for business class travel, given the short hops between domestic destinations.

Despite the expert consensus that the Takatso deal won’t fly, or at least not for long, there was also agreement that if anyone could achieve the apparently impossible, it is Novick. He is highly regarded and, said one aviator who has firsthand experience of SAA, would quickly get rid of the “managerial neanderthals” who are running the show at present.

It will help that the other leg of the consortium is Harith General Partners, chaired by former Deputy Finance Minister Jabulani Moleketi. Moleketi also once chaired the Public Investment Corporation which — while swearing blind that it has-not-been and never-will-be tapped for a cent towards Takatso’s SAA relaunch — happens to hold a 30% stake in Harith.

Whatever the machinations among the wheels-within-wheels gearing for takeoff, the final decision on whether to fly with SAA lies with the public. A straw in the wind is an online TourismUpdate poll that this week found 64% of the respondents would not, 16% would, and 20% were undecided.

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There is no Jaundiced Eye column next week. It resumes July 3