Sale Of South African Airways Collapses After 3 Years Of Negotiation

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Summary

  • Sale of South African Airways collapses due to failure to agree on airline’s value, requires new corporate plan for expansion.
  • History of bailouts for struggling airline included controversial government support amid financial difficulties.
  • Takatso Group’s unsuccessful purchase attempted privatization, with evaluations varying significantly on airline’s worth.

After three years of negotiations between the South African government and the Takatso consortium, both parties failed to agree upon the airline’s value, resulting in the collapse of a long-awaited deal for South Africa to sell its share of the airline.

The government announced the mutual termination of the agreement. On Wednesday, the Department of Public Enterprises, which oversees the airline, will continue with a new corporate plan to expand South African Airways‘ fleet and routes while bringing on a new aviation strategy advisor to support the airline.

As with many other airlines, South African Airways has struggled in the past few years. While every airline suffered setbacks from COVID-19, South African Airways saw itself struggling, requiring its government owners to bail out the airline multiple times in 2020 before the deal to sell 51% of the airline’s ownership to the Takatso consortium was originally announced.

Long history of bailouts

The first bailout of a little more than $1 billion was announced in February 2020, before lockdowns in the United States, Great Britain, and other nations across Europe served by the airline. At the time, the government said that money would help restructure the airline, which would receive an additional $1.2 billion four months later.

South African Airlines would receive another $640 million by October; by then, the pandemic had accelerated the airline’s difficulties. The goal of the $640 million bailout was to help rehire some of the 1,000 employees who were laid off by the airline as well as grow the fleet. The airline had returned more than 33 aircraft to lessors. Also, during this time, citizens in South Africa organized boycotts of the airline in opposition to continued financial support.

That’s when the Takatso Group entered the picture, agreeing to purchase the majority of the airline. The deal to privatize the airline was unique for South Africa and generated discussion at the time. The Takatso Group itself was a consortium of owners, including Harith General Partners and Johannesburg-based Global Airways. Harith General Partners’s board includes South Africa’s former deputy finance minister, Jabulani Moleketi.

Photo: South African Airways

For the sale to take place, both the Takatso Group and the government had to agree on the value of the airline, which is where the problems began. According to a statement, multiple evaluations of the airline varied between around $1 billion and $53 million (R5 billion, R1 billion). These numbers would seem low, but these are measures of what the airline owns, as well as what it owes.

During this evaluation process, South African Airways received at least two more bailouts from the government — the first bailout in February 2021 of $342 million. By this time, the bailout was very controversial in South Africa after the airline had originally gone bankrupt in 2019. The airline would receive another $55 million last year.

During the press conference announcing the failure to reach a deal with Takatso Group, the Minister of Public Enterprises, Pravin Gordhan, announced that there would be no more bailouts for the airline. “There is no reliance on government itself. It (SAA) must run its operations as efficiently as it can,” Gordhan said.



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