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South Africa’s troubled state-owned airline is seeking a new strategic partner to provide fresh capital, after the latest attempt to secure a deal with a private investor collapsed last week.
South African Airways chief executive John Lamola said in an interview that a global “strategic or equity partner” would ideally be followed by a listing on the Johannesburg Stock Exchange. He added that the carrier last year made its first profit since 2011.
“You can’t have an airline run entirely by the government. The best scenario would be to list SAA on the stock market, in which the South African government would still have a ‘golden share’ to ensure the country’s strategic economic interests are protected,” he said.
The government reached an agreement in principle in 2021 to sell a 51 per cent stake to the Takatso Consortium — a private grouping led by pan-African infrastructure company Harith. But the deal unravelled last week after disagreements on price and political opposition to privatisation from within the governing African National Congress.
SAA has received R50.7bn ($2.7bn) in bailouts over the past 16 years and has a history of political interference that has led to much boardroom upheaval. However, unpublished accounts for the year to March 2023, now being audited, show that SAA turned its first profit in more than a decade, Lamola said. “Some will say this is a modest profit but, given where SAA is coming from, I wouldn’t say this is a modest achievement at all.”
The carrier wants fresh capital to fund an expansion that would reverse its decline amid the financial troubles of the past decade.
Lamola, who has been interim chief executive since May 2022, said some private ownership was still vital to allow the 90-year-old airline to revive its goal of becoming a “global brand”. A listing would bind the airline to a higher level of accountability, he said. “If you were to leave this just to the government and a single investor, the airline will still be subject to the vagaries of who is in power at any one time.”
While no formal talks have yet been held with another potential partner — ideally another airline that could also share expertise, insiders say — Lamola says “by the middle of next year, there must be a concrete and solid plan”.
Questions remain about how much the airline is worth. When the Takatso agreement was struck in 2021, SAA was valued at R2.4bn ($142mn). Yet last week, the government said “market conditions have changed”, as the value of SAA’s property — largely land and buildings — had more than doubled to R5.5bn, valuing the airline at R6.5bn.
A previous attempt to bring in a private investor failed two decades ago: Swissair bought a 20 per cent stake for R1.4bn in 1998 but ended up selling it back to the government for R382m three years later.
The quality of the airline’s financial statements has been questioned. The country’s auditor-general said in a report to parliament that it was unable to express an audit opinion on the company’s accounts for the four years to 2022, which recorded a combined loss of R23.5bn, as it was “unable to obtain sufficient appropriate audit evidence”.
The airline “did not implement proper record keeping”, and “a material uncertainty exists” as to whether it can continue as a going concern.
Joachim Vermooten, an aviation economist, said the audit report showed that “until you have a proper accounting system in place, you’re unlikely to find many investors.”
Vermooten said the accounts showed the airline was under-capitalised. “It needs capital to build routes, and the question is where will this come from. The government will need to consider whether to put in more money,” he said. Lamola said the accounting problems had largely been resolved.
Gidon Novick, the founder of domestic airline Lift, said the country’s aviation market had “changed dramatically” in the past few years. “There is robust competition domestically with highly efficient operators, regional gaps have been filled and, internationally, we have the world’s best airlines serving Jo’burg and Cape Town.”
Novick was initially part of the Takatso consortium that bid for the SAA stake, but withdrew last July at the behest of antitrust authorities given his involvement in Lift.
Lamola said his intention was to “become a mid-sized airline that focuses on the intercontinental links needed to benefit South African trade and tourism. We’re not going to have an airline that competes in the local [market] with low-cost carriers,” he says.
He also believes — despite SAA’s record — that this can be done profitably. “For the next two financial years, there’s enough cash and enough operational scope that the business will have no financial issues. We don’t even have an overdraft,” he says.
