The semi-privatisation of South African Airways (SA, Johannesburg O.R. Tambo) remains mired in politics, with a minority strategic equity partner (SEP) refusing to be sidelined as proposed by South Africa's competition watchdog.

Global Aviation Operations (GE, Johannesburg O.R. Tambo) and management consultancy Syranix deny they agreed to divest from the Takatso consortium, the government's preferred SEP, as a condition for regulatory approval of the deal. "We have not agreed to divest from Takatso/SAA and remain open to finding a way to share the deep local skills and experience we have in order to build a sustainable regional and international airline and an iconic South African brand," Global Aviation/Syranix representative and former Takatso CEO Gidon Novick told ch-aviation.

The Competition Commission, an advisory body, has recommended that the country's decision-making Competition Tribunal approve the proposed sale of 51% of SAA to Takatso. But first, it wants Takatso's minority partners – Global Aviation/Syranix – to divest from the consortium fully. This follows competition concerns over Global's ownership of Lift Airlines (LIFT), which competes domestically with SAA. "The merging parties have therefore agreed that Global Aviation and Syranix will completely divest from Takatso prior to the merger," the Commission said in a statement. It said the parties initially rejected the divestiture and certain employment conditions resulting in the Commission first deciding to recommend a prohibition of the merger. "It was only after the merging parties agreed to the imposition of the remedial conditions initially proposed by the Commission which include divestiture conditions and a moratorium on merger-related retrenchments and to maintain a minimum number of employees at SAA, that the Commission has now recommended conditional approval of the merger."

If Global/Syranix remained, the merger would likely result in a "substantial lessening and prevention of competition in the domestic passenger airline market," the Commission found. "That is because the merger will likely facilitate the exchange of competitively sensitive information between SAA and LIFT through Global Aviation and Syranix having shareholding and the ability to appoint directors to Takatso's board of directors. Takatso will have access to SAA's competitively sensitive information by virtue of its majority stake in SAA, pursuant to the proposed merger. This concern is further exacerbated by the fact that the domestic passenger airline market is highly concentrated, barriers to entry are high and are amendable to coordinated effects".

But Novick disputed this view: "If our skills are no longer required, we will remain as minority shareholders without board representation and with no access to any competitively sensitive information. LIFT's focus is currently on the domestic trunk routes (not regional/international). It's common industry practice for airlines to cooperate in several ways, an example being SAA and Airlink (South Africa) previous [franchise] partnership." He also noted that the Department of Public Enterprises (DPE) previously owned stakes in four South African airlines simultaneously - SAA, Mango Airlines, South African Express, and Airlink.

Asked if Global/Syranix would dispute the Competition Commission's recommendation before the Competition Tribunal, Novick said it would be up to Takatso to do this as the minority shareholders did not control the SEP. He said the Global/Syranix's legal teams were looking into "various permutations".

Painting the background to the SEP deal, Novick said: "We were approached by the DPE to acquire a 51% stake in SAA early in 2021 when LIFT was already operating.

"At the request of the DPE, we partnered with [asset management firm] Harith [General Partners] to form Takatso - our team responsible for industry expertise as minority shareholders and Harith as majority shareholder were to supply the funding. Our team spent several months putting a deal structure together as well as building and presenting a sustainable business model for SAA going forward." However, over the course of 2022, Novick was not updated on the progress of the transaction nor the raising of the funding. This culminated in his resignation from the Takatso board.

Novick said he remained in the dark about how Harith intends to generate a promised ZAR3 billion rand (USD155 million) cash injection into SAA over three years to fund operations once the sale is approved.

Speaking at the 31st African Aviation Summit and Air Finance Africa 2023 conference in Johannesburg on May 12, SAA interim CEO Johan Lamola said "paperwork" specified that Harith would raise fresh capital and not leverage SAA's assets to raise the money. "Based on my understanding of the future shareholder, there is an understanding that the injection of the SEP capital will enable SAA to go to the capital markets to raise more funds," he said.

Meanwhile, the South African government, through the DPE, has welcomed the Competition Commission's conditional approval as "a significant step towards the completion of the deal".

The transaction has been under review by the Competition Commission since June 2022. If the Competition Tribunal approves the merger, the DPE will retain a 49% shareholding in SAA.