South Africa's outgoing public enterprises minister, Pravin Gordhan, has revealed the controversial ZAR51 rand (USD2.72) sale of 51% of South African Airways (SA, Johannesburg O.R. Tambo) to the Takatso Consortium - the preferred strategic equity partner - is being renegotiated due to changed market conditions and revised valuations.

Gordhan – who is retiring from politics after the country's upcoming elections on May 29 – held a media briefing in Cape Town last week during which he shared a confidential letter to Parliamentary Portfolio Committee on Public Enterprises chairman Khayalethu Magaxa on why various documents relating to the Takatso transaction should remain secret.

"Please note that negotiations on this transaction are continuing to take cognisance of current market conditions and revised valuations. There is no certainty as to the outcome of this process. However, in the absence of an agreed amended Sale of Shares Agreement, the conditions of the original Sale of Shares Agreement remain legally binding," Gordhan disclosed in the letter. He warned about potential legal consequences should certain documents be released, particularly an evaluation report on shortlisted parties by Rand Merchant Bank (RMB), Takatso majority shareholder Harith General Partner's Expression of Interest, and the Sale of Shares Agreement and Addenda.

The committee is investigating longstanding accusations against Gordhan by former Department of Public Enterprises (DPE) Director-General Kgathatso Thlakudi, who alleged wrongdoing in the Takatso deal and questioned the valuation of the national airline. Gordhan refuted these claims, charging that Tlhakudi's allegations were aimed at distracting from disciplinary charges against him. Tlhakudi was eventually dismissed for gross misconduct.

Meanwhile, Tlhakudi has shed doubt on the authenticity of some of the documents, particularly a so-called Molisane Memorandum, which is at the centre of the controversy surrounding the SAA/Takatso deal evaluation process, reports Business Report. The Molisane Memorandum allegedly stated that an option to be tested was for Harith and former partner Global Aviation Operations (GE, Johannesburg O.R. Tambo) to combine as the two bidders. The document was reportedly drafted by Jacky Molisane, a deputy director-general, and signed off by Tlhakudi.

The Portfolio Committee only obtained the documents via subpoena following a prolonged confrontation with Gordhan. It plans to review legal guidance and decide whether to conduct a partial or complete in-camera hearing with Gordhan in upcoming deliberations this week.

South Africa's Sunday Times reports the Cabinet and the ruling African National Congress (ANC) are pushing to review the Takatso transaction to ensure that the government retains a majority share in SAA, which has resumed flying and is opening new routes after having exited business rescue on April 30, 2021, following a ZAR10.5 billion (USD561 million) bail-out by taxpayers.

Damning Auditor-General report

However, a recent South African Auditor General report reveals that the government, in fact, has injected ZAR38.1 billion (USD2 billion) since April 1, 2018, of which ZAR27.6 billion (USD1.4 billion) was deposited post-business rescue. The audit report follows the completion of outstanding audits for the financial years 2018-19, 2019-20, 2020-21 and 2021-22, with SAA having tabled a 2022-23 annual report in December 2023.

Crucially, the Auditor-General placed a disclaimer on all four sets of SAA's accounts, being unable to express an opinion on the audits due to inadequate record-keeping, misstatements, and a lack of critical skills and capacity at the SAA Group to prepare credible financial statements. "A disclaimer of opinion on the financial statements renders the financial statements not reliable for purposes of decision making and compromises the effectiveness of oversight," he states.

According to the Auditor-General, the DPE has completed a revised valuation of SAA, to which he has not yet had access.

The regulator raises serious concerns regarding the SAA group's non-compliance in managing procurements, contracts, expenditure, and revenue, highlighting "material errors in the financial statements submitted for audit" and non-compliance with "governance and performance planning and monitoring prescripts". "Irregular expenditure increased from ZAR22 billion (USD1.1 billion) to ZAR44.5 billion (USD2.3 billion), whilst fruitless and wasteful expenditure increased from ZAR24.8 million (USD1.3 million) to ZAR207.3 million (USD11 million) over the four-year period subject to audit. Non-compliance with procurement prescripts remains the largest contributor to irregular expenditure."

According to the Auditor-General, inadequate action has been taken against officials who violated supply chain management regulations, leading to ongoing non-compliance and irregular spending. Management has failed to consistently apply consequence management to hold staff accountable for disregarding legislation and implemented policies.

Conditions affecting SAA as a going concern include:

  • Slow progress in implementing the expansion plan, crucial for the airline's future;
  • Ongoing reliance on shareholder funding to complete the business rescue plan;
  • Uncertainties regarding the timing and completion of the Takatso deal; and
  • Persistent challenges with repatriating funds from foreign jurisdictions.

The Auditor-General notes that the pending Takatso transaction has diverted attention from establishing governance structures within the airline, primarily due to uncertainties surrounding the timing of arrangements. He advises prioritising stability at the board level; full implementation of the business rescue plan; securing remaining recapitalisation funds from the National Treasury; addressing operational challenges; and enhanced performance monitoring against mandate and service delivery objectives.

Takatso minority shareholder divests

Meanwhile, Global Aviation Operations/Syranix director Gidon Novick told ch-aviation the minority partner in Takatso has found a buyer for its 20% share in the consortium and the 10.1% share it would have owned of SAA. ACMI specialist Global and management consultancy Syranix were forced to divest from the Takatso consortium last year over concerns regarding the Global-owned Lift Airlines (GE, Johannesburg O.R. Tambo) brand, which competes domestically with the national carrier.

Takatso, led by majority partner Harith General Partners, is set to acquire a 51% controlling stake in the SAA Group. It will inject ZAR3 billion rand (USD167 million) in operational capital into SAA over two years in exchange for the nominal ZAR51 purchase price. DPE will receive ZAR3 billion worth of preferred shares in SAA and retain a 49% equity stake, along with a "golden share," ensuring a long-term national strategic interest in the airline. Part of the deal is for the government to cover SAA's legacy debt.