The South African government has short-listed three potential strategic equity partners (SEPs) for its bankrupt flag carrier and will make a decision on which one to pick in “the next month or so,” according to Public Enterprises Minister Pravin Gordhan.

He told Bloomberg TV the newly appointed interim board of South African Airways (SA, Johannesburg O.R. Tambo) was engaging with the bidders before the government would make its decision.

This was confirmed to ch-aviation by Department of Public Enterprises (DPE) spokesperson Richard Mantu. "The Department, assisted by the transaction advisors, has identified three Strategic Equity Partners. The interim board is currently engaging with all three parties subsequent to which Government will make a decision about which recommendation of the board will be suitable as SEP for SAA," he said.

DPE has engaged Rand Merchant Bank as the transaction advisor after receiving about 30 expressions of interest. It earlier this month said a decision on a SEP could be expected by March this year, following the expected conclusion of the business rescue process by the end of February and the establishment of a receivership to process claims by creditors and employees. SAA has been in administration since December 2019 and has been mothballed since September 2020. It hasn’t flown commercially since South Africa went into COVID-19 lockdown in March 2020.

DPE has steered clear of mentioning the names of interested parties. However, news reports have named Fairfax Africa Holdings, the listed subsidiary of Toronto-based investment firm Fairfax Financial Holdings; and – repeatedly - Ethiopian Airlines (ET, Addis Ababa) as interested parties. However, Ethiopian's Chief Executive Officer Tewolde GebreMariam said the airline was not interested in taking on SAA’s debt, nor in injecting cash into the airline.

More recently he said it was in fact keen on a management deal, providing aircraft, crew, and technical support as part of a joint venture with SAA. Ethiopian provides management and technical assistance to other airlines on a secondment basis. Signing up SAA would be a major coup for Ethiopian as it already commands the lion's share of the pan African network of east-west flights across the continent. Analysts have cautioned such a deal would relegate SAA to becoming a feeder to Ethiopian’s hub at Addis Ababa, a market dominated by Ethiopian Airlines and protected by its government.

In reality, it appears Ethiopian Airlines has been making slow progress in talks with SAA. Speaking during an online CAPA conference recently, Gebremariam said discussions with the South African government “have been a challenge so far”. “We are still discussing, but I would say it has not made the expected progress,” he said.

He noted the difference between Addis Ababa and SAA’s end destination-focused traffic at its Johannesburg O.R. Tambo base, a deregulated market that was highly competitive and served by major world airlines. “To succeed in that market, one has to be inside South Africa,” he said, adding, “the only way we can look at opportunities is if we cooperate with South African Airways”.

Meanwhile, SAA's administrators have confirmed to ch-aviation that they have to date received ZAR7.8 billion (USD540.7 million) of the ZAR10.5 billion (USD727.2 million) in state aid - controversially diverted from other government departments- to implement SAA's rescue plan. Of this, they received ZAR5 billion (USD346.6 million) on February 12. The administrators were now processing voluntary severance packages taken by 3,246 employees at the end of August 2020, when they effectively resigned from SAA. So far 85% of employees had been paid in terms of the settlement agreement. A receivership would be established once all funding was received, confirmed the administrators' spokesperson, Louise Brugman.

She also confirmed the administrators were still trying to sell SAA's remaining six A340-600s and five A340-300. "Some are being used to assist with cargo requirements. These cargo arrangements are straightforward commercial arrangements, which are paid by the contractor to SAA," she said.

The business rescue process has been delayed by legal battles as trade unions NUMSA, SACCA, and SAAPA cumulatively launched at least four applications against the administrators over the past year. In the latest decision, South Africa’s Labour Court on February 7 dismissed with costs an application by the National Union of Metalworkers SA and the SA Cabin Crew Association for the administrators to reopen applications for a three-month offer in lieu of back paid salaries. The process closed last week with a further 163 employees taking up the offer, increasing the take-up to 85% of all SAA employees including those who took voluntary severance packages. Negotiations with the pilots were continuing, Brugman said.

Administrators Les Matuson and Siviwe Dongwana in a statement afterwards said the unions' use of the courts had hampered the business rescue process and in many instances had been based on misguided arguments.

Editorial Comment: Updated with statements from DPE and the administrators. - 16.02.2021 - 11:56 UTC