It’s a brave team that is buying into grounded national carrier SAA. But the deal to take a 51% stake, in the first privatisation in years, has raised a raft of questions, as well as suspicion that the private consortium, Takatso, is simply a channel for government money into the purchase — something the Public Investment Corp (PIC), which owns 30% of consortium member Harith, denies. The other partner is Global Aviation, owner of start-up airline Lift. The FM spoke to Takatso CEO Gidon Novick.
Why announce a deal before the due diligence is complete?
GN: Well, it’s subject to the due diligence.
So you could still pull out?
GN: We know enough to be very confident that it will happen, but you’ve got to do a due diligence, especially on a company that’s gone through what SAA has gone through.
There is, I guess, one counter-factor: all existing liabilities will be settled by the DPE [department of public enterprises] and in that context, it mitigates some of the risk.
That also means the state — in other words, the taxpayer — has assumed 100% of the liabilities for you to enjoy 51% of any future upside. Nice deal.
GN: The future has got to be a profitable future. So it will be prosperous if we make it prosperous. It basically needs to be restarted and that’s where we’re coming from. We’ll have to make it a golden deal.
Where’s the capital coming from? And do you know how much you need?
GN: No — and that’s part of the exercise, not only on the due diligence but the business plan.
One thing which is really important in the context of where we are today is that the flexibility one needs, particularly in the travel industry, is significant, and we are approaching it from the point of view that there will be maximum flexibility in every decision that we make.
We certainly don’t intend making gigantic commitments without really understanding the return of the travel market, the long-term impact on business travel, the opening up of borders, et cetera.
It’s not one giant bet, which old airline business models were.
Does that imply that you start with local routes first and only?
GN: Local is a fairly known quantity and we know it intimately well.
However, it’s certainly not the endgame. Regional is massively important, as it was to the old SAA, and that must return and will return, but obviously on a measured basis. Covid has really decimated a big chunk of the African aviation industry and that in itself creates opportunities we need to get onto quickly.
Does SAA still own the rights to the routes it used to have or does it have to reapply?
GN: The honest answer is that I don’t know. We’ll be doing whatever we can to renew or get those rights and it’s a really important part of the picture.
Another crucial element of that picture is whether SAA will operate under its own aircraft operating certificate or Global’s.
GN: Again, in terms of the most efficient way to start, there is a great capability that we have within Global. It’s an infrastructure we can easily scale up and that may well be the most efficient way to get started quickly.
It also prompts the question in terms of the aircraft the new SAA will use: will they be on a dry-lease basis from Global, or on the higher-margin aircraft, crew, maintenance and insurance (ACMI) basis?
GN: ACMI is a very flexible mechanism and it’s what airlines have used around the world to supplement capacity to get going quickly on routes and to avoid the process of contracting on long-term leases. It’s seriously being considered. It’s not necessarily a long-term solution.
But then what happens to SAA staff? The pilots? SAA Technical? If you lease planes on an ACMI basis, they’ll all be redundant.
GN: You’ll be aware they’ve gone through a massive retrenchment programme. Our approach is to get the airline up and running on the right efficient platform and find the most effective way to do that. We’re not coming from the point of view of protecting this or that, and I guess prolonging the legacy that didn’t work in the past.
The question is also whether those leases struck by Global with the entity are done on proper commercial terms, or if they will favour Global.
GN: I think that what’s really important here is that there’s private capital coming into this thing and there’s capital that needs a return on investment.
This capital doesn’t particularly care whether operating model A, B or C is adopted.
It’s quite interesting to me, because that psychological shift is almost impossible for a lot of people to get their heads around.
There has been so much legacy that this idea of a commercially run entity with private capital demanding a return …
People ask: "How can that be?!"
There is scepticism about the involvement and ownership of Harith — that the PIC owns 30% of it. It does mean the PIC is an indirect shareholder. Are you fully independent? And will you be making commercial decisions?
GN: I can only give you my perspective: putting my and my team’s reputation on the line, putting in probably a decade’s worth of effort into this enterprise, and it’s got to work and be successful. We’ve had a look at Harith and there’s nothing that bothers us as partners.
Are you equal partners?
GN: They are the majority partners because one of the requirements was that the consortium was black-owned. We’re still working out the nuts and bolts of the exact percentages.
How did Takatso come about?
GN: Harith was one of the bidders for Comair — but we didn’t know them then. Our paths crossed about four months ago or so.
We had a very strong common interest — outside of SAA, just in the potential of aviation in Africa, and then we said: "Well, what about SAA?" We’d had some discussions with the DPE and they’d had discussions, and the DPE said: "Well, why don’t you guys talk to each other?"
Maybe it’s early days but it feels to me like a dream partnership: you’ve got a capital provider in Harith and a very experienced manager of long-term investments, you’ve got our group with deep aviation experience and ambition, and you’ve got government who understands the politics and regulatory side and international relations. The key thing with this deal is that all the skill and expertise and IP and systems that have been built [for Lift] will be transported into the start of SAA.
Were you aware of any other bidders? It doesn’t seem to have been an open process.
GN: You’ll need to talk to the DPE about that. We were aware of international airlines being interested. To be honest, I don’t particularly care — we thought we had a compelling pitch, and the DPE wanted certain things that we were prepared to compromise on.
The most important thing they were prepared to do was give up control, and when that came through that reality opened up the space to do a deal
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