SAA-Takatso deal: Competition Commission finalises tribunal submission

The recommendations the Competition Commission (CompCom) will be making regarding the Takatso consortium’s controversial proposed acquisition of 51% of South African Airways (SAA) are currently being finalised.

CompCom spokesperson Siyabulela Makunga confirmed this week that the commission will soon release a statement about its recommendations regarding the proposed transaction that will be submitted to the Competition Tribunal for consideration.

The commission could recommend that the tribunal approves the transaction without conditions, approves it with conditions, or even prohibits it. However, it is remaining tight-lipped about its analysis of the proposed transaction.

Power to control domestic prices

This includes declining to respond to claims that problematic issues – such as the transaction’s impact on competition in the domestic airline industry – have delayed the finalisation of its recommendations.

Takatso, a special purpose vehicle established to acquire a 51% shareholding in SAA, is majority-owned by Harith General Partners (Pty) Ltd, with Syranix (Pty) Ltd and Global Aviation (Pty) Ltd as minority shareholders.

An airline industry competitor is reportedly concerned about the impact of the transaction if Global Aviation is not forced to divest from South African airline Lift, which currently operates domestic routes from OR Tambo International Airport in Johannesburg using a fleet of Airbus A320 aircraft leased from Global Aviation.

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The concern from a competition perspective is apparently that SAA and Lift will together have the power to influence or control ticket prices in the markets in which they operate, thereby exploiting consumers and potentially also excluding competition.

This potential conflict of interest between Lift and SAA apparently prompted the recent resignation of Lift co-founder Gidon Novick from the Takatso board.

The exit from the market at the end of 2022 of Mango and Comair, which operated scheduled domestic flights as a British Airways (BA) franchisee and its own low-cost airline under the Kulula brand, has added to the complexity of the Competition Commission’s analysis of the proposed transaction.

This stems from claims that the airlines still operating in the domestic market are taking advantage of the reduced airline seats available by significantly increasing the cost of air tickets.

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Fair and transparent

The Department of Public Enterprises (DPE) last week attempted to clarify the SAA-Takatso deal and stressed that it has followed a fair and transparent process in its pursuit to achieve the government’s objectives of finding a strategic equity partner (SEP) for SAA after the airline’s exit from business rescue.

It said the selection of the SEP aimed to bolster SAA’s competitiveness in a cut-throat market, ensure its commercial viability and sustainability, and contribute positively to the country’s economy, instead of burdening the fiscus.

The DPE said it is satisfied with Takatso as the SEP, particularly with Harith’s interest in growing its transport platform, largely aviation, to complement existing related assets.

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The DPE rejected suggestions that Takatso will not be able to raise the necessary capital to grow SAA, claiming that these are unfounded because Harith has already raised funds from a diversified investor base and obtained internal approvals for their equity contribution.

In terms of the proposed transaction, Harith – as Takatso’s majority shareholder and funder – has to raise the R3 billion in capital committed to SAA.

Track record in Africa

The department said it is also satisfied with Takatso shareholders’ track record of building a portfolio of assets across the continent, contributing to the African narrative of large-scale, impactful infrastructure projects.

It said its due diligence was reinforced by shareholders who demonstrated the requisite financial, empowerment, technical, and governance credentials.

“As such, any suggestions that Takatso might be unable to raise the necessary capital to support SAA’s growth are unfounded. This is particularly true considering that Takatso’s financial partner, Harith, has a history of raising funds from a diversified investor base,” the DPE said.

“To our knowledge, Takatso has already secured internal approvals for their equity contribution in this endeavour,” it added.

Commenting on the outstanding R3.5 billion required to finalise SAA’s business rescue process, the DPE said the Minister of Finance allocated R1 billion towards this in the February Budget, with the outstanding amount to be provided by the government.

SAA’s widely-publicised financial difficulties led to the launch of the business rescue process in December 2019.

This article originally appeared on Moneyweb and was republished with permission. Read the original article here.

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