The semi-privatization of South African Airways (SA) has been a subject of controversy for some time now. The latest news in the ongoing saga is that a minority strategic equity partner (SEP) is refusing to be sidelined as proposed by South Africa’s competition watchdog. This development has further mired the semi-privatization process in politics, leaving it with an uncertain future.
Global Aviation Operations (GE) and management consultancy Syranix have denied 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. However, it wants Takatso’s minority partners – Global Aviation/Syranix – to divest from the consortium fully, following competition concerns over Global’s ownership of Lift Airlines (LIFT), which competes domestically with SAA.
“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.”
The Commission also noted that the domestic passenger airline market is highly concentrated, barriers to entry are high, and are amendable to coordinated effects. This is why the Commission wants Global Aviation and Syranix to divest fully from Takatso before the proposed sale can be approved.
However, Novick disputed this view, stating that “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.”
Novick also noted that the Department of Public Enterprises (DPE) previously owned stakes in four South African airlines simultaneously, including SAA, Mango Airlines, South African Express, and Airlink. This is further proof that the concerns raised by the Competition Commission may be unfounded.
The ongoing tussle over the semi-privatization of SAA highlights the complex nature of the aviation industry in South Africa. The decision-making process is often fraught with political considerations that can make it difficult to find a resolution that is satisfactory to all parties involved. As the saga continues to unfold, it remains to be seen whether the semi-privatization of SAA will ever become a reality or if it will be derailed by politics.
