SAA deal in crisis as Gidon Novick resigns from Takatso board

14th November 2022

By: News24Wire


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Gidon Novick has resigned from the board of SAA's chosen equity partner, the Takatso consortium, citing concerns about a lack of communication and the consortium's ability to raise enough money.

This deals a serious blow to the long-delayed strategic equity partnership between South African Airways (SAA) and Takatso. Takatso consists of the infrastructure investment firm Harith as majority shareholder, and minority shareholders Global Airways, a full-service leasing company which owns airline LIFT, and an airline management company founded by Novick. Novick represented the minority shareholders on the Takatso board.

He told News24 on Monday that he resigned amid concerns about being able to fulfil his fiduciary responsibilities as a director of Takatso given "a lack of information and communication".

"Despite several requests for information and updates we're in the dark as the progress of the transaction, the ability of the consortium to raise the capital committed and our role in the business going forward," says Novick.

The Department of Public Enterprises, SAA's shareholder, announced more than 18 months ago that it chose the Takatso Consortium as a strategic equity partner to take a 51% stake in the airline. Takatso was supposed to provide the technical skills and leadership for a relaunched SAA – and commit about R3 billion as a much-needed cash injection over two years. The most recent reasons given for the delays are various outstanding regulatory approvals.

Investment firm Harith is the majority partner in Takatso and is responsible for raising the necessary capital. The Public Investment Corporation (PIC) has a 30% stake in Harith, which owns infrastructure assets, including Lanseria airport.

"Our team invested significant time and energy into this project. Our goal was to make a real difference to this country by turning a hugely problematic state-owned enterprise into a global success and a South African case study for government and private sector cooperation. Something that South Africans would be proud of," says Novick, who was co-CEO of operator Comair during its decade-long period of profitability from 2001 to 2011 and more recently co-founded LIFT.

"We've seen with LIFT the breadth and quality of the talent this country has and our uniquely hospitable service culture, a critical competent of the competitive global airline industry."

SAA relaunched its commercial services in September last year without the Takatso deal having been finalised and remains under full government control.

"We have not giving up and remain completely committed to assisting wherever we can. We've opened up discussions with the SAA leadership team to explore areas of cooperation in the interim. In an industry as small as ours, airlines need to work together. LIFT is becoming a very strong player in the domestic market while SAA has great potential to re-establish its regional African network," says Novick.

Regardless of having resigned as a director, Novick said his group, including Global, would retain its minority stake in Takatso.

Historic debt

Takatso has always made it clear that it is not prepared to take on any of SAA's legacy debt. This money must still be paid in terms of a so-called receivership, created in March 2021 to allow for SAA to be regarded as a solvent so that it could exit business rescue in April 2021.

At the time of its creation, SAA's remaining debt of about R3.5 billion due in terms of its business rescue plan was placed in this "special-purpose entity". In his recent medium-term budget, Finance Minister Enoch Godongwana did not provide any funding for the receivership. The DPE is unhappy about it, as it could further delay the finalisation of the Takatso deal.

The receivership debt is due to concurrent creditors, lessors, and unflown ticket liabilities in terms of the approved business rescue plan. Payments in terms of the receivership were to be made over three years. Two of three payments have already been made, and the last is due in August 2023.

In July, SAA's interim chair and CEO Prof. John Lamola was upbeat about the airline's chances of surviving even if the Takatso deal is "delayed indefinitely". He said the airline was maintaining a positive cash flow and making "sufficient money" as it benefits from strong passenger demand following the demise of Comair, which is currently in provisional liquidation.

He said SAA is developing a plan to reposition it in the domestic and regional market as an airline that is not dependent on the fiscus - with or without a strategic equity partner.

The DPE and SAA were not interested in keeping SAA's low-cost airline Mango as part of the deal. Mango is currently in business rescue and looking for a buyer.

Edited by News24Wire



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