SAA Sale Irregularity Allegations: follow-up evidence submitted to Parliament

The Portfolio Committee on Public Enterprises convened in Parliament for a follow-up meeting on the evidence submitted to the Parliamentary Legal Advisor on the allegations of irregularity on the South African Airways (SAA) transaction. The Legal Adviser clarified that the document was not a legal opinion or an appraisal of the commercial viability of the transaction in question. Rather, it was a briefing note addressing issues related to whether Takatso Consortium was part of the shortlist for the appointment of the preferred Strategic Equity Partner (SEP) for South African Airways (SAA). The transaction under review pertained to the disposal of shares, as regulated by Section 112 of the Companies Act. This section requires shareholder approval for the disposal of assets. In July 2020, Rand Merchant Bank (RMB) was appointed as the transaction adviser by the Department of Public Enterprises to identify equity funders for SAA.   One of the allegations against the Minister of Public Enterprises, Mr Pravin Gordhan, was that no proper process was followed to appoint RMB as the transaction adviser. The former DG claimed that he was informed that only RMB had the necessary aviation industry capacity and experience to perform the role. This prompted the Committee to question whether the market was tested to ascertain if other entities could fill the role.   Once appointed, RMB’s selection criteria for the transaction were based on an assessment of funding capacity, ability to provide an immediate equity injection, perceived interest, strategic fitness, operational capability, track record in the aviation industry and national interests.   According to the documentation provided to the Committee, it was evident that Takatso Consortium was not included in the shortlist when the RMB evaluated the expressions of interest from potential strategic equity partners. The evaluation phase identified ASL Blue Sky Consortium and Fairfax Consortium as the most promising, but their inability to provide proof of funding hindered their selection. As a result, no suitable strategic equity partner with funding evidence could be found.   The RMB requested to be released from the contract, and the Department of Public Enterprises took over the process. The Committee questioned the initial decision to appoint a transaction adviser and the subsequent lack of effort to appoint another one after RMB withdrew.   The Department of Public Enterprises established an evaluation committee, led by the former Director-General, to evaluate four potential strategic equity partners. This Committee based its assessment of suitability on strategic fitness, funding and operating capacity, national interest and executability. ASL Blue Sky was disqualified due to a lack of funding, while Lufthansa Consortium was also disqualified, as they had a prerequisite of including Airports Company South Africa in the transaction. These disqualifications were communicated in letters drafted by the former Director-General. Proposals from Global and Harith were rated favourably by the evaluation committee, as indicated in letters from the former DG to both entities. They were both shortlisted as significant airlines of interest, on 08 April 2021. The possibility of combining Global and Harith to complement each other in their long-term strategy was also mentioned.   Subsequently, Global and Harith (which later became the Takatso Consortium) submitted a proposal to the Department of Public Enterprises with an offer that fulfilled the Department’s requirements, including the ability to provide the necessary funding to restart operations. Takatso was then appointed as the preferred strategic equity partner, with approval from Cabinet.   The Legal Advisor confirmed that the information before them was confidential. The Committee will review the information provided – specifically the Single Source Provider Application – in a closed session, due to the ongoing nature of the transaction and the absence of definitive outcomes. The Committee received the legal advice it sought and will deliberate on how to proceed with the information under the proposed confidentiality regime. It will schedule another meeting to finalise the matter.