The national carrier SAA emerged from three years under business rescue in April last year, thanks to a R10.4 billion bailout. However, it is still grappling with the effects of a turbulent history marked by financial distress, operational problems and allegations of mismanagement. (Delwyn Verasamy/M&G)
Gidon Novick’s resignation from the Takatso board does not clear the path of the conflicts of interests that could still hamstring the controversial SAA transaction.
These conflicts are laid bare in concerns submitted to the Competition Commission by a competing airline in July.
The consortium, the Mail & Guardian understands, filed the papers to the Competition Commission in May.
According to the competitor, a merger involving Novick’s Global Aviation, Harith General Partners and SAA stands to crowd out any other airlines from the South African market. Any form of undertaking by the merged entity to guard against coordination and information sharing will be in vain unless Global Aviation divests from Lift, the competitor submitted to the commission.
This is contained in correspondence the M&G has seen.
The potential conflict of interest between Lift and SAA was laid bare this week, after Novick, the younger airline’s co-founder, announced his resignation from the Takatso board.
Novick cited a lack of transparency from Harith, Takatso’s majority shareholder and funder, regarding headway made in raising the R3 billion in capital committed to SAA.
The M&G understands that Novick was informed that the involvement of Global, and its affiliate, Syranix, had to be limited on the advice of the department of public enterprises, and legal advice, because they are the owners of Lift.
After Novick’s resignation, Takatso came out to say that the turn of events had worked out in the consortium’s favour, having helped clear the path of the conflict of interest involving Lift’s relationship with SAA.
Public Enterprises Minister Pravin Gordhan also expressed relief, telling parliament’s standing committee on public accounts earlier this week: “If there was SAA information put into the same pot from which another airline was also feeding off, the Chinese wall between them would disappear.”
Gordhan emphasised the transaction was still “alive”, but gave little more detail, saying that the deal was at a sensitive stage.
The minister described the aviation industry as a competitive one, “in which one wouldn’t mind to have the other for lunch”.
In its statement, Takatso said: “As stated by Mr Novick, Lift has (independent of Takatso) pursued business relationships with SAA outside of the Takatso-SAA transaction and competition processes thereby heightening the requirement for Takatso to maintain internal confidentiality over information relating to SAA and the SAA transaction.”
This confidentiality presumably extends to information relating to Takatso’s capital-raising efforts.
But, according to the competitor’s submission to the Competition Commission, it might take a lot more to dispel conflict concerns.
The competitor pointed out that, in order for the consortium to hold any weight, it needs Global Aviation’s expertise. But, as long as Global is invested in Lift, there will be a strong relationship between the airline and SAA — allowing the conflict of interest to persist.
Even if Novick resigned from Lift, this relationship would persevere as, the competitor points out, there might be other executives in the Global Aviation structures who straddle roles between the two airlines. Global Aviation will have unfettered insight into SAA’s business, strategy and plans, and that of Lift’s, the competitor submitted.
Though Novick has resigned from the Takatso board, Global remains a partner — be it a minority one — in the consortium. Both remain shareholders in the consortium.
The idea of a merger between Lift and SAA has been floated in the past, according to Novick.
In the event of a merger, the competitor submitted, together Lift and SAA would have the power to control prices in the markets in which they both operate. They can easily do so as a result of SAA’s expected capital injection and the clearing of its debt, the competitor said.
“Not only could they control prices in a route market to exploit consumers, but they would also be in a position to unfairly exclude competitors by crowding the route market with capacity (to capture the greatest number of ticket sales) and then consolidating flights in order to make operation efficient.”
The competitor also raised the still uncertain fate of Mango, SAA’s former low-cost partner, which has been put under business rescue.
Competition is best served, the competitor said, by ensuring that SAA has to compete in the domestic market with at least two close competitors.
For that reason, Global Aviation must be required to divest of Lift and the government must be required to ensure Mango is funded to the extent it can be sold to a third-party buyer or, if not, that it is liquidated, the competitor said.
“If such a condition is not imposed, it is not the case that there is any likelihood that a new airline will be created to come into the market in the near future, given that both Comair and Mango have failed.”
The combination of Lift, SAA and Mango was “entirely undesirable” from a competition perspective, it added.
Having Lift, and possibly Mango, in its stable — as well as the support of the government as a minority shareholder — placed SAA in a strong position to crowd out competition on core national routes, the competitor said.
SAA’s power also stands to be bolstered by Harith’s investment in Johannesburg’s Lanseria Airport, raising further fears of anti-competitive behaviour down the line.
“Flooding the market with more capacity, keeping SAA alive and expanding it, for the sake of being able to say it has risen from its ashes, is not a reason to place the viability of remaining players at risk, but that is precisely the effect that the proposed transaction will have on competitors, if it proceeds unchecked,” the competitor states.
“It is not in the public interest to have a further weakened aviation sector.”
Travellers have been hit by sky-high domestic flight prices in recent months after the collapse of Comair, the owner of the low-cost carrier Kulula and South African partner of British Airways.
In the aftermath of his resignation, Novick questioned why the potential conflict of interest had been raised so late into the transaction’s lifespan.
Global, Novick said, has not sought to obtain information about the running of SAA in order to benefit Lift.
“My understanding is that one has significant responsibilities as a director and you would never be able to fulfil those responsibilities if you don’t have access to information about the organisation that you represent,” Novick said.
“And, if there are conflicts — which inevitably there are in many organisations — there are ways of dealing with it. You have to manage the conflict and recuse yourself from certain meetings … Or, if it becomes so pervasive, you have got to be asked to step down as a representative of the company.”
According to Novick, Global formulated the business plan for the new SAA at the outset of the transaction. Instead of attempting to steal trade secrets from the beleaguered national carrier, the hope was to use Lift’s skills to revive it, he said.
“We, as a consortium, made a promise to raise a substantial amount of money 18 months ago to enable this transaction,” Novick said.
“And the simple question that I asked, and I think it has been answered very clearly, was: ‘Has that capital been committed?’ It is a very simple question. It is not asking for your strategy. It is yes or no.”
Global received communication from Takatso regarding the Competition Commission, which allegedly wanted conditions put on Novick. The M&G understands that some of the conditions to alleviate the concerns raised by the competitor include Global and Novick recusing themselves from the board and instead appointing directors who would represent them.
Global, however, elected to deal with the commission directly.
According to Novick, the commission has since sent questions directly to Global. “I don’t think it is appropriate to have that channelled through an intermediary,” he said.
Harith did not respond to questions sent by the M&G.
The department of public enterprises noted that it has complied with the Competition Commission’s requests for information.
“All parties to the transaction have complied with all regulatory processes and we await the response from the authorities to finalise and conclude the transaction. As the department we would like to have the transaction finalised as soon as possible as this is the best deal for SAA.”
The department also issued a statement on Friday assuring the public that the SAA-Takatso deal is not at risk.
“We condemn the deliberate misinformation and casting of doubt about the transaction and regulatory processes since the resignation of Gideon Novick as a board member of the Takatso consortium,” the statement read.
“This distortion of facts will not succeed in derailing the creative solutions to ensuring a positive future for the airline — and its pilots and staff.”
The statement added that the public should be aware of the efforts of competitors, detractors and other forces to undermine efforts to save jobs and ensure a viable SAA, noting that travellers are being fleeced because of the shortage of seats.
“The DPE is confident that as a strategic equity partner, Takatso will introduce the
required technical, financial, and operational expertise into the business.”
This article has been updated to include comments from the department of public enterprises. It differs from the print version of the article.
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