Competition Tribunal conditionally approves SAA acquisition

The acquisition of 51% of the issued share capital of state-owned South African Airways (SAA) by Takatso Aviation has been conditionally approved by the Competition Tribunal.

The tribunal on Tuesday announced that it had approved the transaction subject to conditions involving a moratorium on retrenchments and divestiture of the shareholding by the minority shareholders in the Takatso consortium.

If the transaction is finalised, the remaining 49% shareholding in SAA will be retained by the Department of Public Enterprises.

Takatso, a company newly incorporated for the purposes of the proposed transaction, is a consortium in which asset management firm Harith General Partners holds the majority shareholding.

Read/listen: Takatso eager to take control of SAA, ‘engaging’ with minority shareholders

The minority shareholders in Takatso are Global Aviation Operations and Syranix.

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.

Competition concerns

The tribunal did not provide any further details about the divestiture or retrenchment conditions it has imposed on the transaction and indicated that the reasons for its decision will be issued in due course.

However, the Competition Commission previously recommended to the tribunal that the transaction be approved subject to divestiture and employment conditions.

These conditions were initially rejected by the parties, resulting in the commission initially recommending a prohibition of the merger.

The commission found that the merger was likely to result in a substantial lessening and prevention of competition in the domestic passenger airlines market because the transaction would likely facilitate the exchange of competitively sensitive information between SAA and domestic passenger airline Lift, through Global Aviation and Syranix having shareholding and the ability to appoint directors to Takatso’s board of directors.

Read:
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In recommending that divestiture conditions be imposed on the transaction, the commission highlighted the investments by Harith in infrastructure projects across various sectors, stressing the relevance of its investment in Lanseria Airport to this transaction.

The commission said Global Aviation leases aircraft and also owns and operates Lift, while Syranix co-owns the Lift trademark but does not hold a domestic passenger airline operator’s licence.

Syranix provides airlines such as Lift with management support services, including commercial, customer support, branding, and associated activities.

“Takatso will have access to SAA’s competitively sensitive information by virtue of its majority stake in SAA, pursuant to the proposed merger,” it said.

“This concern is further exacerbated by the fact that the domestic passenger airlines market is highly concentrated, barriers to entry are high and is amendable to coordinated effects.”

Read:
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To remedy this concern, the commission said it and the parties have now agreed to a divestiture condition in terms of which Global Aviation and Syranix will completely divest from Takatso prior to the transaction’s implementation.

‘Appropriate’ remedy

The commission said it considers that this ‘fix-it-first’ remedy is appropriate in the circumstances given the extent of the competition concerns identified.

It further found that Harith’s investment in Lanseria Airport is unlikely to raise vertical foreclosure concerns, considering factors such as recent investments to expand and improve the Lanseria Airport and the availability of OR Tambo International Airport as an alternative to Lanseria, among other factors.

The commission found that the merger does not raise any other substantial public interest concerns and therefore recommended that the Competition Tribunal approve the transaction subject to its recommended conditions, which are only advisory in nature.

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

Commenting in May on the outstanding R3.5 billion required to finalise SAA’s business rescue process, the Department of Public Enterprises pointed out that the minister of finance allocated R1 billion towards this in the February Budget Speech, with the outstanding amount to be provided by the government.

Listen as Jeremy Maggs chats with SAA interim CEO John Lamola on why the government bailout era is over for the airline (or read the transcript here):

You can also listen to this podcast on iono.fm here.