SAA after Business rescue

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Re: SAA after Business rescue

Unread post by evanb » Tue May 17, 2022 1:53 pm

GL wrote:
Tue May 17, 2022 8:06 am
Thanks Evan
So if it's not on the balance sheet it would further support the view that Takatso bought SAA for R51without any significant debt.
Correct, although that has contingencies attached to it, including a significant capital injection (R3 billion?). Unlike a typical private equity transaction, they cannot leverage the balance sheet of the acquisition to raise this capital since the value of that balance sheet isn't worth anything substantial.

From what I understand, there were no better offers. Other potential buyers indicated to government that they would expect the government to make substantial capital injections for them to take it and/or wanted all the equity.

It was pretty binary for the state. Take this and hope it's a success to the extent that their remaining 49% becomes worth something, or liquidation.
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Re: SAA after Business rescue

Unread post by Jfairwell » Tue May 17, 2022 3:53 pm

evanb wrote:
Tue May 17, 2022 1:53 pm
GL wrote:
Tue May 17, 2022 8:06 am
Thanks Evan
So if it's not on the balance sheet it would further support the view that Takatso bought SAA for R51without any significant debt.
Correct, although that has contingencies attached to it, including a significant capital injection (R3 billion?). Unlike a typical private equity transaction, they cannot leverage the balance sheet of the acquisition to raise this capital since the value of that balance sheet isn't worth anything substantial.

From what I understand, there were no better offers. Other potential buyers indicated to government that they would expect the government to make substantial capital injections for them to take it and/or wanted all the equity.

It was pretty binary for the state. Take this and hope it's a success to the extent that their remaining 49% becomes worth something, or liquidation.
SAA has substantial assets in the form of property, plant and equipment that will be leveraged by Takatso after the conclusion of the transaction to raise working capital funding. SAA's route rights also holds substantial value to a competent operator.
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Re: SAA after Business rescue

Unread post by GL » Tue May 17, 2022 4:07 pm

Jfairwell wrote:
Tue May 17, 2022 3:53 pm
SAA's route rights also holds substantial value to a competent operator.
I guess they are only worth what a willing buyer is prepared to pay - but have there any been useful attempts to value route rights? Do they ever appear on a balance sheet?
SAA must now be vulnerable to the use it or lose it principle - assuming the ASLC has the guts to enforce it.
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Re: SAA after Business rescue

Unread post by Jfairwell » Tue May 17, 2022 4:48 pm

GL wrote:
Tue May 17, 2022 4:07 pm
Jfairwell wrote:
Tue May 17, 2022 3:53 pm
SAA's route rights also holds substantial value to a competent operator.
I guess they are only worth what a willing buyer is prepared to pay - but have there any been useful attempts to value route rights? Do they ever appear on a balance sheet?
SAA must now be vulnerable to the use it or lose it principle - assuming the ASLC has the guts to enforce it.
The hangar and related infrastructure adjacent to Charlie apron holds significant value, notwithstanding the neglect, and will attract interest if made available for sale given the scarcity of hangarage in Johannesburg. The route rights is an intangible asset and are not disclosed on SAA's balance sheet. It holds no value in SAA's hands as they have proven that they are simply too incompetent to operate it profitable. The route rights do however holds value to competent operators such as Safair and Link. Intangible assets can be valued however and it would be remiss to suggest that the route rights have zero value.

The IASC should have rescinded SAA's route rights and it made it available for application months ago, but as you know the DOT failed to appoint a new council for more than a year, ostensibly to protect SAA from section 21 applications from other airlines. The newly appointed council have zero aviation experience, so it will be interesting to see what transpires over the next few months as they start to convene. They have the 18th and 19th set down for hearings, which are off course open to the public.
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Re: SAA after Business rescue

Unread post by evanb » Wed May 18, 2022 2:20 am

Jfairwell wrote:
Tue May 17, 2022 3:53 pm
SAA has substantial assets in the form of property, plant and equipment that will be leveraged by Takatso after the conclusion of the transaction to raise working capital funding. SAA's route rights also holds substantial value to a competent operator.
I think this may be overstating it. It's interesting to note that in all SAA's affairs over the years they never leveraged these assets for financing, even when things were particularly bad. This could be because they're simply not worth what we think or there may be other obstacles.

Several years ago, SAA put out an RFP to sell land they owned around ACSA airports. There were no suitable bids that came anywhere close to what was considered a fair value. Just a few bids that tried to low ball. I agree that the land in Joburg. including the buildings and the hangers. likely hold substantial value , but who are the potential buyers? How much is this worth, and when netted off against short term liabilities like payables and contingent liabilities like lease payments, is there any value? And it's certainly not in the billions.

They attempted to sell the remaining owned A340s a few years back and, once again, didn't get any substantial offers. Secondly, these aircraft have very limited leverage value in order to raise capital against them given the lack of a market for them at present. They would also struggle to raise substantial capital against plant and equipment. While it may be easier to raise financing to purchase new plant and equipment, from experience, it's very difficult to leverage older plant and equipment on anything other than predatory terms.

I doubt SAA's route rights or landing slots hold much value. Firstly, it's landing slots at slot controlled airports like JFK, FRA and HKG are not tradable in the conventional sense - they can't sell them. The LHR slots are, but the value of LHR slots have declined dramatically in recent years. Very few sales transactions are taking place as a result, mostly just leases. Very few airlines have been able to leverage LHR slots for capital raising. Virgin are the only ones who have and they were able to do this because of the volume they had. No airlines have been able to do this since banks are unable to securitise them in the same way as property since there is no deed (of sorts). Additionally, the ability for the regulator to unilaterally do as they wish with the slots (for example, reallocate them if they are under utilised) limit the security of the asset.

While route rights hold a lot of value, frequencies to most major long haul markets that SAA had flown to in recent years are under allocated including Australia, Argentina, Brazil, Germany, India, Israel, Italy, Netherlands, Singapore, Switzerland, Thailand, UAE, UK and USA. China and Hong Kong might be the outliers here. Even then, given how SAA are not utilising the ones that they do hold it would be a very difficult case for SAA/Takatso to make that they should not be summarily reallocated.

It's slightly more complicated when it comes to regional routes where SAA do hold more frequencies and there are more constraints. Firstly, some major markets like Botswana, Egypt, Ethiopia, Kenya and Uganda have open skies agreements with SA, so there are no constraints. Angola, Cote d'Ivoire, DRC, Ghana, Mozambique, Malawi, Mauritius, Namibia, Nigeria, Rwanda, Senegal, Tanzania, Zambia and Zimbabwe are constrained markets and SAA hold many frequencies. Looking at individual markets, the ones that are likely of interest are Angola, DRC, Ghana, Mozambique, Malawi, Mauritius, Namibia, Nigeria, Tanzania, Zambia and Zimbabwe. In all cases, SAA are under utilizing their allocation at present in all markets. We've already seen airlines starting to whittle away at these, getting access to un allocated frequencies. For example, Airlink accessing Dar es Salaam, Livingstone, Luanda, Lusaka, Maputo, Ndola and Windhoek. Some were existing frequencies that airlines had, but many are ex-SAA frequencies or more recent allocations from unallocated or expanded frequencies. Others include Cemair flying to Luanda, Safair to Mauritius and Comair with expanded frequencies to Mauritius. We've seen a recent rush (so to speak) of airlines now applying to ASLC for more frequencies. As Jfairwell notes, this process was frozen, but is starting to move. We don't know what the outcome will be, but I'd expect further grinding away, and even potential litigation to push it.

In this environment, I'm not sure what the value of these are, especially since it requires someone to acquire SAA as a whole, warts and all, to get them. I doubt this is leverageable for financing. In some countries (e.g. the US), it certainly is, but this is because the rights to these frequencies are transferable, unlike most other countries.

From the experience of being involved in financing and capital raising, these are not the types of assets that allow private equity to leverage effectively.
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Re: SAA after Business rescue

Unread post by Jfairwell » Wed May 18, 2022 5:36 am

evanb wrote:
Wed May 18, 2022 2:20 am
Jfairwell wrote:
Tue May 17, 2022 3:53 pm
SAA has substantial assets in the form of property, plant and equipment that will be leveraged by Takatso after the conclusion of the transaction to raise working capital funding. SAA's route rights also holds substantial value to a competent operator.
I think this may be overstating it. It's interesting to note that in all SAA's affairs over the years they never leveraged these assets for financing, even when things were particularly bad. This could be because they're simply not worth what we think or there may be other obstacles.

Several years ago, SAA put out an RFP to sell land they owned around ACSA airports. There were no suitable bids that came anywhere close to what was considered a fair value. Just a few bids that tried to low ball. I agree that the land in Joburg. including the buildings and the hangers. likely hold substantial value , but who are the potential buyers? How much is this worth, and when netted off against short term liabilities like payables and contingent liabilities like lease payments, is there any value? And it's certainly not in the billions.

They attempted to sell the remaining owned A340s a few years back and, once again, didn't get any substantial offers. Secondly, these aircraft have very limited leverage value in order to raise capital against them given the lack of a market for them at present. They would also struggle to raise substantial capital against plant and equipment. While it may be easier to raise financing to purchase new plant and equipment, from experience, it's very difficult to leverage older plant and equipment on anything other than predatory terms.

I doubt SAA's route rights or landing slots hold much value. Firstly, it's landing slots at slot controlled airports like JFK, FRA and HKG are not tradable in the conventional sense - they can't sell them. The LHR slots are, but the value of LHR slots have declined dramatically in recent years. Very few sales transactions are taking place as a result, mostly just leases. Very few airlines have been able to leverage LHR slots for capital raising. Virgin are the only ones who have and they were able to do this because of the volume they had. No airlines have been able to do this since banks are unable to securitise them in the same way as property since there is no deed (of sorts). Additionally, the ability for the regulator to unilaterally do as they wish with the slots (for example, reallocate them if they are under utilised) limit the security of the asset.

While route rights hold a lot of value, frequencies to most major long haul markets that SAA had flown to in recent years are under allocated including Australia, Argentina, Brazil, Germany, India, Israel, Italy, Netherlands, Singapore, Switzerland, Thailand, UAE, UK and USA. China and Hong Kong might be the outliers here. Even then, given how SAA are not utilising the ones that they do hold it would be a very difficult case for SAA/Takatso to make that they should not be summarily reallocated.

It's slightly more complicated when it comes to regional routes where SAA do hold more frequencies and there are more constraints. Firstly, some major markets like Botswana, Egypt, Ethiopia, Kenya and Uganda have open skies agreements with SA, so there are no constraints. Angola, Cote d'Ivoire, DRC, Ghana, Mozambique, Malawi, Mauritius, Namibia, Nigeria, Rwanda, Senegal, Tanzania, Zambia and Zimbabwe are constrained markets and SAA hold many frequencies. Looking at individual markets, the ones that are likely of interest are Angola, DRC, Ghana, Mozambique, Malawi, Mauritius, Namibia, Nigeria, Tanzania, Zambia and Zimbabwe. In all cases, SAA are under utilizing their allocation at present in all markets. We've already seen airlines starting to whittle away at these, getting access to un allocated frequencies. For example, Airlink accessing Dar es Salaam, Livingstone, Luanda, Lusaka, Maputo, Ndola and Windhoek. Some were existing frequencies that airlines had, but many are ex-SAA frequencies or more recent allocations from unallocated or expanded frequencies. Others include Cemair flying to Luanda, Safair to Mauritius and Comair with expanded frequencies to Mauritius. We've seen a recent rush (so to speak) of airlines now applying to ASLC for more frequencies. As Jfairwell notes, this process was frozen, but is starting to move. We don't know what the outcome will be, but I'd expect further grinding away, and even potential litigation to push it.

In this environment, I'm not sure what the value of these are, especially since it requires someone to acquire SAA as a whole, warts and all, to get them. I doubt this is leverageable for financing. In some countries (e.g. the US), it certainly is, but this is because the rights to these frequencies are transferable, unlike most other countries.

From the experience of being involved in financing and capital raising, these are not the types of assets that allow private equity to leverage effectively.
My word here we go again, from my experience in corporate finance can we at least agree that SAA has zero debt post-rescue and its assets are worth more than R100? And while this may still render a zero equity value, SAA theoretically has a substantial net asset value - R3 billion if you can believe the DPE and Takatso (which I don’t).

Takatso advises the public that they will introduce leveraged funding into SAA over a three year period, but you postulate that SAA’s assets does not hold sufficient value to do so.

Harith manages an infrastructure fund and is invested in Lanseria Airport, amongst other. They have been under scrutiny, but Incan tell you they are switched on, successful and are far more qualified to value infrastructure assets in real life than most other that comment here.

This will be a financial coup if they pull it off.
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Re: SAA after Business rescue

Unread post by Ugly Duckling » Wed May 18, 2022 7:09 am

Jfairwell wrote:
Wed May 18, 2022 5:36 am


Harith manages an infrastructure fund and is invested in Lanseria Airport, amongst other. They have been under scrutiny, but Incan tell you they are switched on, successful and are far more qualified to value infrastructure assets in real life than most other that comment here.
Tenants are leaving Lanseria.
Aspire have given up the office block and adjoining hangar.
Tynay have moved to Rand.
Trio moved to Krugersdorp.
Standard will be moving to the southern side industrial area.
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Re: SAA after Business rescue

Unread post by Jfairwell » Wed May 18, 2022 7:15 am

Ugly Duckling wrote:
Wed May 18, 2022 7:09 am
Jfairwell wrote:
Wed May 18, 2022 5:36 am


Harith manages an infrastructure fund and is invested in Lanseria Airport, amongst other. They have been under scrutiny, but Incan tell you they are switched on, successful and are far more qualified to value infrastructure assets in real life than most other that comment here.
Tenants are leaving Lanseria.
Aspire have given up the office block and adjoining hangar.
Tynay have moved to Rand.
Trio moved to Krugersdorp.
Standard will be moving to the southern side industrial area.
Thank goodness you're not off topic.
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Re: SAA after Business rescue

Unread post by Ugly Duckling » Wed May 18, 2022 7:49 am

Jfairwell wrote:
Wed May 18, 2022 7:15 am
Ugly Duckling wrote:
Wed May 18, 2022 7:09 am
Jfairwell wrote:
Wed May 18, 2022 5:36 am


Harith manages an infrastructure fund and is invested in Lanseria Airport, amongst other. They have been under scrutiny, but Incan tell you they are switched on, successful and are far more qualified to value infrastructure assets in real life than most other that comment here.
Tenants are leaving Lanseria.
Aspire have given up the office block and adjoining hangar.
Tynay have moved to Rand.
Trio moved to Krugersdorp.
Standard will be moving to the southern side industrial area.
Thank goodness you're not off topic.
Let me spell it out :evil:
If they are doing such a great job at Lanseria, with the tenants leaving, I can't wait to see how successful the SAA V2 will be under their banner :twisted:
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Re: SAA after Business rescue

Unread post by Jfairwell » Wed May 18, 2022 7:56 am

Ugly Duckling wrote:
Wed May 18, 2022 7:49 am
Jfairwell wrote:
Wed May 18, 2022 7:15 am
Ugly Duckling wrote:
Wed May 18, 2022 7:09 am

Tenants are leaving Lanseria.
Aspire have given up the office block and adjoining hangar.
Tynay have moved to Rand.
Trio moved to Krugersdorp.
Standard will be moving to the southern side industrial area.
Thank goodness you're not off topic.
Let me spell it out :evil:
If they are doing such a great job at Lanseria, with the tenants leaving, I can't wait to see how successful the SAA V2 will be under their banner :twisted:
You still don't get it though, they're not interested in the airline. SAA v2 has no chance.
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Re: SAA after Business rescue

Unread post by evanb » Wed May 18, 2022 2:22 pm

Jfairwell wrote:
Wed May 18, 2022 5:36 am
My word here we go again, from my experience in corporate finance can we at least agree that SAA has zero debt post-rescue and its assets are worth more than R100? And while this may still render a zero equity value, SAA theoretically has a substantial net asset value - R3 billion if you can believe the DPE and Takatso (which I don’t).

Takatso advises the public that they will introduce leveraged funding into SAA over a three year period, but you postulate that SAA’s assets does not hold sufficient value to do so.

Harith manages an infrastructure fund and is invested in Lanseria Airport, amongst other. They have been under scrutiny, but Incan tell you they are switched on, successful and are far more qualified to value infrastructure assets in real life than most other that comment here.

This will be a financial coup if they pull it off.
Agreed, they have no bank or financing debt. This has been taken off the balance sheet at the end of the business rescue. You might not want to call it debt, but they have payables of more than R3 billion, net payables of more than R2 billion - these are increasing daily. There is a sizeable unflown ticket liability. Additionally, they have additional contingent liabilities not stated on the balance sheet including the claim from Airlink (I have no legal expertise to understand the probability of this coming to fruition).

Once this is netted off against the property, the A340s, the LHR slots and the blocked currency, it's a negative net asset value. There is nothing to leverage and Harith will be unable to leverage SAA in this regard. I know this because they has already been assessed by some financial institutions and was one of the major challenges in the delay of the Takatso deal. If no banks were willing to lend SAA without state guarantees for years, why would this change now?

While they may present financial statements (which they have not) that show a positive net asset value, that net asset value is certainly not realisable and that is what lenders will consider.

The R3 billion that Harith will put in will not come in a single tranche and we don't know the details. It's pretty vague. No idea how they plan to do this. But I agree that what you say regarding them being switched on. Their funds are valued in billions of dollars, they have plenty of resources without having to leverage SAA's non-existent balance sheet.
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Re: SAA after Business rescue

Unread post by MadMacs » Sat May 21, 2022 9:30 am

Is the land owned by SAA, in my day there I assumed it was Spoories who owned the land or maybe Acsa.
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Re: SAA after Business rescue

Unread post by EDP » Sun May 22, 2022 10:27 am

MadMacs wrote:
Sat May 21, 2022 9:30 am
Is the land owned by SAA, in my day there I assumed it was Spoories who owned the land or maybe Acsa.
My money is on SAR & H aka Spories...
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Re: SAA after Business rescue

Unread post by GL » Thu May 26, 2022 8:22 am

Can we have a fresh try at establishing what a/c SAA still owns (not leases)?
And what their current market values may be?
My best guess:
6 or 7 A340s worth maybe U$10 mil each (engine values?)
3 x A319s worth maybe U$10 mil each?
0 x A320s
0 x A332s
0 x A333s?
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Re: SAA after Business rescue

Unread post by Ray W » Thu May 26, 2022 9:47 am

Here's the list that I have - no values though
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