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.