SAA mustn’t follow Telkom
FAILED: NOT GOOD TO USE IT AS A TEMPLATE
History suggests new airline can’t adopt example of national telecoms company.
Anyone taking a holding in airline should come up with airtight shareholder agreement with govt.
When the government announced it was bringing in outside shareholders to take a majority holding in South African Airways (SAA) there was a lot of chatter that it was now following the “Telkom model”.
This is where, like the telecom group, the airline would have the state as a passive shareholder and players in the private sector would run the show.
As someone who has covered Telkom on and off for most of my journalism career, I’m confused by this analogy because over the last 20 years the state has not exactly covered itself in glory when it comes to letting its various boards and CEOs run the business.
How it began
The government’s first stab at bringing in outside shareholders was when it brought in Thintana Communications in 1997 to modernise the fixed-line utility. This was a joint venture between the US’s SBC Communications, which owned 60% of the venture, and Malaysia’s Telekom Malaysia Berhad, which owned the remaining 40%.
Thintana collectively owned 60% of Telkom and the state owned about 40%. The aim was to use their expertise to improve services and expand services to the poor through licensing stipulations.
The idea was that bringing in Thintana Communications would prepare Telkom for a deregulated telecoms market and address South Africa’s development goals. It is now generally viewed that SBC – which led the consortium – were more cost-cutters than modernisers.
It used the monopoly power in the fixed-line telecom to push up prices and saw its customers put up with a falloff in service levels.
The government also failed in using the operator to extend services to the underprivileged, as Telkom in that period cut millions of lines that were rolled out to the poor because they could not afford it.
With the state having a large minority holding, but not a controlling stake, it’s easy to assume that the government would have a say in – but would not directly control – what was happening at Telkom, right? Wrong.
It turns out there was a thing called a “Gold Share”, which was originally held by Thintana. This A-share gave the holder the right to appoint five of the 12 board members, including the chair. Thintana passed this share on to the government, giving it a direct hold over the company.
In effect, between the time Thintana sold its holding in 2004 until the JSE did away with this share in 2011, the government had control of a listed company.
This era was not a good one for Telkom. There was constant interference by the government in the board, and Telkom could not hold onto its top executives – losing five CEOs in just about as many years.
Under current CEO Sipho Maseko, who has been in charge since April 2013, Telkom has grown from strength to strength. Even so, the possibility of state intervention in its valuation looms.
Considering what Telkom has gone through over the past 20 or so years, maybe using it as a template for a possible SAA deal is not such a good idea.
To be fair, the government has let Maseko run the show without intervention for the better part of a decade.
Even so, my advice for anyone taking a holding in the airline is to come up with an airtight shareholder agreement with the government, which puts strict curbs on what it’s allowed to do and what is not allowed. The last thing you want is an unpredictable state actor thinking it has the right to get its way in a boardroom fight when it has neither the shareholding nor the votes to get its way.