Roger Makings
Lufthansa is set to enter the fray for a stake in South African Airways' partial privatisation, due to be finalised by October this year.
Lufthansa had consistently denied that it was interested in buying into SAA, saying acquisitions were 'not its style - we prefer to broaden our reach through partnerships rather than buying into airlines'.
The carrier has, however, changed its thinking following its own privatisation at the end of 1997. Executives now consider that it is time to change tactics, admitting that it would be strategically foolish not to seek a stake in SAA.
'We are definitely interested in broadening our existing partnership with SAA. Maybe it is time to review our conservative strategy with regard to the wheeling and dealing of global alliances,' says a Lufthansa source.
If Lufthansa goes ahead with its intention to take an equity stake in SAA, the move would pit the German carrier against its arch competitor in Europe, British Airways, which has already stated an interest in an equity share in the South African airline. Virgin Atlantic and Singapore Airlines have also expressed interest in a stake of between 30 and 35 per cent of SAA, which is scheduled to go to a foreign partner by 31 October 1998.
Foreign interest in SAA follows the lure of unparalleled growth in the African market. Lufthansa has experienced a 17.2% growth in travel to Africa.
Lufthansa's interest in SAA also follows recognition that as global alliances develop the major carriers are running out of quality partners to join their consortia as they bid for international domination. SAA is one of the few top airlines that remains unaligned, although it enjoys strong marketing alliances with Lufthansa and American Airlines. Local sources point out that a stake in SAA would fill a regional gap (sub-Saharan Africa) in Lufthansa's increasingly powerful Star Alliance network.
Any increase of influence by Lufthansa in Africa would have to be through SAA. 'None of the other carriers are big enough; besides, South Africa has a very good name in Germany,' says Andreas Diederich of consultants R&C Airline Industry.
One potential drawback could put Lufthansa off SAA. Lufthansa warns that it is in a capital intensive business and cannot afford to invest without equity control - only some 30-35 per cent of SAA would initially be offered for sale.
Meanwhile, the Public Enterprises Ministry has appointed brokerage Merrill Lynch as its adviser on the partial privatisation of SAA. A merchant bank is also expected to advise the government on the employee share ownership aspects of the deal, says the ministry. Employees are set to receive 5 to 10 per cent of SAA, with the balance of 49 per cent going to the National Empowerment Fund.
Source: Airline Business
