Comair challenges SAA’s R5bn guarantee

2012-10-03 10:50

Johannesburg Stock Exchange-listed aviation company Comair Limited has challenged the application of the latest R5 billion government guarantee for SAA.

CEO Erik Venter said today Comair had an obligation to challenge further government support that would benefit SAA’s domestic operation.

This was a matter of industry survival, and maintaining competition in the market for domestic air travel.

SAA had accumulated losses of R17 billion since deregulation in 1992. Over this period, nine of the 11 private airlines competing with SAA had failed.

This was a clear indication of the impact of SAA’s assurance of state support, Venter said.

In 1992, on deregulation of the domestic airline industry, government developed an aviation transport policy intended to govern the behaviour and funding of SA Airways in a competitive domestic environment.

This included the provisions that SAA was not allowed to cross-subsidise domestic with international operations, and that it could not receive government funding or guarantees as long as private competitors were required to rely on commercial funding.

“We understand that SAA has to rely on its shareholder to the extent that it is required to deliver a public service, in this case servicing routes that are not commercially viable for private airlines.

“However this does not apply in the domestic market, or even on many routes into Africa where South African-based airlines are attempting to compete against SAA,” Venter said.

The losses incurred by SAA and Mango in the domestic market could not be sustained by a private airline, and had been incurred to protect SAA’s market share at the expense of its competitors and the taxpayer.

“We do not see any controls in place that will prevent this from happening again,” he said.

The only way to achieve a level playing field in the domestic market would be to separate SAA’s domestic operations, including Mango and SA Express, into an independent legal entity with its own leadership and transparent financial reporting.

The domestic operation would then have to operate on sound commercial principles and without any government support or indirect cross-subsidy from SAA international.

SAA’s latest request for government funding for new planes was largely a result of SAA and Mango fighting their domestic competitors for market share at the expense of generating sufficient profits for sustainability.

“SAA, at least in the domestic market, was not like Transnet, in that there was a taxpaying, private industry willing to fulfil the Southern African air transport requirements.

“However, if government fails to ensure the achievement of a level playing field, then we might return to a state monopoly for domestic air travel, which is exactly what the aviation transport policy was designed to avoid,” Venter said.

Meanwhile, the Democratic Alliance wants to meet Public Enterprises Minister Malusi Gigaba to discuss the devastating impact of continued SAA bailouts on private airlines.

DA spokeswoman Natasha Michael said while the R5 billion guarantee would grant the state enhanced oversight powers, it still perpetuated the unfair advantage afforded to the national carrier at the expense of private airlines.

“A R5 billion guarantee is still R5 billion more than any private airline is getting. SAA are still endowed with the now-expected leeway to operate with relative impunity. It is still not fair,” she said.

Yesterday, the National Treasury said the government had granted the guarantee to SAA for two years, starting from September 1.

SAA had requested recapitalisation, at an estimated cost of between R4 billion and R6 billion. This would enable the airline to strengthen its balance sheet and order new planes.

“The guarantee will enable SAA to borrow from the financial markets, thus ensuring that the airline continues to operate as a going concern,” Treasury said.

In terms of the guarantee, the SAA board had to develop a turnaround strategy, to be approved by Gigaba and the Finance Minister Pravin Gordhan.

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