SAA scraps idea that it gave Mango cheap plane leases

Cape Town – Four days after South African Airways said it sub-leased aircraft to its low-cost subsidiary Mango Airlines at a discounted cost, inadvertently raising concerns of collusion, the embattled airline did an about-turn and denied that it had done so.

The change in tune came hours after outgoing Mango CEO Nico Bezuidenhout told Bloomberg that SAA’s original statement was “outright, straightforward, not true”.

Hours later, SAA spokesperson Tlali Tlali  made a startling statement, conceding that SAA was wrong to say the planes had been discounted, saying “these aircraft were … not leased at a discount”.

SAA said on Saturday that as "an initial investment to subsidise the start-up of Mango Airlines, SAA subleased 10 aircraft, at a significantly discounted cost to Mango Airlines, while continuing to pay the market related premium to the lessor".

It was reacting to the resignation of Bezuidenhout, who was appointed as new CEO of Africa-focused, low-cost airline fastjet from August 1 2016. Bezuidenhout has been CEO since Mango commenced operations ten years ago. He has also twice acted as SAA CEO.

READ: FastJet names Mango's Nico Bezuidenhout as new CE0

The original statement appears to have been to discredit Bezuidenhout, who grew Mango's market share to 25% of the South African domestic air travel market and the fleet to 10 Boeing 737-800 aircraft.

Industry experts and politicians quickly realised the gravity of the statement and called for a investigation into collusion between the two state-owned airlines.

READ: Low-cost airlines react to SAA, Mango 'collusion' allegations

The Democratic Alliance said on Monday that it would request the Competition Commission to launch a full-scale investigation into alleged collusion between SAA and Mango.

Safair CEO Elmar Conradie said on Monday that "if Mango has been accessing aircraft at greatly reduced costs through the state, it would certainly point to anti-competitive behaviour that puts FlySafair and at a marked disadvantage".

READ: Call for competition probe into SAA, Mango 'collusion'

Comair CEO Erik Venter said on Monday that he was not optimistic about seeing any relief from the Competition Commission on the SAA, Mango allegations.

“Unlike the competition law of other jurisdictions, South African competition law does not contain any legislation to prevent unfair competition arising from state subsidies,” he said.

However, on Wednesday Bezuidenhout hit back, denying the “discount” allegations.

“SAA must please substantiate any of these claims,” he said.

READ: Mango denies SAA provided cheap plane leases

Tlali said late on Wednesday that SAA did sublease a number of aircraft to Mango “from time to time over different periods between 2006 and 2016”.  

“SAA acquired 10 new A320 aircraft during FY2015, while Mango increased its capacity by acquiring some of the aircraft that exited the SAA’s fleet in FY2015.

“The value of the subleases to Mango fully recovered SAA’s aircraft lease cost for FY2015 over the balance of the lease period.

“Owing to a recent unrelated consideration of this very issue, the SAA board is confident in its assertion regarding the cost of aircraft subleases. During March 2016, the SAA board, with the assistance of external advisers, analysed these lease agreements with Mango and satisfied itself that all such agreements had been concluded on a full cost recovery basis.

“These aircraft were accordingly not leased at a discount,” Tlali said.

Brent Crude
All Share
Top 40
Financial 15
Industrial 25
Resource 10
All JSE data delayed by at least 15 minutes morningstar logo
Company Snapshot
Voting Booth
Please select an option Oops! Something went wrong, please try again later.
I'm not really directly affected
18% - 1538 votes
I am taking a hit, but should be able to recover in the next year
23% - 2000 votes
My finances have been devastated
34% - 3003 votes
It's still too early to know what the full effect will be
25% - 2183 votes