JSE listed aviation group Comair has issued a scathing attack against the latest South African Airways (SAA) and alleges that government has pumped about R17bn into SAA over the past 20 years to no result.
Under the latest bailout government has issued guarantees to the value R5bn to back SAA’s capital raising exercise which will largely be used to replenish SAA’s fleet.
Comair has argued that the bailouts are unfair to private airliners who not only have to deal with tough market conditions but a subsidies uncompetitive behaviour from the national carrier.
Comair CEO, Erik Venter, said In 1992, on deregulation of the domestic airline industry, the government developed an Aviation Transport Policy that was intended to govern the behaviour and funding of SAA 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. The losses incurred by SAA and Mango in the domestic market could not be sustained by a private airline, and have 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,” says Venter.
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.
“The aviation industry is capital intensive and it is, therefore, necessary for airlines to behave in such a way as to make adequate profits and cash flow for reinvestment in aircraft. SAA’s latest request for government funding for new planes is largely a result of SAA and Mango fighting their domestic competitors for market share at the expense of generating sufficient profits for sustainability,” says Venter.
Venter explains, “SAA, at least in the domestic market, is not like Transnet, in that there is a tax paying, private industry willing to fulfill the Southern African air transport requirements. However, if the 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.”
As a matter of industry survival, and maintaining competition in the market for domestic air travel, Comair has an obligation to challenge further government support that will benefit SAA’s domestic operation. SAA’s accumulated losses of R17-billion since deregulation, and the failure of nine of the 11 private airlines that have attempted to compete with SAA over the same period, is a clear indication of the impact of SAA’s assurance of state support.