Comair SAA legal battle
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Comair SAA legal battle
Johannesburg - Comair Limited, SA's last remaining independent domestic airline has announced the launch of a High Court legal challenge against the R5bn government guarantee for national carrier South African Airways (SAA).
Comair said in a statement that the current and previous bailouts received by SAA, which now amount to over R11bn over eight plans, do not comply with either the Domestic Aviation Transport Policy or the law (the Constitution, the SAA Act, the Promotion of Administrative Justice Act and the Public Finances Management Act).
“We regret that we have had to resort to legal action to achieve compliance and have not done so lightly. However, we have no other recourse,” says Comair CEO, Erik Venter.
Comair's legal action comes in response to SAA's turnaround strategy laid out over the next 20 years, discussed in parliament last week.
Venter says, “Comair’s sole objective is to attain a level playing field in the domestic aviation market to ensure that all airlines face the same risks and the same requirements to operate on sound commercial principles. By receiving government bailouts SAA avoids this commercial reality and this negatively impacts on all current and potential airline operators.”
The statement also said the action taken by Comair "is not a challenge to stop all funding of SAA; nor a proposal to privatise, nor challenge the shareholding of SAA; nor an attempt to shut down SAA. It is an action to ensure that government will provide funding to SAA only after consultation with all affected stakeholders (as per the Promotion of Administrative Justice Act) and that any funding is in accordance with government’s Domestic Aviation Transport Policy".
According to economist and aviation expert, Joachim Vermooten, the R5bn guarantee enables SAA to artificially increase its scope of operations and sustain losses as a result of not operating on a commercial basis, as is required by existing National Government policy.
“Government subsidies and interventions distort any market; the results in the domestic airline sector have been catastrophic with the demise of 10 out of 11 independent, private airlines since deregulation in 1991, with the latest casualty in November 2012. Fair competition is essential to achieve market-related ticket prices, product innovation and consumer choice,” explains Vermooten.
“Comair has a responsibility to its employees, customers and shareholders to secure a level playing field in which to conduct its business,” says Venter.
In reference to the 20-year plan Venter said, "This is unacceptable in an industry where private capital competes with a state owned enterprise. Comair cannot afford to see this plan unfold over another 20 years.”
Responding to questions about why the latest SAA plan would be more credible than previous ones, SAA acting CEO Nico Bezuidenhout said the latest "holistic" strategy aimed to achieve "sustainable" business. "We cannot continue to come back looking for further capitalisation. If nothing else, it's embarrassing," he said
Bezuidenhout, who is the CEO of Mango, was appointed acting CEO of SAA earlier this month, after the previous incumbent, Vuyisile Kona, was suspended. Kona replaced then CEO Siza Mzimela in October, after the airline reported a R1 25bn operating loss for the year.
Comair said the high court action is separate from previous legal challenges by Comair and other competitors some of which are still active.
Following is an infographic supplied by Comair detailing South Africa's airline industry since deregulation:
Comair said in a statement that the current and previous bailouts received by SAA, which now amount to over R11bn over eight plans, do not comply with either the Domestic Aviation Transport Policy or the law (the Constitution, the SAA Act, the Promotion of Administrative Justice Act and the Public Finances Management Act).
“We regret that we have had to resort to legal action to achieve compliance and have not done so lightly. However, we have no other recourse,” says Comair CEO, Erik Venter.
Comair's legal action comes in response to SAA's turnaround strategy laid out over the next 20 years, discussed in parliament last week.
Venter says, “Comair’s sole objective is to attain a level playing field in the domestic aviation market to ensure that all airlines face the same risks and the same requirements to operate on sound commercial principles. By receiving government bailouts SAA avoids this commercial reality and this negatively impacts on all current and potential airline operators.”
The statement also said the action taken by Comair "is not a challenge to stop all funding of SAA; nor a proposal to privatise, nor challenge the shareholding of SAA; nor an attempt to shut down SAA. It is an action to ensure that government will provide funding to SAA only after consultation with all affected stakeholders (as per the Promotion of Administrative Justice Act) and that any funding is in accordance with government’s Domestic Aviation Transport Policy".
According to economist and aviation expert, Joachim Vermooten, the R5bn guarantee enables SAA to artificially increase its scope of operations and sustain losses as a result of not operating on a commercial basis, as is required by existing National Government policy.
“Government subsidies and interventions distort any market; the results in the domestic airline sector have been catastrophic with the demise of 10 out of 11 independent, private airlines since deregulation in 1991, with the latest casualty in November 2012. Fair competition is essential to achieve market-related ticket prices, product innovation and consumer choice,” explains Vermooten.
“Comair has a responsibility to its employees, customers and shareholders to secure a level playing field in which to conduct its business,” says Venter.
In reference to the 20-year plan Venter said, "This is unacceptable in an industry where private capital competes with a state owned enterprise. Comair cannot afford to see this plan unfold over another 20 years.”
Responding to questions about why the latest SAA plan would be more credible than previous ones, SAA acting CEO Nico Bezuidenhout said the latest "holistic" strategy aimed to achieve "sustainable" business. "We cannot continue to come back looking for further capitalisation. If nothing else, it's embarrassing," he said
Bezuidenhout, who is the CEO of Mango, was appointed acting CEO of SAA earlier this month, after the previous incumbent, Vuyisile Kona, was suspended. Kona replaced then CEO Siza Mzimela in October, after the airline reported a R1 25bn operating loss for the year.
Comair said the high court action is separate from previous legal challenges by Comair and other competitors some of which are still active.
Following is an infographic supplied by Comair detailing South Africa's airline industry since deregulation:
