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Call for competition probe into SAA, Mango 'collusion'

Jun 13 2016 15:53
Carin Smith

Cape Town - The DA said on Monday it would request the Competition Commission to launch a full-scale investigation into alleged collusion between South African Airways (SAA) and its low-cost subsidiary Mango Airlines.

This was after SAA seemingly inadvertently revealed in a statement issued on Saturday that it has enabled Mango to offer discounted flights through subleasing aircraft at discounted rates.

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

READ: Fastjet names Mango's Nico Bezuidenhout as new CEO

In the statement SAA said 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".

"The aircraft are still in use and comprise the whole of Mango’s fleet. SAA understands and accepts that this is a necessary investment and a demonstration of shareholder support towards an entity it has exclusive shareholding over."

According to the DA, this effectively means that both Mango and SAA have been losing money and that Mango’s "good story is a farce paid for by the South African public".
 
"We will ask the Commission to table its report in Parliament after including in its investigation the benefits and possible kickbacks for SAA in leasing aircraft to Mango; the total cost to taxpayers due to this arrangement; the entire lease period and the terms of lease offered to Mango; and the total amount of losses to SAA attributed to the subleasing agreement," the party said.
 
The DA emphasised that if there was such an arrangement between SAA and Mango, it would have allowed the low-cost airline to offer flight tickets at rates below operational cost.

"This is uncompetitive and detrimental to other airlines, which eventually will be priced out of the market and be forced into bankruptcy and closure," said the DA.

The DA claimed that 10 out of the 11 independent, private airlines launched in SA since deregulation in 1991, have failed.

"The fact that Mango’s entire fleet of aircraft is comprised of SAA sub-leased aircraft diminishes from the success story at Mango and exposes why SAA has incurred R18bn worth of losses so far and has cost the taxpayer R14.4bn in government guarantees," said the DA.
 
"We cannot allow SAA and Mango to undermine Treasury’s calls for stringent spending and austerity in order to keep up appearances at taxpayers’ expense."
 
According to the DA, if there has been such a loss-incurring sub-leasing arrangement between SAA and Mango, it would be further reason for the DA's belief that SAA should be privatised.

READ: SAA must not be a liability to the fiscus - Gordhan

The DA claims its plan for the privatisation of SAA would bring about a number of "efficient outcomes". These would include, in its view, the introduction of capital, technology and managerial expertise that SAA currently lacks in its view.

"The private sector is more resourceful than the public sector and will ensure the provision of high-quality services and goods," said the DA.

It added that the promotion of competition puts pressure on the private sector to be more efficient and viable.

"We need SAA to be held accountable for all negligent spending of state funds," said the DA.

According to fastjet, during Bezuidenhout's tenure, he grew Mango's market share to 25% of the SA domestic air travel market and the fleet to ten Boeing 737-800 aircraft.

"He also achieved the lowest unit cost within the SA aviation industry through high aircraft utilisation and sustained good load factors," said fastjet.
 
Bezuidenhout said last week that Mango "has enjoyed unparalleled success across all areas of the business, setting the pace in many instances in domestic aviation, for what is likely one of the most challenging industries".

In acknowledging Bezuidenhout's resignation, Mango said the airline's achievements and "exemplary success under his leadership is a legacy that the Mango family will celebrate for decades to come".

ALSO READ: SAA may turn profit in 2017/18 - report


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