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No wasting time in SAA/Comair judgment

Jun 01 2015 10:14
Gareth van Zyl

Battle of the bailout between Comair and SAA. (Jenni Evans, News24)

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Cape Town - Comair's application to set aside the government's R5bn guarantee to South African Airways (SAA) and the consequent extension thereof has been dismissed in the North Gauteng High Court on Monday.

"Judge [Hans Fabricius] reads last paragraph of judgment then walks out," Fin24's Gareth van Zyl tweeted. "The judge spent less than 1 minute on that judgment!"

FULL JUDGMENT: Why judge dismissed Comair’s case against SAA

In October 2012 the government granted SAA a R5bn guarantee for a period of two years.

SAA told Parliament in February 2012 it needed between R4bn and R6bn for a recapitalisation programme.

One of the conditions for the R5bn guarantee in 2012 was that SAA's board had to develop a turnaround strategy. In October 2014 SAA was again seeking government support, two years after it was granted the R5bn in loan guarantees.

In January 2015 Finance Minister Nhlanhla Nene said SAA will receive another R6.5bn injection from state coffers, even though he had said in the previous October that there would be no more bailouts and that the airline would have to restructure.

Comair CEO Erik Venter said ahead of the case that the airline regarded the bailouts and certain other government payments to SAA as not compliant with the Domestic Aviation Transport Policy or the law.

Comair said the guarantee creates more inequality among competitors in the airline industry. The guarantee, furthermore, puts SAA, which is "technically insolvent", only deeper in debt, reported Netwerk24.

Nedbank, Standard Bank and Citibank are opposing Comair's application.

Nedbank lent SAA R1.8bn, Citibank and Standard Bank lent R1.5bn each and Absa lent R1.7bn.  

Parliament first port of call

A private enterprise like Comair would have been able to bring a court case against the government's loan guarantee to SAA only if it had complained about it to Parliament and the complaint was unsuccessful, said Adv Matthew Chaskalson SC on behalf of Nedbank.

On May 8 in court, he said banks often lent money to parastatals against the provision of guarantees. He wanted to know where it would end if another private competitor were to take on a public enterprise in court, because it had obtained a government guarantee for a loan.

The problem would become worse if environmental organisations came to court if a public enterprise like Eskom, for example, obtained a loan guarantee for a project.

Chaskalson also said if an organisation did not first complain to Parliament, it could not go to court.

In answer to this, Fabricius said it would be "very unwise" if he simply found that Comair could not approach the court and then the Constitutional Court finds the opposite and sends the case back.

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