Comair lambastes SAA bailout

Oct 03 2012 12:30
James-Brent Styan

SAA plane

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Cape Town - Comair [JSE:COM] says if South African Airways (SAA) is allowed to use money provided for from a new government guarantee to fund its domestic operations, it will contravene the government's aviation transport policy.

Comair CEO Erik Venter said in 1992, on deregulation of the domestic airline industry, government developed this policy which 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,” said Venter.

Venter said Comair wants to be assured that the new R5bn guarantee government has given SAA won’t be used for SAA’s domestic operations in any way.

He said Comair understands that SAA has to rely on its shareholder (government) to the extent that it is required to deliver a public service, mainly servicing routes that are not commercially viable for private airlines. He added that this does not, howeve,r apply in the domestic market.

“We want to see a separation of SAA’s operations between domestic and international operations. This separation
must be transparent and be accounted for separately.

"The new guarantee should be used to finance the SAA’s international operations alone. The separate domestic operation would then have to operate on sound commercial principles and without any government support or indirect cross-subsidy from SAA international.”
Comair is a JSE-listed airline group and operates low-cost carrier Kulula. It is also the domestic operator for British Airways.

Venter claims since deregulation in 1992, SAA has accumulated a total loss of R17bn.

“The failure of nine of the 11 private airlines that attempted to compete with SAA over the same period is a clear indication of the impact of SAA’s assurance of state support,” Venter said.

“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,” said Venter.

He said government must ensure a level playing field in the domestic airline market.

“If 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.”

Venter said giving money to SAA's domestic operations will mean a change in the policy, which will require all affected stakeholders' participation.

At this stage it is uncertain what the R5bn guarantee will be used for. Indications are that SAA will use the money to finance a new fleet of more fuel-efficient aircraft.

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