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Why judge dismissed Comair’s case against SAA

Jun 01 2015 12:49
Matthew le Cordeur and Gareth van Zyl

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

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Pretoria – Any “optimism or pessimism” regarding the ability of South African Airways (SAA) to repay any loan is not a requirement for any relevant guarantee, according to a judgment dismissing Comair’s application against the national airline receiving constant government bailouts.

North Gauteng High Court Judge Hans Fabricius said in his judgment handed out to journalists on Monday that “Section 70 and sections 213 and 218 of the Constitution do not require this”.

In a one-minute appearance in court Judge Fabricius dismissed Comair's application, without costs, to set aside the government's R5bn guarantee to SAA and the consequent extension of the guarantee.

READ: No wasting time in SAA/Comair judgment

Nedbank [JSE:NED], Standard Bank [JSE:SBK] and Citibank had opposed Comair's application. Nedbank lent SAA R1.8bn, Citibank and Standard Bank lent R1.5bn each and Absa lent R1.7bn.  

Apart from the above banks and SAA, the SA government and the Departments of Public Enterprise, Transport and Finance were also respondents in the case.

“Having regard to all of the material that was before the ministers [of the above-mentioned departments] at the time, and the whole history of SAA, I cannot say that the decision to guarantee loans on a perpetual basis subject to the stated (and perfectly rational conditions) is of such a nature that the purpose of the PFMA (Public Finance Management Act 1 of 1999) is not achieved or cannot be achieved, as Mr Unterhalter SC submitted,” said Fabricius.

“I also keep in mind that members of the executive have a wide discretion in selecting means to achieve constitutionally permitted objectives and that courts may not interfere with the means selected simply because they do not like them or because there are other appropriate means that could have been selected.”

Fabricius said the consideration that the ministers had in mind when agreeing to issue the perpetual guarantee went beyond purely financial aspects.

“SAA, as a national carrier, [has] a mandate that requires it not to operate for purely commercial gain, but also to operate routes that are not profitable in order to support the strategic interests of South Africa,” said Fabricius. "As part of the developing turnaround strategy, such routes would either be discontinued in future, or possibly 'ringfenced'."

According to SAA, in the absence of shareholder support the airline would not be able to operate, said Fabricius. “This would be detrimental to the South African economy and strategic objectives, given its contribution to South Africa generally and the gross domestic product,” he said.

“Comair does not compete with SAA internationally, and could not transport the international tourists to South Africa,” he added.

“It could not convey the cargo to and from South Africa. It could not assimilate the dozens of service providers to SAA and the many thousands of employees, nor could any other airline on short to medium notice.”

“The ministers gave reasons why [the] failure of SAA would have been catastrophic for all of its service providers and employees, tourists, trade to and from South Africa and the economy as a whole, including the financial markets and South Africa’s credibility therein,” he said.

“In my view, these were permissible and relevant considerations in the present context and were mandated by the Constitution and the PFMA. The ministers therefore did act lawfully.

“Although they took most considerations into account then the mere financial ones contained in the Treasury Memorandum, they were in my view entitled to do so, if not obliged.

“That is part of the executive function herein: to carefully consider the wide ramifications of the failure of SAA. This they did.”

Read the full judgment:

saa  |  comair  |  airlines
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