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Comair questions SAA bailout

Pretoria - The government's multi-billion rand guarantees for South African Airways (SAA) were irrational, the High Court in Pretoria heard on Tuesday.

''Its capital structure is as untenable as it was in the beginning,'' said David Unterhalter, for Comair, which is challenging the legality and constitutionality of the bailouts to the ailing national carrier.

He said the only basis under which Standard Bank, CitiBank, and Nedbank lent money to SAA was because of a government guarantee.

Comair, which operates budget airline Kulula.com and British Airways, is arguing that government loans were giving SAA an unfair competitive advantage.  

Unterhalter submitted that SAA was simply paying for the interest on previous loans through more loans.

''The entity had to borrow from Peter to pay Paul," said Unterhalter.

When SAA became unable to repay the banks, it would become Parliament's problem to find the money.

''Incurring further debt to discharge your obligations and you just go down the spiral as a company, just as some countries go down the spiral.''

Judge Hans Fabricius asked if borrowing money to repay debt was common in households, “government should do it?”

Appropriation

Unterhalter submitted three ways SAA could carry on: If the government kept giving it further guarantees, if it was recapitalised through an appropriation from Parliament, or business rescue.

The extent of the capitalisation needed had been calculated, but was confidential. This would add equity to the balance sheet, but at the rate SAA was ''burning cash'', the current debt level was unsustainable.

Another possibility was to ''ring fence'' and divide domestic and international units and provide a subsidy for the routes, subject to approval by Parliament.

The court heard that a potential investment partner had pulled out. Unterhalter said government guaranteed the loan, because one by SAA would not secure a loan from any bank.

''But what you cannot do is issue a guarantee in circumstances where you bind the hands of Parliament.

''The guarantee is simply a device for using a South African [banking] institution to provide funding for SAA which would have to be paid from the revenue fund, which is simply not allowed," he said.

''It is simply not permitted in circumstances in which the guarantee is tantamount to an appropriation. It eventually means that somebody has to pick up the tab and this somebody is going to be Parliament,'' Unterhalter said.

Unfair competitive advantages

Having been on his feet the whole day presenting argument, Unterhalter concluded by saying SAA started acting on the loan when it was told the loan would be guaranteed.

The banks did not seem to impose any conditions, he added. There was also no consultation regarding the industry at large.

''We are here dealing with the use of public money, not private money.'' The case was postponed to Wednesday for Unterhalter to finish his argument.

The three banks, the departments of finance, public enterprise and transport, and SAA, were expected to submit arguments.

Earlier Comair CEO Erik Venter said they did not object to the loans on their own, but if they involved taxpayers' money, Parliament should have been consulted.

He alleged outside the court room that SAA had enjoyed unfair competitive advantages through government-secured funding.

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