How State Meddling Makes South Africa’s Airlines Industry Unattractive

How State Meddling Makes South Africa’s Airlines Industry Unattractive

According to Comair, the only major private airline in South Africa, government meddling in the airlines industry by bailing out state-owned South African Airways (SAA) and guaranteeing its loans was making investment in the business untenable for private airlines.

Loss-making SAA has received as much as $2.6 billion in bailouts and loan guarantees by the government from tax payers money to help it pay its debt and keep it operational.

“In Europe, airlines get knocked out of IATA (International Air Transport Association) if they receive state bailouts. It is blatantly against regulations,” former chief executive of failed Nationwide airline, Vernon Bricknell, told Sunday Times.

Comair has an ongoing case against the government that seek to challenge the constitutionality of the South African Airways guarantees. The case has been pending since 2012.

Erik Venter, Comair’s chief executive, told Sunday Times the airline would be forced to reconsider its investment in South Africa if it lost the court bid to declare the South African government bailout of SAA invalid.

At the latest hearing of the case this week  Comair lawyers argued that the government had violated its own domestic air transport policy, which promised not to guarantee loans on behalf of SAA while private airlines had to borrow at their own risk.

“It’s the biggest single item on our risk register,” Venter said.

Airlines operating in the Africa’s second largest economy are calling for a round-table with government officials from the minister of tourism to discuss SAA’s conduct, among other things ailing the industry, Skywise co-chair Javed Malik told Moneyweb.

South Africa’s top banks Nedbank, Standard Bank, Citibank and Absa, which loaned huge amounts to SAA, are also enjoined to the Comair case.