Comair seeks legal advice on SAA bail-out

CAPE TOWN — The state’s R5bn guarantee for South African Airways (SAA) could face a legal challenge from Comair if the JSE-listed airline believes this could cause unfair competition in the airline industry.

Comair has obtained legal advice to support a possible future court challenge, which will depend on whether the conditions of the recapitalisation give the national carrier an unfair competitive advantage. Should Comair believe this to be the case, it will argue the move marks a change in government policy — articulated in the early 1990s — without any consultation with affected parties as required by law.

The policy stated that the government would maintain a level playing field in the airline industry for private competitors, and would not fund SAA’s domestic operations. This was the basis on which Comair and other airlines were launched.

“There has been huge reliance on this policy,” Comair CEO Erik Venter said yesterday.

Comair is engaged in another court case with SAA. Next month, the Gauteng High Court will consider what quantum of damages SAA should pay Comair for unfair competitive practices. In 2009, the Competition Tribunal found it guilty of entering into incentive and trust agreements with travel agents between 1999 and 2001 to ensure they sold SAA tickets. Comair is claiming hundreds of millions of rands, plus interest at the rate of 15% a year, as compensation.

Mr Venter said the latest bail-out of SAA by the government was the last straw. He said Comair had not taken action the last time the government gave SAA financial support because it came with the assurance that it would be the very last time. It now seemed that state funding of SAA was open ended.

Mr Venter said SAA and its lowfare subsidiary Mango did not charge adequate tariffs to allow them to fund their fleet purchases, and they had to rely on state support. Few privately owned airlines could compete with this. In fact, nine of the 11 private airlines that had attempted to compete with SAA since deregulation had failed.

SAA received a R1.3bn subordinated loan last year, and a R1.6bn going-concern guarantee before that to underpin its cash requirements.