SAA bailouts ‘stifling competition’

SOUTH African Airways is technically insolvent and the government’s continued bailouts are merely extending the life of a failing state-owned company while chucking private competitors out of business.

This is the argument Comair presented to the North Gauteng High Court yesterday in its application to stop the government’s multibillion-rand cash injections into the national carrier.

Comair operates low-cost airline Kulula.com

In late 2012, SAA was granted a R5-billion loan guarantee for two years, based on an agreement that the company would draft a turnaround strategy.

But last year, the indebted airline again sought government funding and, this year, received another R6-billion from the public purse.

To date, SAA has raked in more than R30-billion from government coffers in the form of guarantees and loans.

David Unterhalter SC, representing Comair, said SAA was in a classic debt spiral and the only sustainable solution was for it to stop getting loans.

“SAA is a company that is technically insolvent and is incurring further debt to pay its debt that it doesn’t have the means to repay,” Unterhalter said.

The budget airline says government financial assistance to SAA is stifling competition and bankrupts other low-cost carriers through its lower prices.

SAA competes in the domestic no-frills airline market through its own budget airline, Mango, which has some of the lowest prices.

One domestic no-frills airline, 1time, filed for bankruptcy in 2012.

Speaking outside court, Comair chief executive Erik Venter said: “The fact is that these bailouts al- low SAA to do stuff that can put us [Comair] in bankruptcy, it doesn’t have to face [the consequences] we do.”

SAA is implementing a Treasury-supervised turnaround strategy to get back to profitability. Unterhalter said the strategy was based on assumptions that would not materialise.

All the bailouts were doing was extending the lifeline of a failing state enterprise, he said.

The bailouts were not in line with Domestic Aviation Transport Policy and the law (the constitution, the SAA Act, the Promotion of Administrative Justice Act, and the Public Finances Management Act).

Comair will continue to present arguments tomorrow.

‘ SAA is technically insolvent and is incurring further debt to pay its debt