Business

South Africans may fork out hundreds of millions more in bailouts as SA Airlink takes on SA Express

2019-10-07 02:10

If it stays the state will have to fork out millions more in bailouts to shore up the bankrupt domestic and regional carrier

South Africans might have to fork out hundreds of millions more in bailouts to shore up the government’s bankrupt domestic and regional carrier, SA Express, if SA Airlink’s demand that the International Air Services Council withdraw its decision to grant SA Express permission to fly to Botswana, Zimbabwe and Angola is granted.

Aviation experts told City Press last week that SA Express’ turnaround strategy was entirely dependent on international routes, without which the airline was not financially viable and would need more bailouts from Treasury.

SA Airlink last week sent a lawyer’s letter to the International Air Services Council demanding that it withdrew SA Express’ authorisation to fly lucrative routes to Gaborone, Harare and Luanda or facecourt action.

In the letter, Bowman Gilfillan’s Heather Manson said the decision to allow SA Express to fly to Luanda, Bulawayo and Gaborone would prejudice Airlink, the public and the international air service industry.

Manson said the decision was prejudicial because it:
  • Permits SA Express, which is not able to operate a safe and reliable international air service because it is bankrupt, to extend its current operations;
  • Allows SA Express to extend its current operations despite requiring regular bailouts from Treasury. Bailouts increase the risk of SA Express incurring greater losses and requiring additional and extended financial guarantees by the state; and
  • Risks the misuse air space which is a valuable national asset.

Manson demanded that the council rescind the decision or face court action.

“In all the circumstances, Airlink intends to institute an application to have the decision reviewed, set aside and declared invalid in terms of the Promotion of Administrative Justice Act and the principle of legality.

“This letter constitutes notice to the council and SA Express of the intended review application. Airlink will endeavour to launch the review application on or before October 18 2019. Airlink hereby requests that the coming into effect of the decision be suspended, pending the outcome of the review application.”

The company and the public will suffer immediate and irreparable prejudice if the decision were to be implemented pending the review, Manson said.

In a terse response on Thursday, the council informed Airlink it would forge ahead and implement the decision to award SA Express scheduled flights to Luanda, Gaborone and Bulawayo.

“The council takes note of the contents but disagrees with Airlink’s submission that the council ought to have refused the application and further disagrees with the submission that there was no proper basis for the council to conclude that the statutory requirements were satisfied. Council disagrees with the submission that the decision is prejudicial.

“The council has considered the request that the coming into effect of the decision be suspended, pending the outcome of the review application, and does not agree to the request for the suspension of the decision and therefore the suspension sought is not granted. “The council reserves its right to vigorously defend its decision and ensure full implementation of the International Air Services Act,” the letter read.

A source with experience in the aviation sector said SA Express’ entire turnaround strategy was premised on getting access to international routes.

“If they are not able to access international routes, they might just as well shut the door and go home.

“It means SA Express will look to government for more bailouts. In April Treasury extended a R1.5 bailout to SA Express.

“Those routes would help them save face. If they are not able to fly these routes it means that their turnaround strategy is in peril,” said the source.

In May last year the SA Civil Aviation Authority grounded SA Express following safety concerns, leaving hundreds of thousands of passengers in the lurch.

The authority had also withdrawn the airworthiness of nine of SA Express’ aircrafts, meaning that the carrier could no longer operate as an airline.

It needed to reapply to start operating as an airline and civil aviation authorities had to carry out a full audit before allowing the company to start flying again.

SA Express returned to the air in August only to find that almost all it routes and customers had been snapped up by Airlink.

Aviation expert Guy Leitch said it appeared that SA Airlink’s chief executive Rodger Foster was attempting to use the council to eliminate competition.

“If SA Express is taken off those routes, there will be no competition.” However, he also believed that Foster’s complaint was justifiable.

“For SA Express to operate and compete fairly, it needs to be solvent, properly capitalised, fly regular schedules and not cancel flights. At the moment the company is not able to do so. It has a bloated structure, no balance sheet, no aircraft and is paying more for leased aircraft.”

Another aviation expert, who did not want to be named, claimed Foster’s move was an attempt to eliminate competition.

The expert accused Foster of trying to shut down SA Express by all means necessary.

“He is fighting the same government that he is part of. The success of SA Airlink is on the back of a franchise agreement, signed more than two decades ago, which allows Rodger to use SAA’s intellectual property. The agreement allows him to use SAA’s property, including marketing, booking systems and counters. SAA owns 3% of SA Airlink. Why is Rodger fighting a government of which he is a part?”

The source said that the sooner SA Express crashes, the quicker government would incorporate it into SAA.

“Rodger would be the biggest beneficiary of the merger of SAA and SA Express in that his company would be the only feeder to the national carrier. It is not a secret that Foster wants the government to take a bigger stake in SA Airlink at a premium determined by him.”

In an interview with City Press Foster dismissed the claims that he was trying to crash SA Express and eliminate all competition as nonsense.

“They make it sound as if we don’t want competition, but that is not the essence of the letter. According to the International Services Act, before an airline is considered for routes, certain criteria should be satisfied. That includes safety, and a proper balance sheet. At the moment SA Express is not a going concern, they are not able to table financial statements and as such they don’t meet the critieria.”

The council did not apply its mind when granting SA Express scheduled routes to Bulawayo, Gaborone and Luanda, he said, adding that the idea that he wants a monopoly was a “nonsensical fabrication”.

“We are happy to compete as long as the competition is fair. It is not fair that SA Express keeps getting government bailouts when everyone else is subjected to market forces.”

Of the franchise agreement he said: “Yes, there is a franchise agreement, but SAA benefits immensely from it. We have 55 networks which supply a huge number of passengers to SAA.”


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October 13 2019