Taxpayers bear brunt of SAA’s lost battle with Comair
Cash-strapped carrier needs to cough up R1.1bn after competition case, but is banking on yet another bailout
Cash-strapped SAA will have to fork out R1.1bn for its rival Comair to settle a decade-old competition case, and taxpayers will probably have to foot the bill.
The airline, which has still not submitted its 2017/18 financial statements to parliament, is one of several state-owned enterprises, including Eskom, Denel and the SABC, that are relying on a government bailout to stabilise their parlous finances.
Apart from paying R1.1bn, SAA was also ordered to pay the costs of the 14-year-old legal battle. It is hoping finance minister Tito Mboweni will announce some form of financial assistance when he tables his 2019/20 budget in parliament on Wednesday.
In November, Business Day reported that SAA, which needs R21.7bn from the government over the next three years to implement its turnaround plan, did not have sufficient funds to pay for immediate operational expenses, let alone maturing debt. SAA executives said in parliament the airline needed about R17bn in government bailouts, or refinancing from banks, in the next three months to continue operations.
Years of legal battles between Comair and SAA ended with the parties reaching a full and final agreement over SAA’s anti-competitive conduct between 1999 and 2005, Comair said on Friday.
SAA has agreed to pay the British Airways franchisee R1.1bn, plus interest, along with legal costs. But the question is where SAA will find the money to settle the debt. The carrier’s dire financial position could rule out any prospect of the airline taking the financial hit on its own for practices that analysts say drove up the cost of domestic travel for South Africans.
SAA racked up a R5.7bn loss in its 2017/18 financial year, and its financial position was so dire it was unlikely it could remain a going concern without another bailout, or further government guarantees, DA deputy finance spokesperson Alf Lees said on Sunday.
SAA’s financial statements for the 2018 financial year are already five months overdue, and there is little to no sign that the national carrier is capable of becoming profitable by 2021, as it has promised.
In terms of the Public Finance Management Act, the financial statements of government departments and state-owned entities have to be tabled by end-September but SAA has not done this.
Lees said the DA would seek answers as to why this is the case from auditor-general Kimi Makwetu. “It is highly probable that, like in prior years, South African Airways is not a going concern,” Lees said.
Following the announcement on Friday of its settlement agreement with SAA, Comair added R470m to its market capitalisation, as its share price closed 21.98% higher at R6.25 – a 10-month high. This gave Comair a market capitalisation of R2.6bn.
The airline lodged civil claims against SAA based on a 2006 Competition Appeals Court ruling that SAA had engaged in anti-competitive behaviour by paying commissions to travel agents, in order to incentivise them to divert customers to SAA flights. The case was the first civil litigation based on a Competition Tribunal ruling.
Consumers bear the brunt
The massive cash injection due to Comair simply represented some of the lost earnings suffered by the airline, after many years of SAA’s distortionary effect on prices in the market, said transport economist and aviation specialist Joachim Vermooten.
The economic damage inflicted on the consumer through SAA’s behaviour was likely to be far worse than the settlement amount given to Comair, he said. He estimated the actual cost of higher prices on consumers could be as much as 10 times the settlement amount.
SAA’s dominant position, provided for by its ability to receive billions of rand in bailouts from the taxpayer, had also put pressure on the local aviation sector, he said. “The question is, does the payout have any disciplinary effect on the state-owned enterprises? In private enterprises the damages ultimately go to the shareholders, here it goes to the taxpayer.”
SAA said on Saturday the anti-competitive behaviour was a “legacy issue”, adding that the years of legal battles “could and should have been handled differently”.
“The finalisation of this matter is a deliberate decision of SAA to clean up and focus on transforming the airline as it undertakes the journey towards financial sustainability,” spokesperson Tlali Tlali said.
According to the settlement, payments will be made to Comair from March 2018, and could extend to 2020.
Lees dismissed SAA’s plans as optimistic on Sunday, saying the settlement was simply a further burden on taxpayers, adding that the airline should be shut down.
“The national carrier is still clearly cursed by maladministration and corruption, is overstaffed and bankrupt,” he said.