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FlySafair competitors push for its aviation licence to be suspended over alleged foreign ownership

FlySafair competitors push for its aviation licence to be suspended over alleged foreign ownership
Operating 16 aircraft, 2,558 flights and with the capacity to fly 457,950 passengers, FlySafair became the country’s largest domestic airline in December 2019 - six years after it was founded. This while state-owned South African Airways (SAA) entered business rescue after posting years of consecutive losses and receiving R16.5-billion in bailouts in 10 years. (Photo: Gallo Images / Jacques Stander)

The central complaint by Airlink and Global Airways to authorities — set for hearing on 10 May — is that foreign investors/shareholders predominantly own FlySafair, thus breaching South African laws and licensing conditions.

Does low-cost carrier FlySafair have an unfair advantage over its competitors, which might have paved the way for it to capture 60% of the South African aviation market?

The answer — from the vantage point of FlySafair’s competitors — is a resounding yes.

FlySafair has managed to run a slick business over the past decade, operating in an aviation market in which margins and profits are shrinking like economy-class legroom.

Even investment doyen Warren Buffett is not prepared to pour money into airline stocks because the travel industry remains in a precarious position, guzzles capital and is intensely regulated and competitive (airfare price wars have been seen in South Africa).

However, market forces have also led to FlySafair morphing into a big airline. At least 11 airlines have been permanently grounded in South Africa since FlySafair started flying in October 2014. More recently, the Covid-19 pandemic was the final nail in the coffin for SA Express, Mango Airlines, Kulula and British Airways in southern Africa. South African Airways emerged as a smaller airline after its operations were rehabilitated under business rescue.

Read more in Daily Maverick: SAA clings to hope that its private sector investment plan will fly

As these market changes unfolded, FlySafair has mopped up the flight capacity left open by the collapse of its competitors, allowing it to increase its market share. However, its competitors believe that FlySafair’s growth is also attributable to an unfair market advantage, which has made it difficult for them to compete with the airline on an equal footing.

Now, FlySafair is under investigation for being predominantly owned (allegedly) by foreign players, which could be in breach of licensing conditions and SA aviation laws. 

Aviation companies Airlink and Global Airways (which co-owns the domestic airline Lift) have approached the International Air Services Council and the Air Services Licensing Council, urging the local aviation authority to probe FlySafair’s ownership structure and determine whether it complies with legislation. A company called Safair Operations is believed to be the parent company of FlySafair.

Competitors’ arguments

The central complaint by Airlink and Global Airways, set for hearing on 10 May, is that foreign investors/shareholders predominantly own Safair, thus breaching the Air Services Licensing Act and the International Air Services Act.

The Air Services Licensing Act requires that holders of aviation licences in South Africa have a minimum of 75% local shareholding. In other words, airlines that fly locally are required to be owned by individuals who are “residents” of the country. The 75% requirement also extends to voting rights over how airlines are managed. 

The Act was passed by the government to ensure that SA shareholders and investors become custodians of airlines and interests in the aviation industry. The International Air Services Act requires airlines based in the country and flying overseas to have a “substantial” local shareholding. The airline industry has interpreted this to be a minimum of 51%.

Airlink and Global Airways argue that Safair no longer complies with the Air Services Licensing Act because the airline’s voting rights (and by extension, its shareholding structure) are not held by individuals based in South Africa. 

Daily Maverick understands that Airlink and Global Airways have detailed the shareholding and voting rights structure of Safair Operations to the International Air Services Council, which they say is as follows: 25% is held by a company called Safair Holdings, 25.14% is held by B4i Safair, and 49.86% is held by a trust. 

Daily Maverick also understands that Safair Operations has admitted that 25% of the voting rights held by Safair Holdings are not held by residents of South Africa. Airlink and Global Airways believe that the 49.86% that is held by a trust is opaque. They told SA authorities that the voting rights and economic interests in the trust were not clear, and directors/associated parties of FlySafair are also trustees in the trust, which does not ensure independence. 

Airlink and Global Airways believe that the only applicable local ownership of Safair Operations is the 25.14% held by B4i Safair, which falls below the 75% local ownership requirement. 

The storm over the ownership of FlySafair/Safair goes back to 2013 when competitors Comair and Skywise dragged it to court. At the time, Safair applied for a licence to run a commercial passenger airline. Comair and Skywise argued that Safair’s Ireland-based owner, ASL Aviation Holdings, did not comply with South African laws about the need to have a local shareholding.

Safair was then forced to change its ownership structure to have local ownership. In doing so, ASL Aviation Holdings created the South Africa-based Safair Investment Trust in which a large shareholding in Safair was controlled by South Africans, including its employees, who were awarded 25% of the company’s shares. This paved the way for Safair’s aviation licence to be granted and for it to be allowed to operate. 

In March 2019, the trust was cancelled when ASL Aviation Holdings bought it and acquired its shares. In its financial statements, ASL made the following disclosure: 

“Through the acquisition of Safair Investment Trust, ASL acquired additional share capital in Safair Operations and increased its shareholding from 25% to 74.86%. On this date, the group gained control of Safair Operations, ceased accounting for it as an associate, and commenced accounting for Safair Operations as a subsidiary.”

The requested remedy 

Airlink and Global Airways have asked the local authority to intervene to force Safair Operations to remedy its shareholding structure to reflect more local owners/shareholders. 

The local authority could cancel or suspend Safair’s aviation licence (effectively grounding flights operated by FlySafair) until its shareholding structure is fixed, impose fines or penalties against FlySafair, or give FlySafair more grace (no sanctions) and time to fix its shareholding structure by possibly selling shares in the company to locals. 

Airlink and Global Airways want the playing field to be levelled and for the law to equitably apply to all aviation players. They believe that being majority-owned by foreign shareholders gives FlySafair access to international capital that is used by the airline to fund its operations and growth, allowing it to remain competitive. 

An industry source told Daily Maverick that other SA airlines should also be allowed to open up their shareholding structure, considering that “international aviation giants such as Emirates and Qatar are keen to invest in local airlines. 

“Global investors are prepared to unleash capital into local airlines. However, laws currently prohibit them from doing so. Then the laws should be changed to allow us to attract foreign investors,” the source said. 

Kirby Gordon, the chief marketing officer at Safair, said the company believed it was compliant with all ownership-related laws and had been transparent about its ownership structure.

“How our company is constituted is transparent, and the details lie before all parties at the moment. The challenge at hand is for the councils to reaffirm that the structure complies with the regulations that they have before them. I say ‘reaffirm’ because our structure has always, by regulation, been disclosed,” said Gordon, without disclosing Safair’s actual ownership structure or its submissions to the International Air Services Council in response to the complaint by Airlink and Global Airways.

“For the last 10 years, we’ve built an airline doing good, honest business and offering the best possible value to our customers. We want to continue to do so. While we believe that we are compliant with all requirements, we’re also happy to make any adjustments needed to bring all parties comfort so that we can get back to the business of offering a world-class air travel solution,” he said. DM

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Comments - Please in order to comment.

  • Ben Hawkins says:

    Shame, sore loosers

  • Bob Kuhn says:

    Ask SAA and the anc why Turkish airlines are providing lease assets and pilots for their operations!

    • TV vhoSmith says:

      Wet leasing of aircraft is a common occurance. The three aircraft you are referring to have been returned as per contract agreement – To cover seasonal increase in passenger load.

  • BOB Rernard says:

    Sour grapes! Besides, the foreign owners pay their obligatory (undeclared) anc stipends in hard currency, probably in overseas bank accounts or in good quality leather sofas. I thought that would be obvious?!?!

  • Sydney Kaye says:

    How is having firefighter owners an unfair commercial advantage.
    How does having domestic ownership restrict access to foreign funds.

  • Denise Smit says:

    And the SA public will be the loosers having to pay much more for flying. The competition commission destroys everything competitive making everything much more expensive

  • Juanita Parkin says:

    Brilliant thanks

  • Jennifer D says:

    Bit of an indictment that the only airline performing well is not owned by South Africans? Do they not see the irony of their complaint, or is their objective to drive Safair into the same position as they are, with inferior management? I will personally be supporting Safair as it is clearly the most reliable airline in SA.

  • Guy Perrins says:

    sour grapes by uncompetitive and incompetent so called competition ….what has shareholding got to do with a great delivery service anyway

  • Andrew Ardington says:

    Here we go again. SA in own goal mode once more!

  • Ian Gwilt says:

    SAA and its subsidiaries, Mango, SA express were corrupted and looted.
    hardly in a position to cry.
    Kulula and BA screwed up
    So lets shut down the one that works, SA Logic in action or lets find a jolly cadre who can make the problem go away for a price.

    • TV vhoSmith says:

      Maybe you should read the article again. Slowly this time.
      SAA and its subsidiaries are you involved in the way with this case. There are only two parties: Airlink (Not part of SAA) and Global.

  • Paul Zille says:

    All because of an absurd regulatory requirement being used to stifle competition. Change the rules.

  • Charles Withington says:

    Hi there DM… won’t you get your super sleuths to dig into the apparent “wet-lease” arrangement with Turkish Airlines. Why are we not flying our own airplanes especially since we are financing SAA ?

    • Dave Reynell says:

      “Why are we not flying our own aeroplanes …?”
      Because no one wants to fly in SAA’s A340’s, which date back to 1993.

      • Bongane Maphanga says:

        SAA nolonger has those planes in their inventory

        Ever heard of Coleman Andrews?

        • TV vhoSmith says:

          Actually SAA still flies ZS-SXE (Airbus A340-300). Get your facts straight. And they do still have several A340 aircraft in their inventory.

      • TV vhoSmith says:

        Maybe you should do a bit more reading about civil aviation. The 30 year old A340 is still way quieter and more comfortable than the little Embraers at Airlink and the high density seating arrangements on Fly Safair’s 737’s…

    • TV vhoSmith says:

      There isa general shortage of Narrow Body Aircraft (Especially Boeing and Airbus). Besides, leasing isa common sense these days. Airline hasn’t boughta new aircraft in years. All of their E-Jets are leased because it poses less risk.

  • Geoff Coles says:

    Seems a nonsense and not good for SA flyers

  • Andrew Wallace says:

    Every comment below clearly demonstrates the paying public’s thoughts. Should the sore losers and archaic govt logic extend to the freight industry as well, everything that is imported is carried on foreign owned and / or managed vessels and aircraft……..be careful what you wish for. Level the playing fields by all means, but protectionism does not benefit individuals.

    • Ben Harper says:

      Oh believe me, a lot of those in government and labour unions don’t even know that all of those ships coming into our ports don’t actually belong to South Africa

  • Tela Gwiji says:

    The fight for local shareholding is a good one. However, it’s not to the benefit of the consumer. I say this as someone from the Eastern Cape, we do not have a wide choice of airlines, so Flysafair is very important for traveling between JHB and East London. Grounding the airline will be bad for our pockets because it will mean that there is only Airlink that goes there, which most of the time is affordable. So whatever, the hearing is the consumer needs should be kept in mind.

  • Jason Bedingham says:

    Why penalise an airline which operates its planes timeously and effectively? Safair cannot be blamed for the other operators taking their eye off the ball.

  • Steve Davidson says:

    “Does low-cost carrier FlySafair have an unfair advantage over its competitors, which might have paved the way for it to capture 60% of the South African aviation market?”

    Yes. They are really really good, with lots and lots of well-priced flights, which is SO unfair to the other ones.

  • Francois Goosen says:

    This will be a pity. Seems like beggers and victim mentallity cannot depart from our country. Provide the best you can for the people, not the best you can, at all cost, by trying to kill competitors and subsequently making travelling unaffordable. Rather merge with Safair? Nope, then the competition commision will blow down your neck – as long as there is no free market without most of the red tape gone, it will stay difficult to build a business and to give the best to the consumer.

    • Bob Kuhn says:

      That’s the reality of the anc’s arrogant “dog in the manger” communist ideology that they must CONTROL everything.

  • Bob Fraser says:

    Bob F May 9th be at 14-24
    The Act was passed purley for the protection of the SAA and to give cabinet members an opportunity to pilfer as much as possible. This they did every time the minister of finance allocated millions more to keep the airline floating. Didn’t work though.
    All other airlines should now be complaining by the fact that we, the tax payers, continue to finance SAA and not by the Act.

    • Ian Gwilt says:

      Not forgetting all the free flights for anyone linked to Govt
      This is probably the main reason to keep SAA going.
      I have never seen a minister on Safair

  • Terril Scott says:

    The culture of envy at work. FlySafair is the only airline I would fly on in South Africa. They are clean, well organized, well run with time tables that are respected, they feature reasonable fares that are not encumbered with “free” stuff built in and one can trust them to be there because, for one thing, they have sound financial backing. Also, to those for whom it matters, they de-plane passengers row by row rather than the mad rush associated with most other airlines. As long as they are in business, they provide incentive for other airlines to pull up their socks or get out of the game.

  • Linden Birns says:

    Since when did it become okay to selectively apply the law based on popularity? Do we want to live in a society that respects the rule of law, or not? In this instance the law requires any South African-domiciled commercial air service operator to be 75% owned and effectively controlled by South African residents. We can agree this piece of legislation inhibits investment, but until it is changed or scrapped, surely any person or entity it pertains to must comply with it?

  • Johan Mynhardt says:

    FlySafair is the only affordable option between Cape Town and Bloemfontein.
    Other services can go fly a kite (if they are able to).
    Regulating the country’s services into oblivion is not the answer.

    ‘n Grap is ‘n grap, maar mens maak nie ‘n sambreel oop waar die son nie skyn nie.

    • TV vhoSmith says:

      Fly Safair is a Low Cost Carrier. They will, by default, attract more passengers. The other airlines do offer Economy Class Seats but they’re still more expensive because they include In Flight Services at no extra cost and you won’t be packed into the aircraft like a sardine.

      You get what you pay for.

  • It’s so unfortunate that under performing and incompetent individuals in South Africa resort to xenophobic tendencies to have a competitive advantage-something that they can not maintain. There are alot of foreign shareholders in the economy but why Safair?

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