Cash-strapped SAA will have to fork out R1.1bn to its rival Comair to settle a decade-old competition case, with taxpayers most likely having to foot the bill.
The national 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, which are relying on a government bailout to stabilise their parlous finances.
Apart from paying R1.1bn, SAA was also ordered to carry the costs of the 14-year-old legal battle. The airline 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 the funds to pay for immediate operational expenses, let alone maturing debt.
SAA executives said in parliament that 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 anticompetitive 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.
SAA’s dire financial position could rule out any prospect of the airline taking the financial hit on its own for practices that analysts said had driven up the cost of domestic travel for SA consumers.
SAA racked up a R5.7bn loss in its 2017/18 financial year, and its position was so dire it was unlikely that it could remain a going concern without another bailout, or further government guarantees, DA deputy finance spokesman 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 enterprises have to be tabled by end-September, but SAA has not done this.
Lees said the DA would seek answers as to why this was the case from the auditor-general Kimi Makwetu. "It is highly probable that, like in prior years, SAA 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 ten-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 anticompetitive behaviour by paying commission 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.
The huge 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, transport economist and aviation specialist Joachim Vermooten said.
The economic damage inflicted on the consumer through SAA’s behaviour is likely to be far worse than the settlement amount given to Comair, he said.
He estimates that the actual cost of higher prices on consumers could be as much as 10 times the settlement amount.
SAA’s dominant position, provided 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," Vermooten said. "In a private enterprise the damages ultimately go to the shareholders, here it goes to the taxpayer."
SAA said on Saturday the anticompetitive behaviour was a "legacy issue", adding that the years of legal battles "could and should have been handled differently". The finalisation of the matter was a deliberate decision of SAA, to clean up and focus on transforming the airline as it undertook the journey towards financial sustainability, spokesperson Tlali Tlali said.
According to the settlement, payments will be made to Comair from March 2019 and could extend to 2020.
Lees on Sunday dismissed SAA’s plans as optimistic, 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."
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