Biggest airline in South Africa under siege

South Africa’s largest domestic airline, FlySafair, finds itself in increasingly hot water regarding its shareholding structure which has been deemed non-compliant with local regulations.

The airline has clarified that this only affects its international flights as domestic operations occur under a separate licence.

The International Air Services Council (IASC) is expected to determine the sanctions it will apply to FlySafiar before the end of November, which may include suspending or cancelling its licence.

FlySafair has since taken the IASC to court, filing an urgent interdict against the ruling that deemed its shareholding structure non-compliant.

Under local law, domestic airlines must be substantially owned by South African citizens, and competitors have argued that FlySafair is majority-owned by foreigners.

Ireland-based ASL Aviation owns nearly 75% of FlySafair’s shares through its subsidiaries or directly.

Aviation expert Phutego Mojapele said that he is shocked FlySafair has not tried to rectify its shareholding structure in the past few years.

This is not the first time competitors have raised issues with the company’s shareholders, with both Airlink and LIFT-owner Global Aviation asking for an inquiry years ago.

When FlySafair was first launched in 2014, Comair argued that it was not majority South African-owned and, therefore, should not have been allowed to operate.

“What amazes me is that when this matter was first ventilated, there were clear signs that they were in contravention of the regulations,” Mojapele said.

“It would have been easier for them to look to rectify the problem or bone of contention from competitors back then rather than waiting to be forced to.”

“They should not be going to court now because this is all self-inflicted.”

Mojapele said the evidence presented first by Comair and now Global Aviation was extensive regarding FlySafair’s non-compliance with regulations, but the problem seemingly has not been dealt with.

“I don’t seem to understand why it would be that this time around, they think the IASC read the regulations wrong and would not apply them.”

FlySafair said it complies with all local regulations following its structural changes in 2019.

“Since our most recent structural changes in 2019, FlySafair has fully co-operated with regulatory authorities to ensure that our shareholding and control mechanisms remain transparent.”

“We have continued to serve South Africans proudly and have maintained control of our day-to-day operations locally. Our team remains firmly based in SA, and our primary focus is on delivering safe, reliable and affordable service to South African customers.”

The potential sanctions, which are set to be revealed on 28 November, could include cancelling or suspending FlySafair’s aviation licence until the shareholding structure is fixed or penalties are imposed.

This would only affect FlySafair’s international flights.

Mojapele expects the IASC to at least suspend FlySafair’s licence, given the previous times that issues with its shareholding structure have been raised.

“In fact, it is something they should prepare for because sanctions are imminent. On 28 November, we will be seeing their international flights being grounded. I think that is imminent.”

Mojapele argued that more is at stake than merely a question over FlySafair’s shareholding.

If the airline is not punished, nothing will stop other companies from doing the same thing and tapping international investors for additional money to drive their growth.

For example, Airlink would have pushed for Qatar Airways to buy more than 25% of the company if it thought it would comply with local regulations outlining South African ownership.

While international investment in South Africa’s airlines would be beneficial, the current law needs to be upheld, Mojapele said.

Fellow aviation expert Guy Leitch does not believe the IASC will ground FlySafair’s international flights at the end of November.

Leitch expects the IASC to issue a final notice to FlySafair to rectify its shareholding rather than shut down the airline before December.

Leitch said in previous cases where ownership was held through a South African trust, as is the case with ASL Aviation, it has been deemed okay, but in this case, the IASC has taken exception to it.

He also argued that the regulations should be changed to enable more foreign investment in local airlines as it is desperately needed.

Leitch explained that airlines are notoriously capital-investive and constantly require investment to keep running. This is capital that not many local airlines have access to.

“There is a good argument to say that we do not need a law like this and that, at least, the 25% foreign ownership limit should be raised.”

“Most countries have a 50% limit on foreign ownership, meaning that it could be easily raised.”

Leitch said the FlySafair matter is likely to be stuck in court for many years to come and should clarify many issues with the current laws.

This article was first published by Daily Investor and is reproduced with permission.