Monday, September 23, 2013

● OPINION: The Legal Basis of the Court Application against FlySafair by Rob Baker.

In the interests of stirring more debate and offering a more broadly-based platform for the flow of information, ideas and opinions here on The African Aviation Tribune, I have introduced a new section to offer African aviation professionals, insiders, analysts and spectators a chance to voice their opinions, ideas and points of view on any subject pertaining to the field of Aviation in Africa.

The first piece comes from Rob Baker, the owner of South African online travel portal, SouthAfrica.TO, and offers a more indepth look at the ongoing dispute between Safair, Comair Ltd, SkyWise and the South African Air Services Licensing Authority (ASLA) over whether or not FlySafair should be allowed to launch their services in South Africa in light of alleged foreign-ownership compliance issues.

The Legal Basis of the Court Application against FlySafair

Whilst the world is cantering towards free trade the aviation industry is still in the stone age.  Like many other countries, South Africa has laws which prohibit foreigners from operating scheduled flights in the country. And we’re not just talking about airlines with owners as far afield as the UK, there’s no brotherly love shared between African countries either – if you’re owned by Zimbabweans or Namibians, you still cannot fly scheduled flights in South Africa. It’s this law which prevents airlines like Virgin Atlantic and Emirates from operating domestic flights in SA. Economic theory indicates that this suppression of competition generally leads to higher prices and fewer choices for consumers than would otherwise be the case. Whilst consumers are the losers, the winners are the incumbent airlines which face less competition.

And it’s the application of this very law that we are seeing in the case against FlySafair. On the 13th September Skywise (an airline in South Africa which is about to launch) and Comair filed a court application against the Air Services Licensing Authority (ASLA) of South Africa, and Safair Operations (FlySafair) , alleging that the ASLA erred in granting FlySafair a license to operate scheduled flights in South Africa.  This court case has grabbed the attention of the South African public, who are hungry for cheaper airfares after the sharp increase in prices they’ve experienced since Velvet Sky and 1time ceased operations last year.

Over 300 pages have been filed in their court application, but the gist of Skywise and Comair’s case against FlySafair and the ASLA is that they don’t meet the requirement for 75% South African ownership. The ASLA is empowered through South Africa’s Air Services Licensing Act. An excerpt of 16(4)c & 16(4)d of the act say that “"application is granted and a licence issued...if the applicant…is incorporated in the Republic and at least 75 per cent of the voting rights in respect of such person is held by residents of the Republic’”.

Comair and Skywise allege that FlySafair is merely a front being used by the Irish ASL Aviation Group (ASL) to enter the South African market; and they refer to inconsistencies in documentation as to whether ASL owns 100% or just 25% of FlySafair; question whether Hugh Flynn is South African enough; and say that the South Africans have an inferior class of share to ASL.  

FlySafair have clarified that Hugh Flynn, Elmar Conradie and Dave Andrew each own 25% of FlySafair, and ASL only 25%; they also sketch the background of Hugh Flynn as somebody who was born in Johannesburg, owns a property in Cape Town and has a pilot’s license in South Africa. 

Comair & Skywise go into detail in the shares, alleging that there are 2 classes of share: ordinary shares (owned by ASL) and “Class A shares” owned by Mr Andrews, Flynn & Conradie.  The Class A shares receive no dividends, are not entitled to capital on winding up and can only be sold to other Class A shareholders (and only with the consent of Safair Limited).  

The initial hearing on the 1st of October 2013 is to decide whether FlySafair should have to remain grounded until the point at which the court hears the main case. However, there is in fact an even bigger debate being carried out within South Africa, and that is about whether the laws restricting foreign ownership of airlines should be there in the first case.  That debate is likely to intensify should the courts force FlySafair to keep its B737-400s on the ground. 

My personal opinion is that laws which force local ownership make the world a poorer place, as they prevent foreign competition from coming in, resulting in the consumer being left with less choices and an inferior or more expensive product.  However, it’s also not fair that South Africa lower the barriers to entry whilst other countries keep them up. South African airlines should be able to compete in foreign countries to the same extent as foreign airlines are allowed to compete in South Africa. The immediate action government can take is to remove the restrictions for countries which already have not placed similar restriction on South Africa. Once that is achieved, government should engage with other countries to encourage open competition in each other’s markets.

Where better to start than with our African brothers and sisters...

This article is based on information published on FlySafair at South Africa Travel Online, and is written by Rob Baker.

Rob is a semi-retired investment actuary, who after 17 years in financial services took a leap of faith and launched SouthAfrica.TO – now the leading online travel agency in South Africa. He’s also a freelance writer and is close to fanatical about the airline industry - you can get hold of him on Google/+ at Rob Baker.


Are you involved in the industry? Do you have an opinion, idea or point of view that you feel passionate enough about to want to share it with others in your field? Send us your piece at ivan[at]theafricanaviationtribune.com

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The views expressed in the articles do not necessarily represent those of The African Aviation Tribune.