Trouble is brewing for FlySafair after the International Air Services Council (IASC) ruled that the popular low-cost carrier’s shareholding structure is non-compliant with South African law.
Ownership regulations for domestic airlines limit foreign shareholdings in a registered airline to 25%, however, a reported 74.86% of FlySafair shares are owned by Ireland-based ASL Aviation Holding.
CH-Aviation reports that in a leaked letter to FlySafair on October 31, the IASC allegedly stated that the airline has contravened and/or failed to comply with provisions of the International Air Services Licencing Act (Act 115 of 1990).
“Safair’s company structure comprises 49.86% shareholding by the Safair Investment Trust, which is one of three shareholders of Safair, which is eventually 100% owned by ASL Aviation Holdings,” the letter said.
“This is additional to the 25% shareholding that is also eventually owned by ASL Aviation Holdings, making the total shareholding of Safair by ASL to 74.86%; ASL effectively holds 74.86% in Safair through Safair Investment Holdings.”
The IASC stated that it would provide details of the specific sanctions on FlySafair and their accompanying justifications within 20 working days.
In a responding statement, FlySafair said it had received and reviewed the IASC’s decision but maintained that its foreign ownership status “remains three tiers removed from the company’s daily operations.”
“FlySafair takes the IASC’s decision seriously. We await further communications from the council in the next 20 days and remain committed to remain fully compliant with South African regulations and to upholding the highest standards of governance,” said the airline.
“On the basis of senior legal support, FlySafair has argued that the company’s structure remains within the bounds of both the letter and spirit of the law, and relevant court rulings pertaining to this regulation. We affirm that our intention is, and has always been, to be compliant with prevailing regulation.”
Clipping FlySafair’s wings
The IASC ruling has sparked fears that FlySafair could lose its operating licence in South Africa and be taken out of the skies completely.
However, aviation expert Guy Leitch notes that this is unlikely to happen.
A more probable outcome would be that FlySafair could be slapped with a final warning to amend its shareholding or risk facing more serious repercussions.
“I don’t think they’ll shut [FlySafair] down just before Christmas. I suspect it will be issued with an absolutely final notice to rectify the shareholding,” Leitch told 702.
“That’s my hope of what will happen, but we’ve got 20 working days until we hear the outcome. Obviously, we’d hate to lose FlySafair, which is now the biggest carrier in the South African market, right before Christmas.”
Briefly touching on the topic of foreign ownership in domestic airlines, Leitch said one could argue that such strict regulations are counterproductive to the industry.
“The real problem here is that it limits foreign investment, and the recapitalisation of airlines. SAA would, I think, probably also love to see a foreign owner with perhaps a 49% or 50% ownership,” he said.
“There’s a good argument to say we don’t need a law like that, or we don’t need one as restrictive as 25%. Most countries have a 50% limit on foreign ownership so we could quite easily move it up there.”
He did say there are reasonable defences for these laws, however.
“One of the reasons is you don’t want to export the entire revenue of the airline to a foreign shareholder. Moreover, you need to be able to keep a South African airline responsible and accountable in South Africa,” he said.
“These are reasonable reasons, I suppose, but in this day and age, honestly, it makes more sense to just have airline ownership from whoever is prepared to invest the capital.”
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