South Africa’s biggest airline could lose its wings

South Africa’s biggest domestic airline, FlySafair, is facing potential sanctions that could severely impact its ability to operate over the festive season because its shareholding structure is not compliant with the law. 

There is even the unlikely possibility of the airline being temporarily shut down until it rectifies its shareholding structure. 

The International Air Services Council has ruled that FlySafair’s shareholding strucutre is not compliant with South African law. 

As it stands, an airline operating in South Africa’s domestic space must be “substantially owned” by South African citizens. 

ASL Aviation owns nearly 75% of FlySafair’s shares, directly and through subsidiaries, and has been deemed a foreign entity by the IASC as it is an Irish company.  

The inquiry into Flysafair’s shareholding structure began in October 2022 and includes formal complaints by Airlink and Global Aviation, which operates LIFT. 

The IASC has now ruled that FlySafair has contravened and/or failed to comply with provisions of the law in that the company structure comprises 49.86% shareholding by the Safair Investment Trust, which is eventually 100% owned by ASL.

This is in addition to the 25% shareholding that is directly owned by ASL. 

The IASC also ruled that FlySafair failed to apply for an amendment of its air service licence when its ownership structure changed in March 2019. The IASC said it would announce a sanction within the next few weeks.

“These are important, background issues that keep bubbling away and flair up every decade or so,” aviation expert Guy Leitch said. 

“This began right at the launch of FlySafair when Comair argued that it was not majority South African-owned and, therefore, should not be allowed to launch.” 

Leitch said it is generally understood that substantially South African-owned refers to a maximum of 25% of shares being held by foreign nationals, and FlySafair has fallen short of that. 

However, 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. 

A sanction from the IASC could include cancelling or suspending FlySafair’s aviation licence until its shareholding structure is fixed or fines or penalties are imposed.

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

Leitch explained that this law is in place to ensure that the majority of the revenue generated by domestic airlines stays within South Africa. 

More importantly, it also ensures that airlines can be held accountable by South African laws and regulated locally. 

However, this law also limits foreign investment in local airlines, which is desperately needed to grow the industry. 

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 gave the example of Qatar Airways buying 25% of Airlink as an example of foreign investment being limited by this law. 

He said Qatar would have preferred to buy a much larger stake in the company but chose to stay on the safe side in limiting their ownership to 25%. 

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. 

In reaction to the IASC ruling, FlySafair said it remained committed to full compliance with all laws and regulations and to upholding the highest standards of governance.

“We understand the importance of transparency, foreign involvement limitations and the role of responsible corporate governance in building trust with our valued customers, partners, regulators and the public,” FlySafair said.

“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.”

It also said there is “ambiguity in this regulation”, which had led to “the current scenario of varied interpretations of the regulations”.