Introduction

The ongoing ownership dispute involving FlySafair, one of South Africa’s leading low-cost commercial airlines, has brought to light significant challenges within the South African aviation industry’s regulatory enforcement landscape. The core of these considerations reflect the question of whether South Africa’s ownership legislation requires revision and alignment with international standards in light of today’s globalised economy.

Current ownership requirements

South Africa’s current ownership requirements limit foreign ownership to 25%, effectively requiring at least 75% local ownership of any resident airlines. This forms the basis for one of the two investigations currently underway regarding FlySafair’s ownership structure. The other leg of the ongoing investigations occurred on an international level where the requirements are less stringent, but still require majority local ownership for national airlines. The international practice has interpreted and generally applied this requirement at a threshold of 51% minimum local ownership.

FlySafair’s ownership structure

FlySafair has been facing scrutiny on these aspects from 2022 when two industry competitors lodged complaints with the national and international regulatory authorities following the disclosure of ASL Aviation Holdings’ subsidiaries. This uncovered the true ownership structure of FlySafair’s three shareholders. When ASL Aviation Holdings first established FlySafair back in 2014, they set up a shareholding structure whereby 25% remained in their direct possession and the other 75% was held locally through two other shareholders. The local shareholders consist of the Safair Investment Trust, a South African company holding approximately 50% ownership and the remaining 25% is held by an employee share scheme designed by ASL Aviation Holdings to ensure compliance with local ownership requirements. Although a first glance at this structure seems to indicate compliance with both international and national ownership requirements, evidence from the 2020 and 2022 financial records of ASL Aviation Holdings brought about further information. What this evidence revealed was that ASL Aviation Holdings is the sole shareholder of the Safair Investment Trust, indicating that ASL Aviation Holdings effectively holds up to 75% ownership in FlySafair through its combined direct and indirect shareholding.

Regulatory investigations

The regulatory authorities, being the Air Services Licencing Council (ASLC) and the International Air Services Council (IASC) have conducted independent investigations according to the requirements of both national and international ownership for airlines. Both these authorities, in relying on the evidence presented, found that FlySafair’s ownership structure is in contravention of the respective requirements and has to be corrected. Regardless of FlySafair’s claims of compliance, the airline is experiencing significant pressure to correct and restructure its ownership or it may face suspended licences ultimately grounding a significant roleplayer in the South African aviation industry.

Complexity of aviation ownership requirements

The informing legislation for this dispute relates to the South African Air Services Licencing Act of 1990 whereby 75% local ownership is required for domestic airlines – a number significantly higher than the accepted international standard of 51%. The rationale behind the stringent requirements in South African legislation is to ensure national control over critical infrastructure and to protect the country’s economic interests. However, this dispute seems to have brought about further considerations for the country in order to ensure continued protection of these valuable interests.

Economic and operational impact

The grounding of FlySafair will have significant consequences causing a ripple effect throughout the country. As FlySafair accounts for approximately 60% of domestic airline seat capacity, its grounding could contribute to higher airfares, reduced travel options and disruptions to the tourism and business travel sectors of South Africa. Accordingly, it is worth considering the viability of aligning existing laws with international standards in order to accommodate the call for increased foreign investment and enhanced competitiveness of the South African aviation sector on a global scale. Although South Africa is not isolated in its requirements for limiting foreign ownership, it could benefit from increased liberalisation in its ownership requirements. Countries with lower ownership requirements have seen benefits from implementing less stringent regulation. By reducing the foreign ownership threshold for national airlines, South Africa could foster a more dynamic and resilient aviation industry.

Balancing national interests and global competitiveness

In considering the viability of amending existing legislation in comparison to international standards it is worth considering all potential impacts. By maintaining the prevailing ownership requirements, South Africa ensures that domestic airlines remain under local control, which is crucial for national security and economic sovereignty. Foreign ownership also brings about risk considerations such as potential loss of control over strategic assets and increased vulnerability to foreign market fluctuations.

Conclusion

The FlySafair ownership dispute underscores the need for the sector to reassess its aviation ownership laws. By introducing flexibility into existing legislation and aligning more closely with international norms, South Africa can create a more competitive and resilient aviation sector. Ultimately, a balanced regulatory framework that safeguards national interests while embracing global standards is essential for the sustainable development of South Africa's aviation industry. This dispute has highlighted how imperative it is for policymakers to consider these factors and work towards a solution that benefits all stakeholders involved. While FlySafair may be navigating through some turbulence now, the effects of revising existing legislation could ultimately chart the flight path for South Africa's broader aviation industry.

Above article authored by Noushaad Omarjee, Bwanika Lwanga, Monique Bezuidenhout and Bonolo Matjila.