South African Airways Says It Subsidized Low-Cost Unit Mango

  • All 10 of Mango’s aircraft leased at significant discount
  • Subsidy makes it more difficult for new entrants, Comair says

South African Airways SOC Ltd. said the airline subsidized its low-cost entity Mango Airlines by sub-leasing planes at a discount to market value, a move that may have given the carrier an advantage in the country’s highly competitive budget market.

The state-owned carrier sub-leased Mango all 10 of its aircraft “at a significantly discounted cost” while paying the leasing company the market rate, Johannesburg-based SAA said in a statement. The move was a “necessary investment” to support the low-cost entity, SAA said.

SAA’s comment on sub-leasing planes to Mango comes after last week’s resignation of the budget airline’s Chief Executive Officer Nico Bezuidenhout, who will become the head of Africa-focused carrier FastJet Plc from Aug. 1. The company will announce an acting CEO “as soon as it is practically possible to do so” and will start a search for a permanent appointment.

The Democratic Alliance, South Africa’s largest opposition party, will request that the Competition Commission start a probe into possible collusion between SAA and Mango, the DA said in an e-mailed statement on Monday. The anti-trust regulator should investigate the total cost to the taxpayer of the arrangement and the losses incurred by unprofitable SAA as a result of the deal.

The ability to sub-lease planes at a discount would give Mango an advantage over new entrants to the market, Erik Venter, CEO of British Airways franchisee Comair Ltd., told Johannesburg-based Business Day newspaper. SAA has previously said all interactions between Mango and its parent were at arms length, Venter said.

A Mango spokesman referred questions on the plane leases to SAA.

SAA has been surviving on government debt guarantees and last posted a full-year profit in 2011.

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