South African Airways Says It Subsidized Low-Cost Unit Mangoby and
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.