State aid in the dock

Victoria
By Victoria February 27, 2013 11:12

State aid in the dock

South African airline Comair, which is a franchise partner for British Airways, plans to take the South African government to court over its continued funding of South African Airways following on from the South African government decision last year to guarantee 5 billion rand ($565m) in loans over the next two years. Comair’s CEO, Erik Venter said the latest bailout and previous payments did not comply with either the domestic aviation transport policy or the law. Comair is trying to level the playing field.
This is a brave move by Comair and it is likely to fail. All across the globe this industry remains plagued by government intervention; in Europe the EU is trying to stem the number of airline bailouts. If Comair does succeed then it would be a signal to others to go to the courts. The worst cases of unfair government aid to date are Japan Airlines and Air India but recent history is littered with assistance that allows an airline to carry on, some reform as Japan Airlines has.
In Canada at this time Ottawa is thinking about granting Air Canada’s request for a decade of relief from the $4.2-billion deficit in its defined benefits pension fund. This would of course be state aid too but this is more than simply aid to the airline directly, Ottawa could create a dangerous precedent for pension fund bailouts in Canada. Air Canada wants Ottawa to put a $150-million cap on its annual solvency deficit payments for the next decade, starting in 2014. This would mean $700 million a year in relief in each of the first five years. The payments are in addition to its ongoing pension funding contributions that will total $1.5 billion between 2009 and 2013. There is an argument that Westjet might wish to follow the example of Comair in South Africa and take on the Canadian authorities, we shall see.

Victoria
By Victoria February 27, 2013 11:12
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