The booboo that almost cost Comair its licence to fly

The High Court in Pretoria on Friday heard that the Air Services Licensing Council mistakenly thought that fund manager Allan Gray, was a natural person, invested in Comair and living in Bermuda. While the founder of Allan Gray (Pty) Ltd does live in Bermuda, he is not the Allan Gray that holds 26% of Comair.

This nearly cost Comair its licence to fly, which would have seen the airline grounded – a huge disruption in the domestic aviation market.

The council regulates domestic air services in South Africa in terms of the Air Services Licensing Act. Comair operates domestic flights under the British Airways and Kulula brands.

The council based its view that Comair does not comply with the restriction on foreign shareholding on its mistaken view of Allan Gray and directed Comair to comply.

The High Court on Friday heard Comair’s application to have the council’s decision reviewed and set aside.

Advocate Mike van der Nest SC told the court, on behalf of Comair, that the matter had been dragging since January 2014. Initially, competitor Safair laid a complaint against Comair for non-compliance with the 25% limit on foreign shareholding imposed on domestic airlines.

Safair however withdrew its complaint, but the council continued to pursue it.

Comair continually engaged with the council and provided information supporting the contention that it did comply. The airline also asked for reasons for the council’s finding of non-compliance, but the council only did so by the middle of last year, when Comair applied for an interdict to prevent the council from suspending its licence.

From the reasons, it was clear that the council misunderstood the role of fund manager Allan Gray. It clearly considered “Mr Allan Gray” to be an individual living in Bermuda and therefore a foreign shareholder, Van der Nest said.

Van der Nest further argued that the misunderstanding also showed that the council did not even read all the information Comair submitted, since Comair did provide detail on Allan Gray and the different funds it manages. “There is no way anybody who read the document would have thought Allan Gray is a (natural) person,” Van der Nest said.

The council further based its decision on an analysis of 26% Comair shareholder BB Investments.

It held that a portion of BB Investments’ shareholding should also be classified as foreign. It argued that BB Investments is 100%-owned by Bidvest, that Bidvest had 46% foreign shareholders and by applying the percentage to BB Investments, the council concluded that Comair’s total foreign shareholding was above the legal limit.

Van der Nest said Bidvest’s shareholders do not own the assets of Bidvest or any of its subsidiaries. They merely own shares in Bidvest, a South African company, “and that’s it”. It is incorrect to apply Bidvest’s foreign shareholding directly to BB Investment.

When Comair tried to address the obvious mistakes with the council, the council advised it in writing that its decision could only be overturned by an order of the High Court and said it was ready to defend its decision in court.

On Friday Advocate Viwe Notshe for the council, did not respond to allegations that his client had the wrong end of the stick regarding Allan Gray and BB Investments.

He put forward a technical argument that the review application was premature, since the council had not taken a decision to suspend Comair’s licence. He said that in terms of the Air Services Licensing Act, the council may suspend or cancel a licence on a reasonable suspicion that a licensee does not comply with provisions of the act.

At this stage, the council had such a suspicion but had not taken any decision that could be reviewed, he stated. The suspicion as such did not affect Comair’s rights, he said.

Van der Nest said the decision that Comair was attacking was that it does not comply with foreign shareholding requirements. He said it clearly affected Comair’s rights. “We had to change our shareholding to become compliant. We had to go to Mr Allan Gray in Bermuda and tell him to move back to South Africa,” he said, sarcastically.

If the decision that Comair is non-compliant is set aside, it follows that there won’t be any suspension.

Van der Nest said that if Notshe’s argument was accepted, it would mean that Comair had to wait for the council’s wrong decision to result in the suspension of its licence to fly before it can address the mistake.

“Do we have to wait for it to be compounded before it can be corrected?” he asked.

Judge Joseph Raulinga reserved judgement. The council is interdicted from suspending Comair’s air services licence until the matter has been finalised.

On Thursday Moneyweb reported that one of the council members was suing an official of the department of transport who provides logistical support tot the council in his personal capacity for defamation.

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