CemAir asks tribunal to prohibit Harith acquisition of Safair
· Citizen
The proposed acquisition of Safair Holdings by Harith Aviation has been attacked by privately owned South African airline CemAir, which has requested the Competition Tribunal to prohibit the transaction.
Advocate Dwight Snyman, appearing for CemAir, told the tribunal on Monday that an alternative would be for it to conclude that the identified harm is capable of effective remediation.
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CemAir submits that approval should be subject to structural conditions that preserve the commercial and operational independence of FlySafair from Lanseria and any related aviation-infrastructure interests.
“Purely behavioural undertakings should not be accepted unless they are objectively measurable, independently monitored, rapidly enforceable and capable of addressing non-price discrimination as well as formal refusals of access,” said Snyman.
“Possible alternative conditions could include independent airport governance, the removal of common directors, enforceable information firewalls, transparent slot and tariff criteria, equal-access obligations, independent monitoring and a rapid dispute-resolution mechanism.”
CompCom approval
The Competition Commission last month recommended that the tribunal approve the proposed transaction with conditions, which related to Harith’s interest in Lanseria International Airport.
These included that the merging parties agree to conditions related to information sharing and ensuring that the airline-related or airport-related goods or services provided to other airlines at Lanseria airport are not provided based on unfair, unreasonable or discriminatory terms.
Snyman said this tribunal inquiry is particularly important because the proposed transaction does not concern an isolated acquisition vehicle because Harith Aviation forms part of a wider network of investment funds, infrastructure assets and institutional investors operating at different levels of the South African aviation value chain.
He said the merger alters the position where FlySafair operates in a market that is economically and strategically independent of the entities holding interests in Lanseria International Airport by bringing a substantial domestic airline under the joint control of an entity possessing a material interest in airport infrastructure used by FlySafair and its competitors.
Aspects to be considered
Snyman requested the tribunal to consider ownership relationships collectively rather than in isolation, particularly that the:
- The government owns 100% of South African Airways (SAA), an active competitor to FlySafair.
- The government holds 74.6% of the Airports Company South Africa (Acsa), which owns and operates South Africa’s principal airport network and supplies airport infrastructure and services to SAA, FlySafair, CemAir and other domestic airlines.
- The minister of transport exercises or represents the government’s shareholder interest in both SAA and Acsa.
- The Public Investment Corporation (PIC) owns a further 20% of Acsa.
- Publicly available information indicates that the Government Employees Pension Fund (GEPF), represented by the PIC, holds approximately 62.5% of Lanseria International Airport.
- Harith InfraCo Limited holds approximately 37.5% of Lanseria International Airport.
- Harith InfraCo is one of the entities that will jointly control Harith Aviation following the implementation of the proposed transaction.
- The GEPF is itself an investor in Harith InfraCo and may consequently have both direct and indirect economic exposure to Lanseria.
- The PIC has publicly confirmed that it held a 30% shareholding in Harith General Partners, although the present status and associated governance rights of that interest require confirmation.
- Harith Aviation now proposes to acquire control of Safair Holdings and FlySafair.
“These relationships establish a direct vertical link between the proposed acquisition of FlySafair and Lanseria,” Snyman said.
Snyman said the transaction aligns the economic interests of FlySafair with those of a material shareholder in an airport at which FlySafair operates, creating both the ability and the incentive to coordinate airline and airport strategy in a manner that did not exist previously.
He said the proposed transaction would introduce FlySafair into an unusually dense network of overlapping economic and governance interests, including the GEPF, Acsa, SAA and the Harith entities.
“These overlapping interests raise a legitimate question whether competition between Lanseria and Acsa airports may be softened or distorted.”
Snyman said that at a minimum, Harith InfraCo’s simultaneous interest in Lanseria and joint control of Harith Aviation directly engages sections of the Competition Act, while the broader PIC, GEPF and state ownership relationships require investigation under sections of the Competition Act in line with the tribunal’s obligation to consider any other factor relevant to competition in the affected markets.
He said direct ownership relationship warrants investigation into the complete acquiring group, its governance rights, funding capacity and the durability of any foreclosure strategy.
“Access to patient institutional capital may increase the merged entity’s capacity to sustain capacity expansion, selective pricing or other strategic conduct for the period necessary to weaken or deter rivals.
“It therefore bears upon the likely durability and effectiveness of the identified foreclosure strategy, but it should not be advanced as an independent theory of competitive harm.”
Snyman said any reliance by the merging parties upon transformation, employment or increased ownership must be substantiated and weighed within the statutory framework.
He added that public-sector pension investment is not, by itself, equivalent to increased worker ownership, historically disadvantaged persons’ ownership or broader participation contemplated in the Competition Act.
Harith ‘not a passenger airline’ – CompCom
Competition Commission senior analyst Dale Adams said the commission did assess the merger from both a vertical and horizontal perspective because the acquiring group has a stake or interest in and inputs to the operations of airlines, which is a non-controlling interest in Lanseria Airport.
But Adams said there are no overlaps in the activities of the parties because the acquiring group is not a passenger airline, nor does it have interests currently in passenger airlines and is not active in the aviation industry value chain.
He said the commission received some concerns from third-party airlines that this merger would enhance structural links between FlySafair, SAA as well as CemAir indirectly.
The commission assessed whether the merger would give rise to potential coordinated events, the possibility of the exchange of competitively sensitive information given the links between the parties in the aviation industry value chain, and whether these links would give rise to the possibility of substantial lessening of competition in the relevant markets.
Adams said airlines raised some type of input foreclosure concerns as a consequence of this merger, particularly that they would be foreclosed from accessing Lanseria Airport post-merger given the stake of the acquiring group.
He said the commission ultimately found there was no incentive on the part of the merged entity to engage in any input foreclosure strategy.
Adams said Lanseria Airport constitutes a limited portion of the relevant airport market nationally – and provincially in Gauteng, it still has capacity; and currently FlySafair is the only airline that operates from this airport.
He said Lanseria Airport has, over the past 10 years, invested billions in its facilities, which were specifically made to attract additional airlines.
“For those reasons, we found no incentive for the merged entity, in light of its non-controlling stake in Lanseria Airport, to engage in an input foreclosure strategy.”
Adams said the indirect interest the PIC holds does not allow the PIC any operational powers regarding the target firm post-merger and, from that perspective, could not find merit to some of the concerns raised regarding the enhancement of structural links between FlySafair, SAA, the PIC and the government as well as CemAir indirectly.
He said there are risks of information sharing, but the conditions proposed on the merger address those possible concerns.
Adams said no employment concerns arise from the proposed transaction.
This article was republished from Moneyweb. Read the original here.