JAC Marais is a competition law expert at and partner at Adams & Adams
SUMMIT TV: SAA, much to the chagrin of the other airlines in this country, virtually gets a blank cheque from government every time it needs a cash top-up but there have been suggestions this open-ended state funding is anticompetitive. You wrote recently that you are not convinced that this is the foil to challenge government.
JAC MARAIS: The reason why we say it’s not entirely clear whether SAA would be contravening the Competition Act as a result of the funding it receives from government is because the act does not have specific provisions that deal with state aid or payments from government to entities in the public or private sector as such. The position is quite different in Europe, where their competition law explicitly prohibits governments from aiding or funding entities like SAA. The reason is that the legislator in the EU was concerned that by governments funding entities the market would be distorted — and if governments fund then entities that otherwise would have failed, in other words they would have been forced out of the market by natural market forces, would be able to remain in the market. And that’s exactly the case with SAA.
STV: That’s quite a glaring omission in South African competition law — how did it come about that we have this hole in our legislation?
JM: I’m not sure it’s an omission — to the extent that the law does contain provisions that limit companies in SAA’s position to abuse the funding it receives from government, our law covers that. What is quite difficult is to prove a contravention under those sections. What is prohibited is for SAA to use the funding it receives from government to basically abuse its position, and the act has a very specific provision in that regard which we refer to as "predatory pricing" that basically says if SAA takes the funding it receives from government and employs a policy in terms of which they use that to price at below-average variable cost, which is a technical term that basically means pricing below cost with a view to forcing competitors out of the market, only to raise prices again once those competitors have left the market to anticompetitive levels, that would be a contravention of the act. It’s particularly technical but that would try to cover the situation that we have currently.
STV: Technical but quite logical. Is that what SAA’s competitors would go after? How would they be able to prove that?
JM: It’s a factual inquiry at the end of the day. An entity or stakeholder or the Competition Commission — whoever is upset about SAA receiving funding from government — would not be able to appeal to the competition authorities I think purely because government is funding SAA and purely because it seems government is putting money into SAA as a bottomless pit. What they will have to show is that SAA is abusing the funds and they will have to meet the technical requirements of the section as we’ve just mentioned to sustain such an allegation.
STV: Are there any other aspects of competition law that SAA would need to abuse before competitors could call them to account?
JM: That’s a broad question — but our Competition Act is relatively simple in that regard. There are provisions that deal with agreements between entities — we don’t think this would fall neatly within those provisions — and then there are provisions that deal with unilateral conduct, in other words the type of conduct we are talking about here. It’s really those provisions that any complainant would be looking to, and there is the specific provision that I mentioned around predatory pricing. Then there is a general provision as well that says a company in SAA’s position being a dominant entity may not engage in exclusionary conduct in terms of which it abuses its dominant position.
STV: As far as you can ascertain has SAA ever done any of these things?
JM: I would not be able to say whether SAA has engaged in predatory pricing. At a very high level, if a company continues to lose money at the rate SAA is losing money, one has to question whether it’s not in fact pricing below average variable cost simply because they are making such huge losses over such a long period of time. The other explanation — and there may be a few — could be that SAA is just poorly managed, which would be an indictment in itself.
STV: SAA previously received fines from the competition authorities when Nationwide brought a case against them — but there is a circularity about this where that fine would go back to government which would then have to fund SAA. Is there any point in bringing these anticompetitive cases against SAA?
JM: It’s a vexing question as far as state entities are concerned because the Competition Act does apply to the state and government and entities like these, but of course as you say the fines ultimately end up back with government. In SAA’s case it does seem they get the same money back so that is problematic. There are benefits — if SAA is engaging in anticompetitive behaviour it would have to stop so continued harm would at least be stopped. There is also in the act the possibility of complainants that have suffered damage covering that in civil action directly from SAA. We actually think this section will be used more and more in the future but again it would be quite difficult to calculate the quantum of the damages because one will have to show a company like Nationwide or 1Time will have to show they lost money directly as a result of SAA’s conduct.