After the Bell — The difference between a national flag carrier and carrying the flag

I remember when, years ago, Zambia decided to close its national airline, Zambia Airways. I happened to be at a conference addressed by the Zambian finance minister, I think it was Ronald Penza. He was asked whether he was worried that Zambia would no longer have a “flag carrier” airline. 

He replied, if I remember correctly, that “if people want to carry a flag, I’ll send them one. There is no need for an airline to carry the flag”. He was being cocky, but the implosion of the airline was part of a brutal financial restructuring brought about by a proud post-independence government that was deep in debt. The closing of Zambia Airways was really just a way of wiping red ink off the government balance sheet. 

Now all South Africans know this story. Over the past two decades, the South African government has spent R49-billion on SAA in the form of bailouts and guarantees. That amount could have built half a million RDP houses. 

Why did they do it? Honestly, I think it was just pride. Zambia Airways, for example, flew to Dar-es-Salaam, Entebbe, Frankfurt, Gaborone, Harare, Jeddah, London, Manzini, Nairobi, New York and Rome prior to its implosion. SAA was flying to 16 international destinations in 2020. The similarity of the hubris is palpable. 

Anyway, those glory days are all gone now. SAA now flies 12 aircraft, a third of the number it did in 2020. Zambia Airways is now back, with a single aircraft so far. But interestingly, it’s half owned by Ethiopian Airlines and the other half is owned by the Zambian Industrial Development Corporation. 

Around the world, government-owned airlines are historical relics. The European Union actually forbids governments from investing in airlines because internationally they have been a disaster. (The measure had to be relaxed during the Covid-19 pandemic.)

But what hasn’t changed is the legislation that surrounds these national “flag carriers”. South Africa has just come face-to-face with this legislation after the International Air Services Council (IASC) declared that FlySafair violates South Africa’s foreign-ownership limitations. 

It’s actually a pretty straightforward decision. The Air Services Licensing Act requires that holders of aviation licences in South Africa have a minimum 75% local shareholding. The International Air Services Act requires a “substantial” local shareholding and both “active” and “effective control of the international air service” for international operations.  

The IASC sent FlySafair, and a whole bunch of complainant companies, a four-page letter in which it said it had conducted an investigation which found that Ireland-based company ASL Aviation Holdings effectively owns 74.86% of the local operation through an investment holding company.  The airline has a little time to react, appeal, or maybe change its ownership structure. 

The decision might be straightforward, but the consequences are not: FlySafair is now South Africa’s biggest airline with about 60% of the local market.

The technical argument in favour of having this kind of regulation is twofold. First, where you have an organisation, which almost by definition operates across borders, you need to be able to have some certainty that you can exercise your national jurisdiction. 

Second, there is an economic argument that the airline business is very capital-intensive, so if you happen to run an airline from somewhere where  capital is cheap, you have an enormous advantage over airlines which are run from places where capital is expensive. Hello, South Africa. 

My own feeling is that these arguments verge on horse manure. You could make both those arguments about almost any industrial exercise involving cross-border trade. But even if you couldn’t, what’s missing here is what is good for customers, as it always is when the focus is on dreams of industrialisation rather than what people can afford.  

My advice: If Transport Minister Barbara Creecy is worried about national flag carriers, she should hand out flags for people to carry. Otherwise, could we please move into the 21st century? DM

Tim Cohen blogs at timcohen.co.za