Civil Aviation Amendment Bill: public hearings

Meeting report

The Chairperson announced that the Committee would be hearing submissions from the Airlines Association of South Africa (AASA), the South African Civil Aviation Authority (SACAA) and academics concerning the Civil Aviation Amendment Bill.

Briefing by Airlines Association of Southern Africa (AASA)  

Mr Chris Zweigenthal, Chief Executive Officer (CEO): AASA, said the association represented Southern African Development Community (SADC)-based airlines and worked with organisations related to the airline industry, such as policy makers and regulators. It had 21 airline members that were either private or state-owned, and 36 associate members. The objective was to look out for the mutual best interests of its members. It was also to ensure a sustainable, viable and profitable airline and air transport industry able to grow the economies of South Africa and the region

He said there were four critical issues around the Bill and appropriate recommendations. Firstly, AASA would like clarification on the interpretation of specific articles in the Bill. Secondly, it would like to propose a new amendment relating to an independent Aviation Safety Investigation Board (ASIB). Thirdly it would like to speak on entrenchment of the consultation process with respect to regulatory and financial aspects. Lastly, it wanted to comment on the SACAA versus Department of Transport (DOT) mandate.

Section 1(c)

Firstly, to ensure consistency in definitions in the Civil Aviation Bill and the Licensing Act, AASA proposed that the definition of “air service” be explicitly included as meaning “any service operated by means of an aircraft to transport passengers, freight or mail.”

Section 1(j)

AASA proposed in the definition of “Executive responsible for Aircraft Accident and Investigation”, to replace “Authority” with “SA Civil Aviation Authority”. In article 28(5), it requested clarity on the role of the executive within SACAA and ASIB. The independence, potential conflict of interest and credibility of SACAA could be called into question. Funding was an issue, and the ultimate structure was for ASIB to have its own funded structure, independent of SACAA.

Section 15(d)

AASA proposed the amendment “…appointment of the members of the Aviation Safety Investigation Board by the Minister, notify…”. Currently the Bill was not specific on who appoints the ASIB.

Section 41(5)

The section dealt with the interim statement on investigation. Given the hunger for information in today’s world of information, it was proposed that ASIB be required, either through legislation or regulation, to issue monthly statements on the progress of investigations, particularly of public interest. This would improve transparency in communication between the investigation board, the authorities and general public.

Section 74(3)

The deletion of the phrase “endeavour to” was proposed, in order to ensure there were no obstructive attempts to delay consultation. Alternatively, replace it with “use its best endeavours to…”

Section 155(5)

The insertion of “except the amendment of user fees” did not make it clear that the amendment of individual user fees could be approved by the Minister of Transport only. There was no need for the Minister of Finance’s approval, since the percentage increases granted by the Minister of Finance were adhered to. AASA proposed that additional wording be inserted to clarify this. 

Section 130

AASA requested it be allowed to withdraw its submitted amendment to reconsider the deletion of Section 103 (m) (n) and (o). It realised that the purpose of the deletion was to remove responsibility from the DOT. It proposed that the mandate of SACAA be considered, as Section 73 of the Act stated that the responsibility for the functions was with the SACAA.

Lastly, AASA requested that the consultative structures remain the same -- specifically sections 156, 157, 158, 159, 160, 161 and 162. Details of the formation, roles, functions, mandates and administration of these structures would be included in the regulations, to be drafted to underpin the amendments to this Act.

(See presentation)

Discussion

The Chairperson thanked the presenter and said that the Committee would deliberate on what had been presented in due course.

Mr C Hunsinger (DA) noted AASA’s concern over having to report to the Board and SACAA on slide number nine of the presentation. He mentioned that AASA had not expressed a particular preference, and had not mentioned the necessity to address both. What was the ideal structure they would like to see? Regarding Section 41(5) on slide 12, what would they like to see when it came to informing family? He commented that there was not much of a difference between how it was worded in the Bill and what AASA recommended on slide 13. Regarding the user fees regulation in section 155(5), what would the aspirations from the industry be? With respect to the consultative structure, did they find the replacement in the amendment adequate?

Mr Zweigenthal responded that he thought the current reporting process was an interim measure. He believed it was not the ultimate solution. The ideal reporting structure would be to make it something like a chapter 9 institution that reported directly to Parliament. The preference would be to report effectively to Parliament. This would also deal with the issue of members needing to be briefed as well.

Regarding the sharing of information and regular updates, there should be emergency response forums and plans. Included in the legislation should be issues like family assistance, in order to make responsibilities clear. Investigators should be open to sharing information on social media, since there was a need for such transparency. Also, for whoever was involved, there should be respect for confidentiality and the impact on family members. AASA was not against the Committee and the public being updated.

The aspirations of AASA would be to continue with the consultation process and lobby for a practical plan that enabled airlines to perform their functions. On completely separating funding from the Civil Aviation Authority (CAA) and the Accident and Incident investigation Division (AIID), the ideal would be a complete separation from the CAA. The practicality of it was up for discussion, but AASA agreed on having two separate institutions. It was not sure how a completely separate AIID would be funded -- perhaps through several sources, such as the Department.

Mr T Mabhena (DA) asked for the Portfolio Committee of Transport to be given regular updates, or be added to the list of participants in the regular meetings on recommendations. The Committee must be afforded an opportunity to be briefed on any accidents and incidents within 30 days of their occurrence. Regarding funding, he agreed that the funding of ASIB should not be at the mercy of the SACAA. The AASA should find a model of funding that was completely independent to avoid interference. He did not see a challenge with recruiting people from the AIID, which was part of SACAA, to be a part of ASIB. However, ASIB needed to be completely independent of the SACAA. There needed to be a complete transfer.

Mr Linden Burns, aviation specialist and public affairs consultant, clarified that the independence of the investigative unit was to ensure that the investigating authority’s integrity was preserved through complete separation, by avoiding having the same payroll, sharing the same systems or even computing. Some countries like the US had a public transport investigating unit, which may or may not be a solution in SA.

Mr K Sithole (IFP) asked for clarity on the presentation’s reference to “progress of investigations [that are] particularly of public interest”. The recommendation on section 155(5), bullet five, stated that there was no need for the Minister of Finance’s approval. What was the impact of this on funding?

Mr Burns clarified on the recommendation regarding social media. There was an expectation that authorities would be proactive in issuing accurate information promptly. Authorities or operators must at least acknowledge that something had happened, even when unsure.  They could share a statement and then say more information would be released upon verification. All the investigative authorities around the world had adopted policies to share information on social channels, online media and broadcasters. It was all about trust, and the heart of the authorities to secure that trust. The challenge was to be prompt.

Mr P Mey (FF+) referred to the statement, “ASIB to appoint investigators from SACAA…” on slide ten, and asked if it included people from overseas as well, or only South African investigators?

Mr L Mc Donald (ANC) said that section 1(j) of the Bill did not address the issue of funding properly, and asked AASA to share their inputs on this. He agreed that the calibration of aircraft issue was a crisis that would have an impact on the country’s fiscus. The role of the Civil Aviation Authority (CAA) needed to be better defined. He agreed with the recommendation to disclose investigation progress with the public. It facilitated transparent communication to avoid a rise of anger in social media. He asked for further input on the regulation of the fee structure and the matter of not needing the approval of the Minister of Finance.

Mr Zweigenthal responded to the questions around user fees and not needing the approval of the Minister of Finance. He explained that since the formation of the CAA in 1998, it produces a budget and financial plan and consults with AASA on submissions. The consultations look at a percentage increase. The Minister of Transport then sees it and an agreement is reached. It is then submitted to the Minister of Finance for the final approval and thereafter the approved charges would be effective from April. Part 187 of the Civil Aviation Regulations on user fees relates to licence fees, manuals, and so forth, and this gets included in the percentage increase that is later submitted for approval. Therefore, the only time both the Minister of Transport and Minister of Finance had to be approached was regarding the percentage increase. That percentage increase would be applied to the activities covered in part 187. The recommendation removed the need for the Minister of Finance to also approve the user fees specifically.

Ideally, there should be a complete separation of funding from the CAA and AIID. The practically of it was up to discussion, but AASA agreed with having two separate institutions, although they were not sure how a completely separate AASA would be funded.

The Chairperson thanked Mr Zweigenthal for the presentation, and said that the Committee would deliberate further on the recommendations in its own time.

Mr M Chabangu (EFF) asked the Chairperson to please asked the presenters to introduce themselves and confirm whether they were properly mandated to present before the Committee.

The Chairperson clarified that the stakeholders present were those who had made written submissions to the Committee and had been called in. It was not an entirely open hearing from just anyone in the public -- the presenters had been selected.

Briefing by Dr Joachim Vermooten

Dr Joachim Vermooten, aviation economist and academic researcher at the University of Johannesburg (UJ), said there were a number of concerns among academics on the Aviation Bill. These were specifically on what was contained and what should be contained, but were not specifically related to the accident investigation aspects.

The first concern was around domestic air transport policy. The economic regulatory control over entry into the market, air fares, capacity and frequencies had been abandoned. The DOT was to introduce a new licensing system, the objective of which was to establish a competitive air transport market. Ease of entry was required for a competitive market, but there were barriers to entry in the form of government restrictions and start-up costs. The time taken to obtain an Air Operating Certificate (AOC) for new entrants was too long to develop and maintain a competitive air transport market. The delay reduced the attraction of investment in the industry due to policy and launch date uncertainty, and increased start-up costs. An enabling regulatory regime, which managed operational and safety requirements within a set timeframe, was required.

The domestic air transport policy needed to include the following basic principles:

• Leave economic decisions to competitive forces to resolve;
• Take users’ interests and views into consideration.

The principle of ensuring operational safety was already being included in the Act through SACAA. He emphasised that considering users’ interests was important to maintain demand, and he would like to see this included in the Bill.

Major airline groundings had a significant supply side and demand side impact. He referred to the CemAir, SA Express (SAX), South African Airways (SAA), Mango and Comair groundings, and said the SACAA’s decisions regarding the grounding of airlines was wrong. It led to the ‘sudden death’ of airlines, with a financial impact that led to retrenchments. The precautionary suspension had resulted in the unnecessary grounding of airlines, unnecessary damage to consumers, and created uncertainty on the reliability of South African air transport.. The Civil Aviation Appeal Committee (CAAC) had found SACAA’s decision to ground CemAir unfavourable. The CAAC appeal decision in the CemAir appeal raised uncertainty on the oversight capability of the SACAA. It demonstrated that the principles of the Promotion of Administrative Justice Act (PAJA) and the Constitution had not been adhered to by the SACAA. There was concern that there may be a regulatory overreach and unequal application of oversight over safety and security requirements.

Two main findings remained a ‘cause for concern’ for SACAA affecting SAA, Mango Airlines and Comair's entire fleets. The important questions were, was there legitimate reason for SACAA’s concern, and should SACAA have accepted South African Airways Technical’s (SAAT’s) corrective action plan if not satisfied with the status of 46 aircraft? Once the Minster got involved, matters had been quickly resolved. Could the SACAA function without Ministerial oversight or decision making?

It appeared that PAJA principles had not been applied by the SACAA. He argued that a restructuring of SACAA was necessary. The separation of the inspectorate from the adjudication of matters (enforcement action) would prevent a conflict of interest, and excessive measures should be adopted. Additional recommendations were:

• A continuous plan or process of constructive engagement with airlines and aviation maintenance organisation (AMO) should be implemented to assure safety standards and achieve a reasonable timescale for corrective measures -- and not ‘sudden death,’ based on a single checklist inspection;
• Rapid approval or non-approval of Air Operating Certificates (AOCs) to facilitate market entry and competition in the market;
• Timelines should be implemented in legislation for the implementation of judgments of the high court and the CAAC.

The Bill should reflect the implementation of African liberalisation measures.

Another issue was around the discretionary power of the Commissioner. Regulation should be based on objective standards instead of discretionary regulation, which was really unacceptable in an open and transparent society. On what basis would decisions be made? A rule-making procedure should be adopted so that there was clarity and transparency of how requirements would be determined. The exclusion of appeal processes by law of the discretionary powers of the Commissioner may lead to an abuse of power, was draconian and definitely unacceptable and unconstitutional. Section 195(1) of the Constitution states that public administration must be governed by the democratic values and principles enshrined in the Constitution, which are listed, including that public administration was required to be accountable and transparent.

Other matters outside of the objective of the Bill, but for consideration by the DOT, were the licences and route amendments given to state-owned airlines without being ‘fit and proper’ in both safety and financial respects. This exposed the public to the insolvency risk of state-owned airlines. Legislative action was required to ensure the proper implementation of the Cape Town Convention on aircraft mortgages. The DOT’s assistance was required to ensure more freedom for handling and ground services for South African airlines at non-South African airports.

Lastly, the limit on foreign direct investment needed to be increased --the threshold of 25% was too low. This was to facilitate investment into SAA and other local airlines.

(See presentation)

Discussion

Mr Hunsinger said he was disappointed by the exclusion of the accident portion of the bill. He had found the interesting opinions shared insightful, but the opinions needed to be substantiated as well. Given the critique presented around separation, what dangers did Dr Vermooten foresee in the suggested structure? He acknowledged the concern over discretionary versus objective standards. Generally, there were regulations and one followed an appeal process and discretion followed, so what difference would there be with his recommendation?  What measures could one use to establish a structure that would bring comfort to the threshold? Where would he like to see the opportunity to appeal in the early crafting of the framework?

Mr L Mangcu (ANC) said that a lot of concerns had been raised, but not a lot of recommendations. It would help the Committee to be given a specific stance or direction. He asked what was meant by “economic deregulation = immediate abolishment of economic entry controls” in slide three of the presentation. Was this bold statement a preamble, or was it something in the proposed bill that Dr Vermooten was opposing or in support of? Slide five stated that AOC clearance took “just too long”. What was not “too long?” What was his specific recommendation, and could he please substantiate why it was too long? On the same slide, how did an AOC delay “tip-off incumbents and give opportunity to close market gaps [that] curtail innovation?”

On slide six, which referred to the lack of consultation of users, he asked Dr Vermooten to verify if the second point on economic decisions suggested that the state should not be involved, and that market forces should be the determining factor. If so, how could the state not be involved and let market forces take their own direction? Regarding the “sudden death of airlines”, which airlines had experienced this as a result of the groundings? In slide 13, he had asked the question, “Can the SACAA function without Ministerial / DOT oversight / decision making?” He asked for his opinion on this.

In Dr Vermooten’s suggestion for the inclusion of African liberalisation measures, what had been his specific recommendations on how he would like to see this expressed? In the second last slide, the point on the last bullet had nothing to do with what the bill covers. The bill did not talk about the future of SA. He asked if the presentation was making an entirely new set of amendments, or if it was speaking to the current amendment bill? He had an issue with the raising of investment into SAA as it related to the current bill.

Dr Vermooten’s response

Dr Vermooten responded that the basic policy principles in slide three were already in place. He was elaborating on their expression, or lack of execution in some cases.

Regarding the point on the economic regulatory control, currently control decisions were left to the airline, except for the safety side. He thought this should remain, and his only concern was that the safety side did not become an obstacle.

Among the list of barriers to entry, the start-up cost -- labour and so forth -- was important. One needed a specific date to project to people, and the lack thereof led to a loss of marketing advantages. The time delay after applying was a problem, because one needed to have a gauge of when the operator would be ready for the market. If one did not have clarity on a time frame to prepare for, then start-up funds could dry up in the process.

He acknowledged that he had not mentioned a specific time frame for the AOC. The time frame would depend on the SACAA, who should then communicate it to all participants. Thereafter, all applicants would have clarity of a set timeframe.

He explained that the current policy was shown on the left hand side of the table in slide six. The point on economic decisions did not relate to SAA or any specific operators. It mentioned that state aid distorted competitive forces, so the quicker SAA was helped back, the sooner aid would stop, to the benefit of everyone. An airline that faced financial difficulties was always at risk of taking shortcuts. The phrase “sudden death” was a financial expression to emphasise the severe impact. It destroyed the credibility of the airline completely.

The question which mentioned the Minister’s involvement was related to the issue of the separation of powers. A system that allowed for objective decision-making was needed. He acknowledged he was not prescriptive on what that system should be. However, one could have a specialist tribunal for major decisions, such as “should we ground this airline?” An alternative reinforcement measure would be that once the investigative body had prepared everything, it could then move to the adjudicators.

It was thought that South Africa had a competitive market, but there was an airline market monopoly. There were 27 monopoly routes, and steps needed to be taken to fix this over time. The question was therefore implying that either the DOT or a tribunal make decisions on groundings, not on smaller operational matters.

Regarding the threshold on foreign investment, a DOT investigation 20 years ago recommended that the threshold should be increased from 25% to 49%. This had been ignored. Many countries had a 49% threshold, while Australia had a 100% threshold. This was because most equipment was purchased in US dollars (USD), so financial market investments into USD-based assets made it easier from a currency perspective. It was difficult to find funding for an airline to operate in South Africa, as South African banks had a limit as to where they could invest in the airline industry.

Mr Chabangu remarked that although the presentation had been good, most of the questions asked in the presentation had not been answered. It did not mention how consumers were to be reimbursed for airline inconveniences, such as delays.

Dr Vermooten said that reimbursing customers was very important. A lot of countries had a system or policy in place to compensate inconvenienced customers for long delays, cancelled or overbooked flights. South Africa could adopt explicit passenger rights, like Europe and America, but this was outside the scope of this Bill.

Ms M Ramadwa (ANC) said the presentation mentions that “legislative action was required to ensure the proper implementation of the Cape Town Convention on aircraft mortgages”. What was the convention mentioned, and why did it require legislation?

Mr Vermooten said the Cape Town Convention was a system adopted by most aviation countries, and had been signed here in Cape Town. It took away certain rights of the debtors, and made repossession possible.

Mr Mey said that he also believed in a free market system, and asked if the market was big enough for this to be possible.

Mr Mc Donald remarked that what had been presented made sense from an economic point of view. He agreed that the grounding of SA Express could have been better handled. Regarding the grounding of airlines like SAA in October, a two-day grounding was unheard of, so this needed to be looked at. He asked for Dr Vermooten’s view on whether SACAA could function without ministerial oversight.  

Dr Vermooten agreed on all the points raised on safety. His main concern was on the grounding of airlines, mainly because of their impact on new airline entries. There should be a high level process to sanction the groundings.

The Chairperson thanked Dr Vermooten for his presentation and announced that the Committee would consider his contributions and deliberate further on the recommendations in its own time. The Committee would make the DOT aware of the other matters for consideration that had been presented.

Briefing by South African Civil Aviation Authority

Mr Ernest Khosa, Chairperson: SACAA Board, thanked the Committee for the opportunity to present the Authority’s submission, and introduced members of the board and the SACAA team.

Ms Poppy Khoza, Director of Civil Aviation, said SACAA had been significantly involved in the development of the Bill, but a submission was necessitated by the recent financial constraints. The institution was a creation of statute, mandated to regulate the civil aviation industry to ensure aviation security and safety compliance. The reason for the submission was SACAA’s financial sustainability and its funding model. There was no income from the fiscus, so it was self-funded with three revenue streams -- 74% was collected from the passenger safety charge, 15.5% from user fees and 2.8% from the fuel levy.

The current challenge was the failure by operators to pay over the passenger safety charge within the required 21 days. Operators were being placed into liquidation, and negatively impacting on SACAA’s financial sustainability. Operators placed under business rescue or business administration were unable to pay fees collected on behalf of SACAA. Lastly, SACAA was a non-secured or non-preferential creditor in terms of the Insolvency Act (Act No. 24 of 1936). These challenges put SACAA at financial risk.

The proposed solution to SACAA’s financial sustainability was for:

• SACAA be declared a preferential creditor when an operator was liquidated or was placed under business rescue/ administration;
• The Minister to be given powers to make regulations regarding administrative measures to be taken for any failure to pay over the money to SACAA by the licence holder;
• SACAA to be given administrative powers through regulations to take administrative action against any person who failed to transmit any monies collected on its behalf;
• Legislative provisions for the establishment of a vehicle that would ensure that all moneys collected on behalf of SACAA by third parties were ring-fenced.

The proposed solutions summarised SACAA’s contributions to the Amendment Bill.

(See presentation)

Discussion

Mr Mangcu asked if it would not have been better for the challenges and recommendations to be raised and resolved with the DOT? Under the listed current challenges, SACAA had mentioned the failure of operators to pay within the required 21days. However, there was no mention of the legal instruments that SACAA had been successfully using so far, and what the shortfalls were, given that the delay was attributed to unfavourable economic circumstances. The last challenge listed stated that “SACAA was a non-secured or non-preferential creditor.” What were the implications of this? Did this mean in liquidation SACAA would not be prioritised? That would be related to the Insolvency Act, not to a particular transport or SACAA piece of legislation? Therefore, how did they see the Committee helping with this? Given that their funding model was dependent on payments from licensees, how did they plan to mitigate the risk of their licensees being insolvent? Could SACAA not have projected the worst case scenario in their financial planning and factored in that risk?

Mr Khosa responded that the Insolvency Act would not be sufficient address the issue of failed payment in cases of economic hardship. This was because it could not be treated as an ordinary debt. It was money collected on behalf of SACAA. The new legislation should acknowledge the distinctness of the money that was to be handed over to the SACAA. The Insolvency Act may not be enough to appreciate this debt of a special kind.

Ms Khoza responded to the question raised on engaging with the Department directly. SACAA had been part of the development process of the bill. On deliberation with the DOT, SACAA and the DOT had agreed that this approach would be the best, given the current stage of the Bill process. The reason for proposing these amendments was because SACAA had few legal tools. However there were other things in place at the moment.

Mr McDonald wanted to verify that the main challenge was receiving payments and ensuring the financial stability of the entity. He suggested stipulating a clear penalty structure for non-compliance, rather than grounding an airline. He expressed agreement about having a secured creditor status.

Ms Babalwa Ndandani, Senior Manager: Legal and Aviation Compliance, explained that SACAA was currently funded through the user principle. The current act being amended referred to the same user charges principles. The fee was included in the levy when customers purchased tickets. Airline operators, therefore, collect on SACAA’s behalf. There was no legislative vehicle on what to do if airlines did not pay, or what to do in cases of insolvency. SACAA would like legislation to see that ensured reimbursement, or payment of money was secured in a trust account. In cases of insolvency. SACAA proposed that a schedule be included in the Bill which spoke to an amendment of Section 94 of the Insolvency Act. This was so that SACAA was categorised as a non-preferential creditor.

Mr Mabhena asked if this was the only source of funding for SACAA. What had been stipulated in the presented model amounted to only 92.3% of the funding. Was the missing 7.7% grants from the DOT? If so, why were the grants not stipulated as part of the revenue streams? What was the percentage of operators over the past 12 months that had failed to pay SACAA within the required 21 days? He wanted to establish if this was a trend of a large number of operators, or a few. Had they canvassed this issue with Teasury or any other stakeholders that would be affected, if they became a secured or preferential creditor? Had there been any petitioning on this? Who did the collection of passenger safety charges on behalf of SACAA? In their opinion, how best could SACAA be funded? He acknowledged that the Committee was trying its best to separate the AIID from SACAA, so that the AIID became a completely separate structure. However, it should be in terms of what the Committee would like to see.

Mr Andries Jansen van Vuuren, Senior Manager: Finance, SACAA, agreed that the total revenue streams presented made up 92.3%. The missing 7.7% was income from interest and other streams. It also included the grant from the DOT that was earmarked for the AIID. It was currently R30 million, and covered direct operating costs, such as the salaries of the members. The majority of the operators paid within 21 days. He explained that he did not have specific statistics on hand at the moment.  With the deteriorating economic situation in the country, the number of local and international operators that failed to pay was increasing.

Ms Khoza said that no other entities had been petitioned. SACAA thought this submission would adequately deal with the issue. Even after discussing it with the DOT, SACAA thought it would be appropriate for it to be stipulated within the Act. The airline operators collect on behalf of SACAA. As the passenger buys the ticket, the passenger safety charge is included in the ticket purchase. From this, about R24 must be passed onto the Civil Aviation Authority within 21 days.

In response to how else could the entity be funded, SACAA would rather leave it to the DOT to decide on a better funding model. She confirmed that SACAA did receive an annual grant of about R30 million from the DOT, under the AIID.

The Chairperson thanked the SACAA members for the presentation, and announced that the Committee would deliberate further on the recommendations and proposals in its own time.

The meeting was adjourned.