TRANSPOREG

THE RATIONALIZATION OF
ECONOMIC REGULATION IN
THE AVIATION INDUSTRY
Jabulani Mzaliya
Disclaimer:

This is a discussion paper developed for the transport family. It does not have any bearing
on the policy intentions of the Department of Transport or of government but is used as a
stimulus to raise consider the amalgamation of the aviation regulators in South Africa.

First published in 2018 by

Jabulani Mzaliya
DIRECTOR
TRANSPOREG
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©2018 Jabulani Mzaliya

ISBN 978-0-6399480-2-7

No part of this publication may be reproduced, stored in a retrieval system or transmitted

in any form or by any means, electronic, mechanical, photocopying, recording or
otherwise, without written permission from the copyright holder.

ii
ABBREVIATIONS

AASA Airlines Association of South Africa

ACSA Airports Company South Africa
ASGISA Accelerated and Shared Growth Initiative of South Africa
ASLC Air Services Licensing Council
ATNS Air Traffic and Navigation Services
AVSEC Aviation Security
CAA Civil Aviation Authority
COMPCOM Competition Commission
DOT Department of Transport
DPE Department of Public Enterprises
ESKOM Electricity Supply Commission
EXCO Executive Committee
FIFA International Federation of Football Associations
HRD Human Resources Division
IASC International Air Services Council
IATA International Air Transport Association
ICAO International Civil Aviation Organization
ICASA Independent Communications Authority of South Africa
IT BBBEEC Integrated Transport Black Economic Empowerment Charter
LCCs Low Cost Carriers
NADP National Airports Development Plan
NASC National Aviation Security Committee
NERSA National Energy Regulator of South Africa
NIPF National Industrial Policy Framework
NRF National Revenue Fund
NT National Treasury
PCOT Portfolio Committee on Transport
PEO AND BC Public Entity Oversight and Border Control
PR Port Regulator
QMS Quality Management System
RC Regulating Committee
RTMC Road Traffic Management Corporation
SAA South African Airways
STR Single Transport Regulator
TGS Tourism Growth Strategy
HDI Historically Disadvantaged Individuals
TR AAND II Transport Regulation Accident and Incident Investigation
YD Yamoussoukro Declaration

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TABLE OF CONTENTS

ABBREVIATIONS........................................................................................................................ ii
1. INTRODUCTION ................................................................................................................ 1
2. THE DISCUSSION .............................................................................................................. 1
2.1 The Clutter of Regulators ................................................................................................1
2.2 Current Number of Regulators ........................................................................................2
2.3 Dislocated Administration ..............................................................................................2
3. MANDATES ......................................................................................................................... 2
3.1 The Regulatory Mandate .................................................................................................2
3.2 The Regulators’ Mandates .....................................................................................................3
4. MOTIVATION ..................................................................................................................... 4
4.1 The Policy Environment .................................................................................................4
4.2 Realizing The Signed Agreements ..................................................................................4
4.3 Interactions With The Competition Commission ...........................................................5
4.4 The Growth of the Regulatory Culture ...........................................................................5
4.5 Centralized International Governance Of The Sector .....................................................6
4.6 Support To Other Government Imperatives ....................................................................6
4.7 The Growth and the Challenges of the Continental air transport trade. ..........................6
5. INSTITUTIONAL ISSUES ................................................................................................. 6
6. THE CURRENT AVIATION MARKET CLIMATE ....................................................... 7
6.1 The Perception of a Protected Flag Carrier .....................................................................7
6.2 The Energy Conundrum ..................................................................................................8
6.3 Regulation For Big Event Management ..........................................................................9
6.4 Growth and Co-operation In the Sector ..........................................................................9
6.5 Growth of Non-Scheduled Services ................................................................................9
7. FUNCTIONS OF THE PROPOSED REGULATOR ..................................................... 10
8. ADVANTAGES .................................................................................................................. 10
9. IMPLICATIONS ................................................................................................................ 11
9.1 Legislative Implications ................................................................................................11
9 .2 Implications for Existing Regulators ............................................................................12
9.3 Implications for the Board Establishment .....................................................................12
9.4 Financial Implications ...................................................................................................13
9.5 Intra-Departmental Implications ...................................................................................13
10. CHALLENGES................................................................................................................... 13
11. SUGGESTED WAY FORWARD ..................................................................................... 14
12. TIME FRAMING ............................................................................................................... 14
13. RECOMMENDATIONS.................................................................................................... 15

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1. INTRODUCTION

The purpose of this document is to argue for the rationalization of the three regulators in aviation,
namely the Air Services Licensing Council (ASLC), the International Air Services Council
(IASC) and the Regulating Committee into one Aviation Regulator by Ministerial Proclamation
as a step towards a long-term creation of a Single Transport Regulator (STR).1
The regulators who are subjects of this memorandum operate in the same space, serve the
same clients and have similar mandates. There is, therefore, a need to rationalize and amalgamate
them. The three regulatory bodies might have best served a sanctioned Apartheid South Africa,
but they do not have a place in a democratic South Africa.

2. THE DISCUSSION

2.1 The Clutter of Regulators

In response to Government’s decisions for the establishment of economic regulators to attract

investment and to create competition, there is a need for the establishment of a rationalized
regulator. The studies that were conducted by the Presidency and National Treasury about the
strengthening of this directive, there is an attendant need to amalgamate and collapse those
economic regulators who may be pursuing the same objectives.
Even without any Presidential directive or Treasury study, consolidation of processes to save
costs is the new normal.
The Department of Transports has a responsibility of dealing with four regulatory bodies in
aviation, namely: the Air Services Licensing Council (ASLC), for domestic licensing; The
International Air Services Council (AISC), for international licensing. The South African Civil
Aviation Authority (SACAA) for safety and Security, the Regulating Committee which regulates
tariffs and service level standards and acts as a restraining body on ACSA and ATNS from
abusing their monopoly position.
There are two state-owned enterprises (SOE’s) that provide service in the aviation industry,
namely; the Airports Company of South Africa (ACSA), the airport operator and Air Traffic and
Navigation Services (ATNS), the air navigation service provider.
The Department of Transport drives other regulatory measures because of the state-based
membership of the International Civil Aviation Organization (ICAO). These are obligatory and
should not be subjected to the suggested regulatory streamlining, except if the regulator is
assisting the State to achieve its obligations to the international protocols.
The suggested rationalization of the three regulators is not going to be overarching for the time
being but will be limited to the “economic” regulation as the other aspects of regulation. The
aviation sector, such as those of security and safety, are governed under different instruments,
although these work in collaboration with one another.
The National Aviation Security Committee (NASC) that has advisory functions to the Minister
consists of some of the entities mentioned above. International convention prescribes security,
and its remit can make or break the competitiveness of the industry, it is recommended that the
NASC continues its functions.
The structures that support it and that report to it continue to operate. What will change is the
disparate membership of the different regulatory entities as they are currently constituted. The
rationalized aviation economic regulator will now represent them.
The historical origins of the clutter of these regulators can be understood from the changing
political environment in the country and the evolution of the aviation industry as a whole. For

1
Towards A Single Transport Regulator: A Discussion Paper. Department of Transport, 2004
example, the existence of the domestic and the international licensing regimes as separate entities
was occasioned by the isolation of the previous state.
There is a need to bring some synergies and to reduce the conflicting mandates that are carried
by these regulators and the regulatory structures. This is even more urgent if we recognize that,
save for the current aviation fuel shortages, the handling capacities of some fringe airports, such
as Port Elizabeth and East London are growing, from 1,8-million to 2.5-million for the former
and from 700 000 to 1.2-million passengers for the latter.
Notwithstanding the point made above, the DOT should begin to engage in the debate around
the rationalization of the safety, security, environmental, airspace management and economic
regulator into one in the not too distant future.
The need for the inclusion of airspace management as part of the future regulator’s economic
regulatory responsibilities will also need to be discussed. For this purpose, we have attached our
preliminary views of the weakness of the airspace management in South Africa. (See Annexure 1)

2.2 Current Number of Regulators

There are currently the following numbers and names of regulators in each of these entities. In the
IASC, there are Mr Khaatse Colbert Marobela, Ms Dina Modimakwane, Ms Pretty Mthiyane, Mr
Inathi Ntshange and Mr France Modiroa. In the ASLC, there are Mr.Material Michael Mabasa,
Ms Refilwe Ledwaba, Ms Precious Sibiya, Mr. James Chiumya and Ms. Vumeka Buthelezi. In
the Regulating Committee, there are Ms Kenosi, Ms Zandile Mpungose, Ms Thembeka Semane,
Mr Mkhuseli Ciyo and Mr Edmund Nxumalo.
The prospect of more people handling the same issues, the part-time nature of their
responsibilities, the cost implications and the administrative burden of managing three bodies are
some of the complications of the status quo.
The quasi-voluntary nature of the current regulators does not provide stability and
sustainability, as the regulators can leave at any time without finishing their terms as they are not
obligated to do so. On the balance of probabilities, the regulators may consider other
commitments which are more beneficial to them as priorities rather than the regulator.

2.3 Dislocated Administration

The administration of the Regulating Committee resides in the Department of Transport. This
distance between the administrative function and the functioning of the Regulating Committee
can lead to lapses of authority and coordination.
The Regulating Committee has raised the lack of administrative support from the Department.
The location of this administrative support within a rationalized Aviation Economic Regulator
will lead to the administrative efficiencies required for an effective and efficient regulatory
mechanism in the aviation industry.

3. MANDATES

3.1 The Regulatory Mandate

The mandate to encourage competition in the aviation industry is captured by the mission
statement on the aviation industry found in the White Paper on National Transport Policy of
1996.2

2
White Paper On National Transport Policy, 1996. Department of Transport.

2
 The issues of competition, safety, provision of services, reliability and efficacy, improvement
of the levels of services and economic development are all strong indications that the industry
needs to be robustly regulated at both domestic and international levels.
In its Programme of Action for the 2007 financial year, Cabinet’s economic cluster was tasked
with the responsibilities which included the strengthening of the regulation of the transport
industry. This responsibility has to be led by the Department of Transport
Cabinet approved the Airlift Strategy in 2006. To facilitate the implementation of this strategy,
there is an attendant need to strengthen the regulatory environment under which the Strategy will
operate. Currently disparate and having confusing mandates, the three-way economic regulatory
regime leads to confusion and absence of common purpose in the Airlift Strategy.
Regarding its Strategic Plan for 2007/2008 to 2009/2010, the Department of Transport
envisages the establishment of a single transport regulator.3 This proposal is one of the steps
towards the achievement of this strategic goal.
The Department has also been restructured to strengthen its economic regulatory functions,
with the positions of the maritime and aviation economic regulation clubbed as a responsibility to
be led by a Director. Experience in the sourcing of combined aviation and maritime expertise in
the Department has shown that it is difficult to get this expertise embodied in one person.
When the post was filled, it was reconfigured to suit the expertise of the person appointed. The
other “absent” expertise, be requested as a stand-alone to do justice to the relevant sector.
The functions of the three regulators are similar. Their rationalization into one will not have a
deleterious effect on the aviation industry. On the contrary, it will enhance the efficiencies that
are cited in the previous paragraph. The total of the responsibilities assigned to the three
regulatory entities coalesces into the general environment of economic regulation.
The issues of pricing, tariffs, market entry and exit, customer satisfaction, balance sheet
analysis, industry sustainability and equal access, all make up the regime that can be categorized
as the economic regulation of an industry.
For the airlines that operate in both and local international markets, one regulator will provide
the one-stop-shop, an objective which will assist the new approach by the Department of Trade
and Industry as a response to the concerns of the international investors.
Within the aviation industry, the key drivers of their business are regulated tariffs, traffic
volumes, commercial revenues, operating expenditures, capital structures and capital expenditure.
All these issues and those enumerated in the previous paragraphs can and often do, fall under the
purview of economic regulation.

3.2 The Regulators’ Mandates

The Regulating Committee restrains ACSA and ATNS from abusing their monopoly positions,
without placing undue restrictions on their commercial activities. It promotes the reasonable
interests and needs of the users of ACSA airports and ATNS infrastructure. It has to promote the
safe, efficient, economical and profitable operation of ACSA airports.
It is tasked with encouraging timely improvement of facilities at ACSA airports to satisfy
anticipated demand. Finally, it ensures ACSA can finance its obligations and has a reasonable
prospect of earning a commercial return.
The Regulating Committee’s mandate, to regulate tariffs between only two entities, namely
Air Traffic and Navigation Services (ATNS) and Airports Company of South Africa (ACSA),

3
The issue of the single transport regulator, and the pronouncement of the National Land Transport Bill
which envisages Land Transport Regulators and Provincial regulators, fly in the face of the Single
Transport Regulator approach but these issues should be discussed outside the scope suggested by this
Discussion Paper.

3
makes us, on the one hand, run on spare human capacity. The experience that has been gained by
this Regulating Committee over the years is not fully unleashed if they regulate only two entities.
The mandate is so limited that it precludes its extension to the regulating of broader tariffs in
the event of the encouraged entry of the private sector into the input and infrastructure industries.
The ASLC is responsible for the licensing and control of domestic air services; and for matters
connected in addition to that.
The IASC is concerned with the licensing and control of air services. It is also responsible for
the monitoring of air services to ensure safety and reliability. An integral part of this function is to
ensure that the air transport industry functions within the framework of the international air
transport system.
For domestic aviation policies, the emphasis is on air transport, aviation safety, airports and
airspace, while international policies focus is on international air transport and relationships with
international governments or groups of governments.
The arrangement does not lead to the need for the separation of the regulators for both. A
single aviation regulator can determine which of the areas is of domestic applicability and which
one is international.

4. MOTIVATION

4.1 The Policy Environment

The cost of doing business in South Africa has manifested itself in a myriad of institutions that
duplicate functions. There is a drive internationally to create a single entry mechanism to reduce
these costs. The government has iterated the need for this as part of the National Development
Plan (NDP).
In terms of the White Paper on National Transport Policy of 1996, aviation policy is divided
into two distinct areas of domestic and international. This Policy document raises the issue of
overlaps between the two bodies, namely the ASLC and the IASC, but does not pronounce on the
need to collapse these into one.
This is the unintended silence of the White Paper should be addressed as a matter of urgency.
There is a process underway to review the White Paper in response to the changed circumstances.
One of the areas that would require review is the migration towards a more cohesive regulatory
mechanism, not just for the aviation sector, but for all the modes under transport.
The rationale for the separation of domestic and international pertained to sovereignty issues
(that is domestic to the extent that the South African Government has full powers over the
domestic policies) and the negotiation issues (to the extent that consultations have to be engaged
with other states on international policy). This rationale does somewhat hold in the broader terms.
In terms of State-to-State interactions, which pertains to the need for international
engagements, the role of the Department will not be curtailed with bilateral and multilateral
arrangements can only be conducted through the medium of the State, while those of a regulatory
nature should be excised from the state and allocated to a streamlined aviation regulator.

4.2 Realizing The Signed Agreements

There is concern that there are some dormant bilateral air services agreements not signed. At the
time of writing this paper, South Africa has entered into hundred and thirty (132) Bilateral Air
Services Agreements. Fifty-five (55) are active either through own operations or codeshare
services while Seventy seven (77) are dormant. We have 5 South African owned operators. We
have 15 foreign-owned operators. These figures might have changed over time.

4
 Based on the “use-it-or-lose-it” principle, the aviation regulator would have to provide
guidance on how to deal with the hoarding of this capacity.
Direction should be given on the cap years that should be put in place between the signing of
the agreements and the uptake of the servicing of those agreements. The DOT should decide
whether other applicants who are ready to enter the market cannot be considered for the allocation
of these dormant agreements.
There are a lot of issues which are packed within this concern of dormant agreements, such as
slots, frequencies, air service agreements, market entry capacity. These are economic regulatory
issues and thus fall within the parameters of the suggested rationalization.
As of 2006, the South African government has concluded bilateral agreements separated as
follows: one hundred and four (132) bilateral services agreements. 55 are active, and 77 are
dormant. In 2006 when the Airlift Strategy was developed, there were twenty-five (25) provides
for a single airline per side, forty -four (44) provides for the approval of tariffs from both sides,
seventy-five (75) provides for multiple designations by each side and fifty-nine (59) provides for
the double disapproval tariff regime.4

4.3 Interactions With The Competition Commission

The myriad of regulatory organizations and structures in South Africa have closed the space for
the Competition Commission which is more overarching, to fully exercise its mandate in the
aviation industry.
To its credit, the Competition Commission has performed some of its functions with diligence
in this sector. Its mandate is broader than the other sectors. The Aviation Economic Regulator has
to deal with issues of market competition in the sector could relieve it (the Competition
Commission) of some of its responsibilities.
There are steps afoot to review the Competitions Act, but this preliminary work does not lead
to the conclusion that the sector regulators will be done away with. The status quo of the co-
existence between the Competition Commission and the sector economic regulators is enduring.
In the general analysis of the interface between the Competition Commission and other
regulators, and the current revision of the Competition Act, there will be a need to review the
relationship between the competition responsibilities of the envisaged Aviation Regulator and the
Competition Commission.

4.4 The Growth of the Regulatory Culture

Although the regulatory mandate was given to government departments particularly those under
whose aegis the input sectors fall, the uptake of the transport sector to respond to this mandate has
been slow.
Previous rationalizing efforts in the energy and the broadcasting and telecommunications
sectors and financial sectors have led to improved efficiencies and reduced costs, albeit with
mixed successes in one than in the other.
In the one where there are limited successes, the reason is the dominance of one player,
namely Telkom over other players, a situation which plays itself between the entities that are to
be merged. The recent challenges in the energy sector and the mediation of the National Energy
Regulator of South Africa (NERSA) indicates the mediation role that an economic regulator can
play between the interests of the dominant players, the pursuit of the survival of the industry and
the protection of the consumer can play.

4
Airlift Strategy, 2006 Department of Transport.

5
4.5 Centralized International Governance Of The Sector

The global source of compliance for both domestic and international aviation is the International
Civil Aviation Organization (ICAO). As the source and authority of compliance are one, it is only
rational that, save for those obligations that should be fulfilled at a state to state, or state to multi-
lateral organization levels, the regulation of the aviation industry should also be one.
The International Air Transportation Association (IATA) is a private sector global body. It
may not feature prominently in the general recommendation of this suggestion. The interface
between public and the private sector in the aviation industry may well mean that the
responsibilities of the proposed aviation regulator interface in more ways than one.
Such an interface could be best served by a single aviation regulator and prevent the disjointed
response of the regulators to a single body. Economic regional blocks and cooperation between
states around the world are forming common policies to respond to economic challenges.
As these regional blocks progress towards unanimity, aviation policies and regulation
gradually morph to economic unanimity and approaches. The regulatory regime needs to respond
in an equally coordinated fashion to these economic groupings and alliances of states.

4.6 Support To Other Government Imperatives

The proposed aviation economic regulator, while trying to detract from the old notions of the
dominance of unprofitable “national carriers” for purposes of prestige, cannot work outside the
other issues of national interests. Some of them are as follows: NATMAP and its implications;
the Tourism Growth Strategy which relies largely on multi-modal transportation platforms, but
predominantly the aviation industry; the growing safety and security imperatives and concerns;
the national development Plan (NDP); South Africa’s foreign policy imperatives of cooperation
and multilateralism; National Industrial Policy Framework and its related Implementation Plan;
and the constitutional imperatives of freedom of movement and association.

4.7 The Growth and the Challenges of the Continental air transport trade.

The absence of regulatory culture in the African continent occurs at the same time as there is the
growth of air transport passengers. According to the latest IATA statistics, the number of people
flying internationally has increased by 0.7% compared with 4,2% growth earlier in the year and
8% the previous year.
African internal passenger growth has grown by 18% during the same period. Travel between
Africa and the Middle East has grown by 6% and travel between Africa, and the South-West
Pacific has grown 9,7%.
A rationalized economic regulatory environment in South Africa will have a knock-on effect
on the regional and the continental air trade. Among these are the following: The rationalization
of economic regulation across the region and the continent; cooperative agreements and technical
exchanges on the issues of economic regulation in aviation; the realization of the Yamoussoukro
Decision and synergized responses to global challenges in aviation.

5. INSTITUTIONAL ISSUES

There was a Cabinet decision to embark on a regulated environment. There was also a
simultaneous development of the regulatory framework under the direction of the Presidency, the
existence of a parallel programme by National Treasury (NT) had a parallel programme. The
Departments was expected to execute even before the two processes have been finalized, is likely
to lead to time lags, uncoordinated implementation and confusion of mandates.

6
 The residual effects of the previous domination of the transport sector by the state holding
company, Transnet, will always play itself between the regulatory and policy functions of the
Department of Transport. The responsibilities of the shareholder department, the Department of
Public Enterprises (DPE) and that of the policy department, the DOT, will always be contested
and cause friction.
On the one hand, the policy and regulatory aspects may be ideal trajectories for good
governance and substance of the Departments and the entities reporting to them. However, if on
the other, these aspects erode the profits of the state entities in this sector, tensions between the
two departments will always exist. The relationship between the DPE and the policy departments
should be treated with caution.
There will be a need for the establishment of the Board for this regulator. The process of the
establishment should be the one that has been followed by the Branch: Public Entity Oversight.
All the elements that complete the Board appointments such as Shareholder Compacts,
Performance Agreements etc. should be followed.
The Integrated Transport Broad-based Black Economic Empowerment Charter has now been
finalized. The difficulty with which the Department negotiated it in the aviation sub-sector would
also require a regulatory environment. The delay in its finalization was caused by the reluctance
of the aviation sector to fall step-in lock with the transformational agenda of government.
The aviation regulator’s intervention should prioritize the entry of HDIs in this subsector
beyond the mundane of low-end entry points of the aviation value chain. Security and cleaning
are always identified as entry points for emerging companies. The aviation regulator should assist
the attainment of all the elements of the Transport Broad-Based Black Economic Empowerment
and identify the high-end entry points such as ownership and equity.

6. THE CURRENT AVIATION MARKET CLIMATE

6.1 The Perception of a Protected Flag Carrier

The perception that regulators serve the interest of state entities cuts into the mandate of the
Competition Commission. Aviation sector organizations such as the Airline Association of South
Africa (AASA) and the Board Of Airline Representatives of South Africa (BARSA) have taken
ACSA and ATNS to court based on this perception.
They felt that the regulatory conduct in the aviation industry is protecting these entities in the
same manner as the ICASA is perceived to be protecting Telkom, NERSA is perceived to be
protecting Eskom.
Regulation by its nature prescribes separation between the policy-making centre, price
regulation, market entry and all other aspects of regulation. The Minister appoints the three
regulators. They are funded by the national fiscus. Their decisions are approved by the Minister.
It is within the Minister’s powers to reconfigure them in a manner that will make his portfolio to
be better managed.
Both the infrastructure owners, namely ATNS and ACSA which are regulated by the
Regulating Committee for instance, and the infrastructure to which the licensing authorities grant
operators licenses too, are located under the purview of the Department of Transport,
administratively, or the Minister of Transport executively. The Minister is responsible for the
Department of Transport.
A public sector appointee serves in one of the aviation regulators. This public servant is an
employee of the Department of Transport. If the regulator should be independent, the
participation of the Department officials may lead to confused mandates. How can a DOT official
separate himself or herself from his core functions in the Department?

7
 The non-permanent nature of the current regulators means that they do not grow their
expertise and resources. They have to rely on consultants most of whom provide services to the
entities that are to be regulated as well. The auditing shenanigans that have been witnessed of late
talks to the overlapping responsibilities of the auditors.
The “single till regulation” as seen in the subsidization of aeronautical deficits by the non-
aeronautical businesses under ACSA is an outdated concept as it can create fewer incentives for
ACSA to create internal efficiencies.
The financial allocations that have been given to ACSA for airport revival, and the impending
National Airports Development Plan (NADP), cannot always rely on state sourced financing or
foreign borrowings all the time. The Airports Company of South Africa (ACSA) has to create
efficiencies that will make it a sustainable financial institution.
The single till mechanisms allow for a reasonable return on all airport assets. Regulatory
mechanisms now exist in other sectors such that the non-aeronautical activities can be migrated to
the regulators in which they are located.
ACSA should be allowed only to play a landlord role rather than adjudicating on the issues
which are non-aeronautical. This will provide the space for ACSA to concentrate on its core
business.

6.2 The Energy Conundrum

The doubling of the price of jet fuel as a result of the global oil prices (jet fuel is rising at a faster
rate than crude oil prices) have placed the industry in a difficult position. The industry will
require a careful regulatory regime that will both protect it from collapse and protect the interest
of the consumer on which the airlines depend for their balance sheets.
There is a growing international consolidation of operations which will soon recreate
monopolies in the industry, a recidivist approach when considering the liberalization of
previously state-owned airlines and the entry of private sector-owned airlines which have
increased air mobility.
Over and above the rising jet fuel costs, the intricate balancing act which industry has to play,
namely ensuring a sustainable balance sheet; responding to environmental concerns; competition
between low cost carriers (LCCs) and full service networks; the hubbing approach to the industry
operations; ageing aircrafts; code-sharing arrangements, among others, require a more nuanced
and centralized regulatory authority that will be able to navigate all these concerns.
In the interest of the consumers, the economic regulatory environment in the aviation sector
should devise ways and means to protect new entrants, particularly low-cost carriers and their
ability to extend the services to the lower end of consumers.
More challenging is that the low-cost airlines, operating on very low margins and attracting a
new consumer base, compete with state-aided national carriers that cater for the upper end of the
customer base. The suggested aviation regulator should not fall for the narrative of private sector
operations that should replace public entities airlines. It should ensure the survival of both sectors
airlines. There should be adequate protection to keep them as profitable and sustainable.
Since state subsidies and guarantees are derived from the national fiscus to which all South
Africans contribute, the subsidization of the higher end of the customer base is discriminatory
against the non-users of the aviation services and of the lower end consumers who rely on low-
cost carriers.

8
6.3 Regulation For Big Event Management

The centrality of the South African aviation industry to the successful hosting of global events,
including sports and conferences cannot be second-guessed. If South Africa bids for an event, it is
also confirming that its regulation of its aviation industry is of global standard.
There are other big events beyond the ones mentioned above which would require a
rationalized aviation approach. In the final analysis, the new regulator should end the multiple
compliances and disjointed regulatory approaches in the aviation industry. This will reduce the
cost of doing business in South Africa.

6.4 Growth and Co-operation In the Sector

The rapidly globalizing aviation industry is narrowing the gaps between domestic and
international aviation. The code-sharing regime the proliferation of low-cost airlines grow, and
the growing “free skies” approach are fertile grounds for a streamlined regulator.
It is envisaged that shortly when the Yamoussoukro Declaration (YD) is finally implemented,
the need for the separation between domestic and international air transport will cease to exist.
There has been a growth of foreign airlines serving the South African aviation market. While
in 2000 these stood at sixty-one (61), they have now substantially grown to seventy-five (75). Of
these sixty-seven (67), there are combined passenger/cargo combined operations of fifty-four
(54), with nine (9) of them being code-sharing arrangements and seventeen (17) being dedicated
cargo services.5

6.5 Growth of Non-Scheduled Services

The non-scheduled services in South Africa are on a growth trajectory. The need for the
regulatory mechanism to strengthen entry requirements into the market by the non-scheduled
services operators has to be strengthened.
More stringent approaches are adopted, while the sister regulators in the sector, for example,
safety are also required to strengthen their regulatory regimes.
Had it not been for the withdrawal of certain non-scheduled services, the numbers of entrants
would have been higher. Both the additional airlines and the withdrawal of services are among
the challenges the reconfigured regulator would have to analyze and deal with.
Although the domestic charter airline services have not received much attention because of
their insignificant impact on the domestic market, (it is dominated by the scheduled services) it is
of equal importance that the regulator is seized with it. This will also offer low-level entry for
new entrants, particularly the HDIs into the industry.
The unregulated (frequency, capacity, etc.) environment of the non-scheduled services
requires vigilance, in so far as their uncontrolled growth will have an impact on the scheduled
flights.
Other than the competition, the challenges that are presented by the absence of a rationalized
regulatory mechanism for this class of service lends itself to more safety considerations.
The four charter categories are charters that cater for the passengers and all cargo serving the
intra-African services; charters that serve destinations that are not served by scheduled air
services; Inclusive tour charters; and Charters with seat only sales.

5
Airlift Strategy, 2006 Department of Transport

9
7. FUNCTIONS OF THE PROPOSED REGULATOR

The major functions that the consolidated regulator will perform are the following:
Airline licensing through the provision of operating licenses for passenger, mail and cargo
services. Open access to ground handling operations such as aircraft marshalling, aircraft loading
and unloading, aircraft refuelling, baggage handling and passenger handling.
The facilitation of market entry and competition for surface transportation between terminals,
catering and general administrative services.
Liaison with the Competition Commission on matters that affect anti-competitive behaviour in
the aviation industry and to formulate no conflictual strategies between the two organs.
Slot Allocation and facilitation of schedules.
The travel trade licensing of tour operators and travel agents that work inside the airport in
conjunction with the organized tourism sector.
The eliminating collusive behaviour and price fixing in the industry.
The facilitation of market entry for deserving cases, and market exit in undeserving cases in
such a manner that all those affected, the industry and consumers have equitable protection.
The determination of airport charges relating to take off, landing and parking of aircraft and
passenger and cargo charges.
The determination of appropriate marketing and economic indicators for all the industry
players. These indicators should include, but not limited to market risk premiums, bond yields,
cost of debt and appropriate gearing levels.
The evaluation of issues of reciprocity and whether the balance of benefits is equitable for
service providers.
The determination of whether gearing levels, borrowings and guarantees to state-owned
aviation service providers are nominal enough not to disadvantage new private sector entrants and
existing competitors.
The establishment of a Monitoring Framework for capacity uptakes, load factors and
comparative prices in the industry.
The monitoring of unused traffic rights and the allocation of these to other applicants at a
predetermined expiry date.
Assessment of the code-sharing environment and the extent to which this leads collusive
service provision and pricing.

8. ADVANTAGES

There will be coherence and consistency in the regulation of this crucial sector of the transport
industry.
The dominance of the interests of one licensing authority, namely the international over the
other (namely domestic) will be minimized. There will be perfect balance and synergies between
the entry of international players and the development of local industry players if these are
located within on regulatory regime.
Global aviation is tapering towards the same type of single regulatory mechanisms with the
issues of open skies being very much in vogue. The growth of low-cost airlines across
international borders being the future of aviation.
Compliance for both domestic and aviation is co-ordinated under one international body,
namely ICAO. The business side of the aviation industry is also located under one international
body namely IATA. A response from a single source of regulation in the industry will be better
placed to serve these two bodies.
Human resource and expertise are not readily available for the rotation of the members of the
three regulators and the pooling of the three bodies. The full-time migration of the Department of

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Transport-based administrative personnel to service the new aviation regulator will minimize the
administrative distance that has been cited as the weakest link of aviation regulation.
Skills that are in short supply, such as internal auditing, legal and investigations and forensics
can be located in one body. These skills that currently exist in the three separate entities can be
pooled into one, thereby reducing the need for unnecessary duplication as they all operate within
the same areas of expertise and experience. It will reduce outsourcing and cut the hold the
consultants on State entities and government departments.
A single aviation regulator stands a better chance of raising revenues in the industry than the
three separate and competing regulators. Separated, they may send confusing signals and nurse
separate expectations from the industry.
Service standards in the South African industry, namely the Passenger Perceptions Study, the
Airport Service Quality Monitor, the QMS, shall be enhanced. These services standards are now
more relevant in the growth of the South African aviation and tourism industry from a mere 1-
million tourist arrivals in 1990 to over 7-million in 2005.6
The aviation regulator will also make it easier for aviation freight enhancement needed by the
Freight Logistics Branch.

9. IMPLICATIONS

9.1 Legislative Implications

The ACSA and the ATNS Act provide for the establishment of the Regulating Committee. If the
rationalization is positively considered, there will be a need for the two Acts to be repealed. The
legal division of DOT should find an easier and quicker way of collapsing the two Acts into one
amending Act that will be establishing one Regulator.
Although it will be easy to collapse the two legislations, the process is cumbersome. The
normal legislative process will have to follow up to the stage when the amending legislation is
passed by Parliament an accented to by the President.
The ASLC and the IASC are established by two separate Acts of Parliament. It will not be
possible to pronounce the collapse of the councils into one single Authority because of the
amending Act that still needs to be drafted. The amending Act will have to follow the whole
legislative process until Parliament approves it and signed by the President.
Once the President has signed the said Amending Act, the DOT will draft a proclamation
indicating the date of collapsing the two Acts and the date when the newly established Authority
will come into operation.
Once institutional arrangements have been made, the DOT will request the Minister and the
President to proclaim using a Government Gazette the new Act and the new Aviation Economic
Regulator.
Once a decision to merge the two Acts is made, DOT will begin to consolidate the two Acts
into one Act. The line function for Civil Aviation Chief Directorate should also indicate whether
it will have the capacity for council members to deal with all the economic regulatory aspects in
the aviation sector.
The granting of operator licenses to the aviation industry is the competency of the Department
of Transport. To consolidate the work of the new Aviation Economic Regulator, this work, as it
falls within the market entry regime of economic regulation, will have to be migrated to the new
regulator.

6
Airlift Strategy Department of Transport 2006.

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 The Chief Directorate: Legislation should be requested to work together with the Portfolio
Committee on Transport (PCOT) to evolve a quicker process between the normal legislative
process and the Ministerial Proclamation alternative.
In the meantime, there should be an assurance to the current regulators that the process is not
to make them supernumeraries, but are aimed at harnessing their skills and experience towards a
better regulatory environment.

9 .2 Implications for Existing Regulators

The three entities shall be merged into one. The excess human capacity regarding regulatory
members will have to serve their full term in the current period, but their membership will not be
renewed after three years.
There are currently fifteen members in all the three regulators. There will be a need to cut
down on the numbers to arrive at an acceptable number of regulators, once the structure has been
finalized with the line function
The new regulators will be full time. In the event that all the current regulators are available
for appointment to the new regulator, there will be a need for careful selection based on (a) those
regulators who would be willing to serve full time; (b) those who have served the regulator longer
than others (c) last in first out (LIFO ) principle in the case of excessive numbers and (d) career
pathing for existing DOT secondments into regulation.
Because of the commitments that have been made by the Department to these regulators, it
may be advisable to let all the current members be members of the Aviation Economic Regulator,
with the Minister appointing the Chairperson of the Board.
Over the three year period for an assessment to be made as to whether the numbers are
cumbersome or not for the functioning of this new entity.
The Public Entity Oversight Branch will have to advise on the suitability of the current
regulators that should serve in the new structure. After the end of the current term, the normal
process of these appointments be made.
The roles and responsibilities of the new Aviation Economic Regulator will be the merging of
their current functions into one, including competition, licensing and tariff determination.
Those responsibilities that are prescribed by international convention, such as of security, shall
reside in the appropriate structures such as the separated Chief of Aviation Security.
Those state-driven regulatory measures that are prerogative of the state regarding international
convention shall continue to reside in the Department of Transport.

9.3 Implications for the Board Establishment

A rationalized regulator will also require a single board. The single board will be to the advantage
of the sector if the following problems in relation to boards are acknowledged:
DOT currently controls about 8 Board of Directors, one Board of Control and one
Shareholder’s Committee. As more regulatory agencies are being established, the DOT’ role in
establishing Boards will increase. Internal capacity to control these boards will be limited.
There will be an extra budget that will be involved. The pool of the board members is
shrinking. The industry itself does not have a wide pool of independent experts. Those that can be
sourced from the industry are likely to be “married” to their current employers and may tilt the
regulator’s views towards thee interests. Their objectivity cannot be guaranteed.
The expertise that exists is in entrepreneurs, or government officials will have an impact on
the independence of the regulator's mechanism. There is a history of conflict between the Boards
and Executive Management in the transport sector. Board members may sometimes overreach
and invade the Executive space.

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9.4 Financial Implications

The current regulators do not exhaust the financial allocations set aside for their meetings and
subsistence and travel allowances. This indicates that they are meeting less, or that they are not
adequately fulfilling their mandate.
The breakdown of the payments relate to the attendance of meetings and Subsistence and
Travel by the regulators, which are broken down as follows: In the 2017/2018 financial years, the
International Council Chairperson receives R620 per hour, the Vice-Chairperson R527 and the
members R461. The Chairpersons of the Domestic and the Regulating Committee earns R511 per
hour, the Deputy Chairperson earns 448 per hour and the embers R310 per hour. These may have
increased over time.
The financial allocations for the new regulator will be substantially more than the current
financial expenditure by the Department of Transport. However, the quality of the output and
their contribution to the aviation industry will be substantially higher than their current output as
they will be full-time. There will be value unlocked both ways.
Using the operational finances of the Competition Commission as a point of reference, and
with the Aviation Economic Regulator premised on the same structure, the operational financial
obligations of the consolidated economic regulators would be in the region of R 35-million per
annum. A business case and a breakdown of these figures should be provided by the Aviation
section of DOT.
Transgressions in the industry and the sanctions that these would carry will require that fines
should be paid to the National Revenue Fund (NRF). This will be unlike the current practice
where the airlines feed of each other (e.g. .the recent fines that have been paid by SAA directly to
the companies).
A decision would then have to be taken in future for the whole regulatory approach as to
whether these fines should be redirected to the regulator to entrench its independence and
financial well-being not reliant of the state coffers.

9.5 Intra-Departmental Implications

A testing of the opinions within the Department of Transport has revealed that there will be
strong resistance to the proposal, not so much because of the poverty of the idea, but as a means
to preserve jobs.
There is a need to dispel the uncertainties by working with the Human Resource Division
(HRD) regarding their permanence. The possible transfers of the officials who work in aviation
regulation should be in the same manner that the Department dealt with the Road Traffic
Management Corporation (RTMC). Their absorption into other units of the Department should
also be considered.
As an example, it is clear that the efficiencies that are evidenced in the RTMC as opposed to
the lack of action in the Port Regulator (PR), is as a result of the transfer of ex-DOT officials to
the new entity. The same experience can be transferred to the rationalized regulator.
There will be a need to begin the necessary staff reconfigurations and the overlapping roles
that are expected from this division with the roles that are played by officials in the former
maritime and aviation regulation divisions.

10. CHALLENGES

The current regulators in the three sectors are part-time, holding other remunerative work in their
own right. By and large, their availability to the regulatory structures is more gratis, being

13
rewarded a meagre stipend far below their professional work. It may be difficult to entice them to
a full-time structure such as the one suggested here.
The introduction of another regulatory structure in the South African economy gives the
impression of a clutter of institutions. Although the suggested regulatory rationalization of the
aviation industry cuts the number of the regulators, the need for the creation of others in the rest
of the sector will pose a challenge of suitable candidates to fill in the vacancy.
In the past the transport sector regulated itself. It set its tariff structures. The power distance
and the relationship between the new regulator and the regulatory mechanisms that resided in the
state transport entities are likely to be frosty at first.
The regulatory mechanisms work well in an atmosphere where the industry is ready and
willing to share information that would make the regulator’s mandate easily achievable. The
aviation industry has not been willing to release “sensitive information which would have
prejudiced its position in the economy. This trend of secrecy or selective release of crucial
information is bound to continue and thus limit the effectiveness of the proposed regulator.

11. SUGGESTED WAY FORWARD

The Chief Directorate: Civil Aviation under the Branch Transport Regulation and Accident and
Incident Investigation should advise on the modalities of the collapsing of the three entities by
investigating international best practice.
The Chief Directorate: Legislation under the Branch: Transport Policy and Economic
Regulation should investigate the similarities in the constitutive acts of the three regulatory bodies
and proceed with the legislative process of the rationalization.
The Chief Directorate: Economic Analysis under the Branch: Transport Policy and Economic
Regulation should investigate the savings to the state and the economic implications of this on the
aviation industry.
The Chief Directorate: Civil Aviation under the Branch Transport Regulation and Accident
and Incident Investigation should advise how the other regulatory bodies will be collapsed into
less regulatory bodies into the future.
The Human Resources Division should devise a migration strategy for the officials who may
wish to be deployed to the new Aviation Economic Regulator. HRD should also devise means of
reassigning to other Units those who would like to stay with the Department.
The assistance of the DOT officials who sit in any of the licensing authorities or entities to
provide confidentiality and material support to the Chief Directorates mentioned above.

12. TIME FRAMING

TIME ACTIVITY NEW STRUCTURE

Y1 Establish Rail Economic Regulator Rail Economic regulator
Y1 Aviation Economic
Fusion of ASLC and AISC and Regulating Regulator
Committee
Y2 Fuse SACAA with ATNS + with Aviation Aviation Regulator
Economic Regulator
Y2 Fuse Rail Safety Regulator with Rail Economic Rail Regulator
regulator
Y3 Fuse SAMSA with Port Regulator +National Port Maritime Transport
Authority Authority
Y3 Fuse South African Aviation Regulator with Aviation and Maritime
Maritime Transport Authority Authority
Y4 Fuse RTMC with SANRAL with CRBTA Road Regulator of South

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 Africa
Y5 Fuse South African Rail Regulator with Road South African Rail and
Regulator of South Africa Road Regulator (SARRR)
Y5 Fuse SARRR with Aviation and Maritime and SA TRANSPORT
Aviation Regulator REGULATORY
AUTHORITY

13. RECOMMENDATIONS

It is recommended that DOT approves that the three regulators be collapsed into one and
be made permanent by a Ministerial Proclamation within one year.
The next financial planning cycle of Government/Department should include a budget
of R35-million for the permanentization and the funding of this regulator.
HR devises a migration strategy for the officials who should be deployed to the
rationalized aviation economic regulator.
The Chief Directorate: Economic Regulation engages the current regulatory personnel
on the need and the modalities of this rationalization. Chief Directorate: Legislation
advises and drafts a Ministerial Proclamation for such a rationalization. The DDG: PEO
and DDG: Aviation finalizes the Board issues related to the new rationalized regulator.

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