MEC, DOT & ACSA input on Delta Airlines delay, expansion plans for CT International Airport & impact of COVID-19

Meeting report

Chairperson’s opening remarks

The Chairperson welcomed the members of the Standing Committee, the Provincial Minister of Finance, Economic Opportunities and Tourism, the delegation from Delta Airlines, the Airports Company of South Africa (ACSA) and the national Department of Transport (DoT) to the meeting. He asked the Minister to provide an update on the Delta Airlines delay.

Minister's update on Delta Airlines delay

Mr David Maynier, Minister of Finance, Economic Opportunities and Tourism, said he had previously briefed the Standing Committee about the intergovernmental dispute with the national DoT launched on 25 November 2021. The essence of the dispute from the perspective of the provincial department was that in terms of the co-terminalisation or triangular routes within the existing national policy and bilateral air service agreements, Delta Airlines was permitted to fly to Cape Town. There would be no basis to refuse the request to fly the triangular routes.

In the previous briefing to the Standing Committee, the provincial department had reported that the national Minister of Transport had written to the provincial department requesting a final indulgence on the matter. The provincial department had agreed to the Minister’s request and allowed 15 working days upon receipt of the request on 21 February. The provincial department had not received a response from the national Minister within the agreed period. In terms of the intergovernmental relations process, the national Department of Cooperative Governance and Traditional Affairs (COGTA) set up a meeting between the national and provincial officials to discuss the issues and find solutions.

Minister Maynier said he was confident that a meeting would be scheduled this month, and possibly as early as Monday, 11 April. He assured the Members of the Standing Committee that the provincial department would continue to pursue the matter within the intergovernmental relations framework and in good faith. He was confident that the issue would be resolved and that Delta Airlines would eventually be permitted to fly to Cape Town because it would be good for economic recovery in the Western Cape.

Update by national Department of Transport (DoT)

Ms Tshitshi Phewa, Acting Deputy Director-General: Civil Aviation Authority, DoT, confirmed an intergovernmental meeting between the national DoT and Western Cape Department of Economic Development and Tourism (DEDAT) would be held soon to discuss the Delta Airlines matter.

The aviation industry had suffered a devastating impact because of COVID-19. There was also a review of the civil aviation policy due to the economic, social, political, and economic front changes. One reason for review of the policy was to acknowledge that for the aviation industry to embark on the road to economic recovery, a policy that would move the industry to the desired state was needed. The Department relied on its entities, such as ACSA, the Air Traffic and Navigation Services (ATNS) and the South African Civil Aviation Authority (SACAA), which were government's extended delivery arms.

Update by Airports Company South Africa (ACSA)

Ms Mpumi Mpofu, Chief Executive Officer, ACSA, said ACSA was not involved in the matter of Delta Airlines at all. This was a responsibility of the national DoT, which provides the bilateral air services agreement, and was duly authorised to grant airlines permission and frequencies to enter the country. She said ACSA had prepared a presentation based on the question of the passenger numbers and the air traffic movements into the Western Cape due to COVID-19. They had also prepared a response regarding their planned projects for the Western Cape.

Discussion

Mr R Mackenzie (DA) wanted to know why there had been no response from the DoT within the 15 working days period. He also wanted to know how soon the meeting between the national DoT and DEDAT would be taking place and how long the review of the civil aviation policy would take.

Mr L Mvimbi (ANC) wanted to know whether other airlines from America were flying to South Africa besides Delta Airlines and, if there were, what the "obsession" with Delta was. He also wanted to know if the American Department of Transport had permitted Delta to fly to South Africa, considering that it needed permission from the South African department.

Ms N Nkondlo (ANC) wanted to know the concerns of the national DoT that may have led to the matter becoming an intergovernmental dispute. She also wanted to know what the civil aviation policy review highlighted as issues that may have been identified due to Covid-19 and the policy's response and its relation to the Delta issue.

Mr D America (DA) wanted to know what the triangular agreement or co-terminalisation agreement meant. He asked if there was a link between absence of a policy and compliance with the triangular agreement. If there was no policy, what was the relationship with other international airlines being allowed to fly to Cape Town? Were there hubs in Cape Town that would enable Delta to fly into the city?

The Chairperson said that in a presentation on the draft aviation policy for South Africa on the national DoT’s website, it said the regulatory policy review framework must look at staggering certain bilateral agreements to allow local airlines to stabilise and grow their capacity and markets. He wanted to know if delaying Delta Airlines had the permission to be able to fly into Cape Town was part of that plan.

Minister's response 

Minister Maynier said that the focus on Delta Airlines was because their request to amend their foreign operator permit to permit co-terminalisation and flying a triangular route between Atlanta, Johannesburg and Cape Town was not approved. The scope of the intergovernmental dispute was broader than Delta Airlines. It focused on a number of issues, including how broadly applications for amendments to foreign operator permits were processed and adjudicated because there were other cases, including Etihad Airways. These were some of the issues that needed to be discussed with the DoT as soon as possible. The national COGTA Department was responsible for playing the role of mediating the intergovernmental dispute.

Co-terminalisation was a technical term that refers to the permission for a carrier such as Delta Airlines to stop at two or more airports in a particular country. He was unsure if Delta Airlines had gone through the same permission process from the American government and could not speak for the American government.

DoT's response

Ms Phewa said that the intergovernmental meeting would be held soon, and her understanding was that it should be on 18 March, but since Minister Maynier had said it might be on 11 March, there would need to be a synchronisation of diaries or further confirmation from COGTA.

The core of the intergovernmental dispute came from the difference in the interpretation of clauses in the Air Transport Agreement that was signed by South Africa and the United States of America. Time spent on the matter was to find the interpretation thereof that had resulted in the intergovernmental dispute being declared. Going forward, the DoT would meet with its counterparts to conclude the matter and find a solution.

She said the civil aviation policy review was already in place and was called the National Civil Aviation Policy of 2017. Review was prompted by Covid-19 and some other issues overtaken by events and trends. The decision to review the policy was taken after the Covid-19 outbreak due to its impact on the aviation sector. Some of the factors that were considered in moving forward included no passenger movement during the lockdown and no aircraft entering Cape Town, and freight was the business that kept the aviation industry going. The Department realised freight needed to be promoted as a business because there was a worldwide boom in e-commerce and e-freight. One of the policy review results was the emphasis on freight going forward so that when another wave of the pandemic happened, there would be no sole reliance on passenger arrivals but a diversification to rely also on freight.

There were also global aviation issues that had been considered by the Department in that moving forward in the economic recovery era, South African aviation needed to be repositioned to occupy its rightful position in the global arena. South Africa had to take up the opportunities accruing to it as a player in the global space and take up the platforms to identify itself in leadership positions. There was also a need to develop domestic aviation because it was deregulated in South Africa. The Delta issue was not necessarily the instigator of the policy review, but it would also set the trajectory to show how the country wanted to position itself in domestic and global aviation moving forward.

Ms Elizabeth Mpye, Director: Aviation Unit, DoT, said that in terms of the foreign operator’s permit that had been issued to Delta, the airline was allowed seven frequencies to operate the Atlanta to Johannesburg or the Atlanta to Cape Town routes. Co-terminalisation allowed an airline to combine two domestic routes, so co-terminalisation would allow Delta to operate from Atlanta, carrying passengers going to Johannesburg and Cape Town.

Ms Phewa said that the timeframe for finalising the policy review would be this year, and it would also be taken for final approval within the current year. The next step would be the public and cluster consultations, and then it would go to Cabinet to be aired for public comments, and the inputs would be incorporated and the review would be concluded.

Follow-up discussion

The Chairperson wanted to know if the Department expected any significant changes to the national airport's development plan. He also asked how the focus on cargo was also linked to rail and freight transport.

Mr Mackenzie said that the intergovernmental dispute was because of the 15 working days' non-response from the Department, and wanted to know why there had been no response. Would the intergovernmental dispute resolve the issues with freight, skills development, etc., or would the policy review resolve these issues?

Mr America asked if the genesis of the dispute was a result of the co-terminalisation and whether the co-terminalisation was expected to impact the development of the domestic route. Would passengers from Johannesburg be allowed to board Delta Airlines flights to Cape Town? He also asked if there were hubs in Cape Town to facilitate direct flights from Atlanta.

Mr Mvimbi said he had asked about the obsession with Delta Airlines because there was another American airline that had applied for this route. He asked for an update on how far that process was and commented that he did not understand why both airlines should not be accommodated.

DoT's response

Ms Phewa referred to the 15 working days' non-response. She said a consultation process had needed to happen, where the Department needed to find the correct interpretation of the clauses, so that could have been the reason it did not respond within the 15 working days. Now that the consultation had occurred, the intergovernmental dispute could be resolved within this month. The core of the intergovernmental dispute came from the difference in the interpretation of clauses in the Air Transport Agreement that was signed between South Africa and the United States of America.

She said the policy would not pronounce on Delta when it was finally concluded. The DoT would be concluding the Delta Airlines issue with its colleagues soon, and there would not be a need to wait for the conclusion of the policy, although it may make pronouncements on issues similar to the Delta issue.

Ms Mpye said that Delta Airlines was currently allowed to operate direct services into Cape Town.

Minister Maynier said that the Delta issue would not be resolved due to the policy review because the request to amend the foreign operators' permits should be adjudicated in terms of existing national aviation authority and bilateral agreements. These issues would also be discussed in the meeting with the national DOT. Regarding co-terminalisation, he said there was no intention to embark passengers in Johannesburg on a triangular route from Atlanta via Johannesburg to Cape Town, so there would be no implications and no threat to the domestic airline industry.

He would respond to Mr Mvimbi’s questions in writing and added that he was unaware that there was another airline that had applied for a triangular route.

Ms Mpye said that it was correct that United Airlines had also applied for co-terminalisation when they submitted a renewal for the foreign operator’s permit. They had been approved for direct flights from New York, Johannesburg and Cape Town.

Minister’s concluding remarks

Minister Maynier said DEDAT would continue to pursue the matter because it was in the interests of economic recovery in the Western Cape. They would do so in the intergovernmental framework and good faith. He was delighted by the national government’s commitment to meet and was confident that the matter could be resolved and Delta Airlines would be permitted to fly to Cape Town. He added that he would undertake the responsibility for keeping the Standing Committee informed.

The Chairperson thanked the Minister for his availability and input and added that it was important to have tourists coming into South Africa, as it would be very helpful for the country's economic recovery.

Cape Town Airport statistics and future plans

The Chairperson asked Ms Mpofu to update the Committee on the arrival and departure figures for Cape Town International Airport for the past three financial years, the expansion plans for the airport, and the impact that the Covid-19 pandemic had had on these plans.

Ms Mpofu said that ACSA had reviewed its strategy, operational model and governance framework because of COVID-19. It was now reviewing its capital expenditure (capex) programme, which included all the projects that had been approved in the Western Cape. The result of ACSA’s current trajectory on capex was now limited to R1 billion a year, which was how the company was able to cope in this period, as it had also had to cut its operational expenditure by R500 million.

COVID-19 had had a major impact on passenger volumes and was also one of the major factors for the company’s constrained financial position. It also had to cut its operating expenditure significantly, including losing 600 staff members through voluntary severance packages and early retirement and had to cut its capex expenditure from R7 billion in the 202/21 financial year to a maximum of R1 billion. Capex was now limited to only refurbishments and maintenance projects, and any new developments were limited because of the drastic expenditure cuts.

Referring to passenger trends over the past three years, she said ACSA had over 10 million passengers in 2019. In the first year of Covid-19 in 2020/21, the numbers had dropped significantly to 2.3 million passengers, representing a 22% recovery rate. At the end of the 2021/2022 financial year, passengers rose to 5.6 million, with the recovery rate increasing to 53%. ACSA had budgeted for around 7.3 million passengers and a recovery rate of 69% in the 2022/23 financial year. The domestic passenger trend had been higher than the international passenger trend over the past three financial years. The international passenger trend in the 2021/22 financial year was largely impacted by the discovery of the Omicron variant of COVID-19, with several countries deciding to restrict flights coming into South Africa.

Discussion

The Chairperson wanted to know the impact of halting the capex projects at the Cape Town International Airport on growing the cargo sector and the Aerotropolis Project. He asked if the limits on Cape Town meant that Johannesburg was the hub of South Africa. He also wanted to know if there were any plans in the next ten to 20 years to develop another airport in the Western Cape.

Mr Mackenzie asked if the 600 staff members had already been retrenched or if they were still being retrenched. He asked for a practical description of the benefit if a Delta aircraft from the United States landed in Johannesburg before going to Cape Town. He also asked if the Swartklip development project was also on hold because of the halt in the capex projects. Had ACSA considered outsourcing its services to other countries instead of retrenching workers because it was one of the well-run government entities in the country? Lastly, he wanted to know if ACSA had considered raising its equity in the private sector to capitalise itself.

ACSA's response

Ms Mpofu said that there were two ways cargo was transported in and out of the country. Firstly, there were the dedicated freighters, which were people who operated with their own capacity. They had not been impacted by the halt on capex projects and had grown in the Covid-19 environment. Secondly, cargo was also transported through "underbelly cargo," where airlines had purchased wide-bodied aircraft in the past few years to load a lot of cargo "underbelly" without having to separate dedicated cargo. Therefore, normal aircraft coming into the country would be carrying cargo and subject to whether or not countries deployed those aircraft based on their reopening after COVID-19, that impacted the volume of cargo because if passengers were not coming in, the underbelly cargo was also not coming in.

There had been a negative impact because of the muted recovery by passenger airlines because of the underbelly phenomenon. As more airlines invested in underbelly cargo, the more dependent the relationship was between passenger flights and cargo brought into countries. ACSA had developed a cargo strategy that aimed to promote dedicated freighters more to dissociate cargo from passenger aircraft. The strategy aimed to develop better facilities for cargo facilitation in all the airports, so halting the capex projects did impact cargo, but not dedicated freighters.

She said that because of their resource constraints and the low revenue streams, ACSA was currently planning for Aerotropolis in consultation with the Western Cape government, but it was behind in its planning. To a large extent, that was also the result of lack of engagement between ACSA and the provincial and local government around the Aerotropolis issue. There were other Aerotropolis plans for O.R. Tambo and King Shaka, and the level of engagement was going faster, so it would help to continue engagements with the City of Cape Town to finalise the plans. It was not anticipated that the Aerotropolis would be implemented during this recovery period, but the planning needed to be concluded now.

She said that O.R. Tambo was the hub for South Africa and it currently was operating on the same basis and there was not necessarily better performance between O.R. Tambo and Cape Town. They were both performing the same in the 66% recovery projected for the next year and the 50% in the previous financial year. In reality, all the airports were performing badly. Regarding the plans for another airport, she said that ACSA had a mandate to run 9 of South Africa's airports. Until there was an application with the Civil Aviation Authority, they did not know if there were any plans for another airport.

Regarding the 600 workers, she said that ACSA had embarked on reducing operating costs by up to R500 million, and the 600 staff members had been provided with voluntary severance packages. Some had taken early retirement, and there were no retrenchments. The entity had also ensured that it did not let go of staff members in critical skills areas.

She said that Delta would not necessarily benefit at O.R. Tambo because it would receive the same service even if it were going back to the United States.

Ms Mpofu said the Swartklip projects had been suspended because the capex was now R1 billion a year, and it was limited to maintenance and keeping the operations running. ACSA was the go-to company for providing technical services, specifically in South African domestic airports. It had signed a contract with Richard’s Bay for technical, operational and management services. The company had also signed a memorandum of understanding (MoU) with Tshwane to help them with the Wonderboom Airport. Municipal and provincial airports outsourced the entity.

ACSA was 74% owned by government, represented by the national DoT, and 20% owned by the Public Investment Corporation (PIC). Other minority owners made up the remaining 6%, so ACSA was not looking for equity investment.

The relationship ACSA had with the Development Bank of Southern Africa (DBSA) and any other bank would give ACSA relief on its own funds by funding its capital programme to use the money it had reserved for the R1 billion in operations and other programmes. That would be a substitute for the capex funding by those that funded it. For example, the DBSA had loaned ACSA R800 million, which constituted a large portion of the capex programme. Government had also provided ACSA with a preference share as support, and the entity was also looking to get an additional preference share of R1.5 billion from the PIC.

Follow-up discussion

Mr America asked if there was a possible link between players in the market that could have contributed to the reduction in the numbers of passengers in the past three years, especially considering that SA Express was on business rescue and the grounding of certain airlines. Would the lifting of the national state of disaster help increase the number of passengers?

Mr Mackenzie asked for confirmation as to whether the capex budget cut from R7 billion to R1 billion was for maintenance at Cape Town International Airport and other airports around the country. Was ACSA approaching the DBSA and shareholders for funding to assist with capex and operational expenditures to add to the R1 billion, or was it just for continued maintenance? Lastly, he wanted to know if the passengers who would have travelled from Atlanta to Johannesburg would need additional services at O.R. Tambo before travelling to Cape Town International Airport, especially during the two-hour interval between Johannesburg and Cape Town.

ACSA's response

Ms Mpofu said that the airline industry was very versatile. It would have been expected that the liquidations and airlines being grounded, and some being under business rescue during COVID-19, would have had a negative impact, but that had not been the case. This was because the remaining airlines had benefited immensely from these types of situations because passengers had shifted to other airlines. The passengers were not generally committed to one specific airline, which made it easier for them to shift to whichever airline was available. The only major way that they were impacted was the logistics that had to do with booking flights and passengers who had already paid for their tickets having to be refunded and moving to other flights. This disturbed the passenger flow and passenger confidence. The demise of another airline meant the growth of another. She said that there were no new players in the market, but Lift had joined the domestic routes, and South African Airways (SAA) was back operating from Johannesburg to Cape Town.

The potential challenge was that the current airlines operating seemed to have sufficient capacity for the number of passengers available currently, but as the passengers increased, especially with the lifting of the national state of disaster, the existing airlines may be required to increase their current operating capacity. The other impeding factor was the increase in oil prices, which had a huge impact on jet fuel. The Ukraine-Russia war hampered the profit margins of airlines, and that would have a dampening effect on passenger growth.

She said that capex had been cut at every single airport under ACSA. The budget of R1 billion was not sufficient to undertake unnecessary capacity or traffic growth-related capex programmes.
Delta would not benefit whether they went directly to Cape Town or through co-terminalisation because they would be receiving the same service from the airports.

The Chairperson thanked the CEO for her responses to the questions and commented that R1 billion a year would not do much, even for maintenance.

Ms Mpofu said that ACSA had missed out on an opportunity to provide specific details on Cape Town International Airport and George and committed that those details would be sent via email to the Committee.

DoT's concluding remarks

Ms Phewa said the DoT was looking forward to the intergovernmental meeting with the Western Cape provincial Department of Finance, Economic Opportunities and Tourism later in the month to conclude the dispute on the Delta Airline issue.

The Chairperson allowed the delegations from the national Department of Transport and ACSA to exit the meeting while the Committee continued with its business.

Committee resolutions

Mr Mackenzie asked for the public reviews and hearings on the civil aviation policy review dates. He also wanted a list of the reasons why the DoT could not permit Delta Airlines and United Airlines. What was the current status of the Swartklip project, because there were people who were still talking about the development in Mitchells Plain, it would be prudent to know if those people were doing so for nefarious reasons.

Mr Mvimbi asked if Delta Airlines could be invited to the Committee to ask direct questions as to why there was such a push from them and the national DoT to operate, while United Airlines was also in contention for the same permission.

The Chairperson said that the air access strategy for the Western Cape was to get as many American carriers into the Western Cape as possible so that South Africa could get into the American convention market and get a lot of American conferences to be held in Cape Town.

Ms Nkondlo agreed with Mr Mvimbi and added that even with the air access strategy to get into the American convention market, it should be open to various airlines and not just Delta Airlines. She asked for an update on the ACSA Klipfontein development project because it had serious local development benefits and if it was not managed well, it could create undue competition. She also asked the Committee to invite the Western Cape Provincial Department of Transport because most of the issues discussed in the meeting affected the provincial department. Could ACSA be invited to explain to the Committee the delays in the Cape Town Aerotropolis and the issues?

Mr America said that most of the ACSA projects were on hold because of financial constraints, so there was no need to ask it to present on those projects. ACSA should provide a report on whether there were ongoing engagements on the Swartklip project instead. If there were no longer engagements, then the culprits calling for engagements on the Swartklip development should be identified. There was no need to invite Delta to the Committee because the Department had clearly stated that licences were given to Delta and it was operating. The Committee should rather invite the Minister after the engagements with the national DoT to explain the concerns that the Department would raise in the intergovernmental engagement and the resolutions that were reached.

Mr Mackenzie said that ACSA did need to be invited to present on the Swartklip project because the entity had made commitments relating to training opportunities and security to the Mitchells Plain and Khayelitsha communities. ACSA needed to state what would happen to the land and the security measures they would undertake to protect the land from being invaded. He added that Delta Airlines should be invited to the Committee because they needed to build relationships with the international entities. The Committee needed to be proactive and start forming relationships with the businesses, not only when they were in trouble. He would not have understood the Delta Airlines issue if it had not come before the Committee, so relationships needed to be built with these entities so that their challenges could be understood -- not only Delta but also other airlines in the industry.

Draft Committee programme

The Chairperson said that on 18 March, the Members would have received an email with the Committee’s draft programme, where it was stipulated that its next engagement was an oversight visit to the Cape Town International Airport. He proposed that the Committee should invite the Wesgro Air Access team to brief the Committee. In the oversight visit to the Cape Town International Airport, the Committee could interrogate some of the specific Western Cape figures and how far the expansion project was -- specifically the Swartklip and the Symphony Way issues. The Committee could also understand the challenges with the planning of the Aerotropolis development during that oversight, and invitations should also be extended to the City of Cape Town and the planning department within DEDAT.

He asked the Procedural Officer if it would be possible to combine the Committee’s oversight visit to the Cape Town International Airport with the oversight visit to the new Ace of Spades Hotel in Khayelitsha, which would be combined with visits to other businesses in Khayelitsha. 

Mr Mackenzie suggested that the Ace of Spades Hotel visit be combined with the Swartklip visit because they were not far from each other.

The Chairperson suggested that they combine all the oversight visits in one day.

The meeting was adjourned.