The sale of the South African state-owned carrier Sun Air to a consortium that includes rival Comair leaves flag carrier South African Airways facing a stronger private sector challenge, despite claims by both smaller operators that they will continue to compete with one another.

Sun Air was sold for R50 million (US$10.6 million), with the winning consortium also taking over some R46 million in debt. Comair will take a 25 per cent stake in the carrier, with the controlling 55 per cent stake held by black empowerment consortium members Rethabile and Coordinated Network Investments. Employees ownership is limited to a 5 per cent stake, while the National Empowerment Fund has the remaining 15 per cent.

Comair and Sun Air, which have alliances with arch rivals British Airways and Virgin Atlantic, respectively, will seek synergies only from the joint purchase of capital equipment and consumables. The two will refrain from starting routes in opposition to each other and will coordinate timetables. But in a somewhat illogical move the two maintain that competition will remain fierce on established trunk routes.

Both carriers claim to have about 16 per cent of the domestic market. Sun Air's managing director, Johan Borstlap, insists, however, that there will be no change in management or branding. 'We will continue to operate under our own colours and compete with Comair on the trunk routes from Johannesburg to Durban and Cape Town.' But Comair's 25 per cent stake does entitle the carrier to board representation.

This position is confirmed by Comair's managing director Piet van Hoven, who says the investment should be seen as strategic with the added benefits of joint purchasing power. 'Other than that and market coordination, there is no change except that Sun Air's management will report to the new board on which we now have representation.'

Borstlap believes Rethabile has 'picked up a real bargain. Earnings are set to soar following our strong growth in market share in the last few months.' He says Sun Air has grown in excess of 115 per cent in the last 18 months and now carries more than 70,000 passengers a month. The current financial year performance is running ahead of budgeted projections and should see the new owners realise a minimum return on investment of 25 per cent for the year ending March 1998, says Borstlap. Rethabile has also indicated it will inject an unspecified amount of new capital to accelerate the carrier's expansion plans.

Comair meanwhile is repositioning itself as an all-jet operator on major trunk routes in a bid to go head-to-head with SAA. The carrier has sold five of its destinations, operated mainly by turboprops, to SA Express in which SAA has a 49 per cent stake.

SAX's managing director, Israel Skosana, refuses to disclose the price and will only say that Comair will continue to market these routes through its link with British Airways, and will retain a share in the profits.

Roger Makings

Source: Airline Business