THOSE SOUTH African operators who recently applied to the Air Service Licensing Council (ASLC), for a licence or an amendment to their current licence will know that the ASLC is now requiring all applicants to complete a pro-forma Broad-Based Black Economic Empowerment (B-BBEE) “strategy document”. This document requires all operators to declare to the ASLC their B-BBEE rating and B-BBEE objectives for the next five years.
This step has been taken by ASLC without the promulgation of any amendment to the Domestic Air Services Regulations, or prior notification to the industry. The ASLC seems to be relying on section 10(a) of the Broad-Based Black Economic Empowerment Act, 2004, as its authority for implementing this requirement. Section 10(a) states: “Every organ of state must take into account and, as far as possible, apply any relevant code of good practice in determining qualification criteria for the issuing of licences, concessions or other authorisations in terms of any law.”
The ASLC strategy document addresses the various ratings applicable to Black Ownership, Black Management, Employment Equity and Skills Development for companies within the aviation sector. At the end of each strategy document, the CEO of each licensed operator is required to declare that the document is a fair and realistic plan for B-BBEE for the next five years. The council has also made it clear that henceforth it will be very strict on B-BBEE compliance.
This move by the ASLC to enforce B-BBEE compliance, has taken the commercial general aviation sector by complete surprise. For the past 17 months, the industry has been waiting for a reply from Government on the submissions made by the Commercial Aviation Association of SA (CAASA) on the two B-BBEE turn-over threshold limits. The thrust of the CAASA submission was to motivate an increase in the turnover boundary of R5-million which separates the so-called Exempt Micro Enterprises (“EMEs”) from Qualifying Small Enterprises (QSEs) as well as and the turnover boundary of R35- million separating QSEs and Large Enterprises.
The submission recommended that the EME / QSE turnover boundary be escalated to R10-million and the QSE/LE boundary be set at R70-million. It was also made clear that it is fundamentally unfair and discriminatory for the same turnover limits to be applied to a dollar-based industry like aviation as are used for other sectors of the economy where commerce is conducted in Rands. As CAASA had heard nothing from Government since February 2009 on this issue, it was presumed that the matter of B-BBEE compliance was on ice while the Department of Trade and Industry was investigating the merits of the CAASA submission. The significance of the B-BBEE turnover limits is that companies with turn-overs of less than R5-million are classifiable as EMEs and exempt from compliance with the relevant sector B-BBEE Scorecard, while QSEs with turnovers in excess of R5-million but less than R35- million have to comply with at least four selected criteria on the applicable B-BEE Scorecard. In the DTI “Interpretive Guide” on B-BBEE it is stated that the reason for EMEs being exempt from B-BBEE requirements is so as not to over-burden small and very small enterprises with regulatory requirements.
The DTI also freely admits that no scientific formula or measure was used in setting the turnover limits and that the establishment of these thresholds was done in a fairly arbitrary manner. All in all, the B-BBEE requirements being implemented by the ASLC are being applied to essentially much smaller companies in the aviation sector than is the case in the broader economy – the very same small aviation companies that are already subjected to extremely stringent aviation safety and security regulatory requirements. In the case of the aviation sector, the stated intention in the DTI Interpretative Guide of not overburdening small enterprises with regulatory requirements is clearly not being applied. It is also ironic that the ASLC is charging ahead with implementing B-BBEE, when some would argue, that it is the very economic regulatory system managed by the Council that is creating the biggest obstacle to implementing BBBEE – namely a market place predominated by very small companies.
In 1990, the domestic air services market was deregulated, reducing barriers to entry and allowing operators to operate any domestic route of their choosing. At the same time, the requirement for flight training schools to hold an air service licence was also dispensed with. Both measures have resulted in a proliferation in the number of very small operators and flight training schools. This, in turn, led to an increase in the number of small maintenance organisations.
However, while the current economic regulatory system might at first glance seem to impede the implementation of B-BBEE in the industry, in another sense the current model, if it is harnessed correctly by Government, might offer the best opportunity to achieve meaning full transformation and Black participation in the aviation industry. Many entrepreneurs have originated from the Public Sector aviation entities such as the SA Air Force, ESCOM and Denel Aviation, where they receive their aviation training and work experience. Later, they leave the State’s employ to start their own small charter business, flight training school or maintenance organisation.
And this is not an entirely new phenomenon. Right from the very beginnings of aviation, governments, internationally as well as in South Africa, have played a significant role in developing skills that ultimately migrate to the civil aviation industry. After World War II, pilots and engineers who received their training in the military forces were instrumental in establishing both the airline and the commercial general aviation industry. In South Africa, the SAAF in the past has also pursued a policy of providing high levels of training to its personnel, well knowing that they would ultimately leave the service, but continue to contribute to South African aviation via the civil industry.
However, recently there has been a visible decrease in the number of personnel that the SAAF and other public sector bodies are training. This is most unfortunate. If Government is serious about successfully implementing Black participation in the aviation industry, this trend needs to be reversed and large numbers of Black aviation personnel need to be trained so they can ultimately become entrepreneurs in the private sector. Unfortunately, without Government playing a meaningful role in the area of aviation skills development, providing funding for the start-up, Black-owned aviation companies and directing contract work to these companies, empowerment within the sector will be limited and slow.
So, if B-BBEE is to be successfully applied in a healthy aviation sector, Government must expand skills development as well as take cognisance of the CASAA submission on the turnover limit. The ASLC, in turn, needs to focus on harnessing the potential of its own regulatory model to ensure that a favourable climate exists for Black entrepreneurs to set up their own aviation businesses.
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