Comair, the operator of low-cost carrier kulula.com and British Airways under licence in Southern Africa, has become the latest victim of Covid-19, with the company voluntarily submitting itself for business rescue.
Comair, which until recently hasn’t made a financial loss for 73 years, now joins the ranks of financially distressed airline companies that are either in business rescue or seeking emergency aid from the government including state-owned SAA, Air Mauritius, and Richard Branson’s Virgin Atlantic. Even the world’s most adept airlines are suffering; Abu Dhabi’s Etihad Airways has laid off more than 200 staff, and Dubai’s Emirates has offered pilots and cabin crew staff unpaid leave.
Despite the implosion of the global airline industry, SA’s government believes that it can restructure SAA to launch a “new, financially viable” airline from its protracted business rescue process.
Comair’s airline operations – like SA’s entire aviation industry – have been grounded over the past seven weeks as the country imposed travel restrictions and locked borders to slow the spread of the Covid-19 pandemic. Comair is not expecting the government to relax its position on air travel soon, saying an extended but relaxed lockdown means that it won’t start operating before October or November 2020.
The suspension of Comair’s operations means that it is not generating revenue from flight sales while still being obligated to pay operational costs such as honouring fuel supply contracts, maintenance and storage of its fleet of planes and worker salaries– throwing the company in a dire financial tailspin.
From Tuesday 5 May, Comair has submitted itself for business rescue, which is a Companies Act-governed process to rehabilitate companies that are financially distressed by restructuring their affairs. The Comair board will cede control of the company to appointed business rescue practitioners, Shaun Collyer and Richard Ferguson. The duo will enable Comair to continue operating while being restructured, cutting costs, and saving some jobs in the process. The business rescue proceedings also mean that Comair shares, which have been down 65% so far this year, will be suspended from the JSE.
Problems before Covid-19
Comair, whose operations span passenger travel, airport lounges, airline training and catering, and others, had operational and financial problems before Covid-19. Arguably, the pandemic merely amplified its problems.
In 2013, Comair concluded an agreement with Boeing for the purchase of eight Boeing 737 Max 8 aircraft as part of its move to more fuel-efficient planes. Comair took delivery of the first aircraft in 2019, with two more expected to be delivered in 2020. But two Boeing 737 Max 8 planes belonging to Ethiopian Air and Lion Air crashed in 2018, killing more than 300 people and putting their aviation safety into question. And because of this, Comair negotiated a delay in the delivery of the next five 737 MAX 8 aircraft to between its 2023 and 2025 financial years.
Higher maintenance costs and the grounding of its new Boeing 737 Max 8 aircraft – in line with global aviation standards – meant Comair would incur financial losses. Its financial woes were exacerbated by SAA delaying the payment of R1.1-billion plus interest to Comair as compensation for the former’s anticompetitive conduct between 1999 and 2005. This relates to SAA paying commissions to travel agents to incentivise them to divert customers to SAA flights – disadvantaging Comair in the process.
The grounding of new Boeing 737 Max 8 aircraft had mostly resulted in Comair reporting an interim loss in February of R564-million for the six months ending December 2019, the first loss in its 74-year history.
By the time the hard lockdown started in SA on 27 March, Comair had launched a turnaround plan that would include, among others, job cuts of an unspecified number, engaging Boeing on the cancellation of 737 MAX 8 outstanding orders and calling off its acquisition of Star Air Maintenance and Star Air Cargo.
Comair CEO Wrenelle Stander said: “While we had started making good progress to fix the financial situation six months ago, the [Covid-19] crisis has meant we have not been able to implement it as we intended.”
“Comair remains solvent and an important contributor to the South African economy. This is a necessary process to ensure a focussed restructuring of the company takes place as quickly as possible so we can take to the skies again as a sustainable business and play our part in the county’s airline industry.” BM