Recent grounding of planes could clip Comair’s wings permanently
Aviation company Comair is in serious danger of crashing – the recent grounding of its entire fleet because of safety issues will worsen its dire financial situation. The operator of Kulula and British Airways also recently took a R100m hit from Omicron-related travel bans.
Comair, which owns Kulula and operates British Airways (BA) flights in southern Africa, was once a high-flying aviation company with an excellent track record of recording profits for 73 consecutive years.
Unlike state-owned South African Airways (SAA), which has depended on taxpayer-funded bailouts worth R38.4-billion over the past decade for its survival, Comair managed to be profitable without any help from the government. Comair created jobs and helped to develop SA by consistently paying taxes on its profits. SAA, on the other hand, reneged on its obligations to the taxman.
But today, Comair is in a brace position and facing financial turbulence so daunting that the company is in danger of crashing.
The decision by the South African Civil Aviation Authority (Sacaa) to ground Comair’s entire fleet for five days, from 12 to 16 March, owing to safety issues with some of its aircraft may sound the death knell for the company. The grounding was lifted but less than a week later, one of its flights from Gqeberha, struggled to land at Cape Town International Airport, following an issue with its landing gear. The plane did landed after a short delay.
Comair has to deal with the repercussions of an incident with a British Airways plane on Saturday, less than a week after taking back to the air following the chaos around the withdrawal of its operation certification.
The timing couldn’t have been worse for Comair. The company is still in the throes of restructuring its financial and operational affairs after it largely emerged from a business rescue process, necessitated by the Covid-19 pandemic that floored the entire aviation industry.
Now is the time for Comair and other airlines to recover from the pandemic because travel restrictions have been eased by governments around the world and consumers’ appetite for flying is slowly returning to normal.
Comair told DM168 that its financial position is likely to worsen as a result of its grounding by Sacaa, even though the regulator has allowed the company to resume flight operations from 17 March. “Undoubtedly Comair lost revenue during the five flying days that Sacaa’s precautionary suspension [of flights] was effective, during one of the busier weekends in the South African domestic travel calendar,” says a Comair spokesperson.
Comair didn’t disclose the revenue it lost as a result of not being able to fly.
Comair has also suffered enormous reputational damage over the safety and reliability of its planes, as travellers might think twice before booking a Kulula or BA flight in the future. It has been a PR nightmare for Comair, as major airports across the country had scenes of stranded passengers who had booked flights with the company but couldn’t fly, get refunds or secure alternative flights.
Comair’s cash crunch
Comair went into the latest grounding crisis with money problems, according to a financial analysis conducted in January 2022 by the company’s business rescue practitioners, Richard Ferguson and Neil Hablutzel.
Comair previously suffered a R100-million loss in revenue caused by travel bans on South Africa after the discovery of the Omicron Covid-19 variant in late 2021. In other words, the inbound tourists Comair had expected, particularly on BA, did not arrive, forcing it to refund them.
The business rescue practitioners say Comair will require more funding from a group of investors and lenders to make up for ongoing losses in revenue, and help the company to “continue with its operations on a sustainable basis”.
The group of investors – including former Comair directors, one of whom is Martin Moritz, and an investment vehicle, Luthier Capital – have already injected R500-million into the company to take over its ownership and fund its business rescue process. Additional funding of R1.4-billion has also been secured from commercial banks.
Asked if investors and lenders are prepared to inject more money into Comair, the company’s spokesperson says negotiations about the “appropriate type and quantum of funding” are still ongoing and “advancing satisfactorily”.
A Johannesburg-based aviation analyst says investors and lenders will probably throw Comair another financial lifeline because they are heavily exposed to the company and are invested in seeing it succeed. “If Comair doesn’t secure additional funding, it will signal the death of the company,” says the analyst.
How Comair lost its way
Comair has been a victim of a tough aviation market, in which margins are wafer-thin. But some of Comair’s problems were self-created, even before the start of the pandemic.
The biggest blunder by Comair, which arguably couldn’t have been foreseen, involved the company upgrading its aircraft fleet from 2017 to replace old planes with newer and fuel-efficient ones. To do so, Comair spent more than R4-billion to buy eight Boeing 737 Max 8 aircraft, funded largely by debt. This took Comair’s debt levels from R2.2-billion in 2015 to R4.9-billion in 2019, with additional financing costs of R332-million.
But Comair couldn’t use the Boeing 737 Max 8 for its operations because two of these planes, operated by Lion Air and Ethiopian Air, were involved in crashes in 2018 and 2019, killing more than 300 people. The Boeing 737 Max 8 was grounded by aviation authorities, which led to Comair reporting a financial loss in 2019 for the first time in about seven decades and servicing a smothering debt load.
Years later, Comair has faced similar questions about the safety of its planes.
Comair’s Kulula and BA planes were barred from flying after the aviation regulator raised concerns about the company’s “recent spate of safety incidents”, which included an engine and landing gear failure on some of its aircraft.
Sacaa’s decision seems to be prompted by an incident on 7 March when a Kulula flight MN451 – en route to Cape Town from Lanseria Airport in Joburg – was forced to make an emergency landing at OR Tambo International Airport after one of the plane’s engines experienced a failure minutes after takeoff. Three weeks earlier, Kulula suffered a similar engine-related problem on the same route.
Comair was also grounded in 2019 after Sacaa raised concerns about the quality of maintenance work carried out on its planes by SAA Technical, Comair’s service provider at the time. Other airlines that have been grounded in the past include SAA, Mango, CemAir and SA Express.
Joachim Vermooten, an independent aviation analyst, says the grounding of Comair’s entire fleet this time around by Sacaa seems harsh. Vermooten has questioned the aviation regulator’s decision not to ground Comair’s specific aircraft that had problems but instead to ground the company’s entire fleet. “It is unlikely that all the aircraft in a fleet will not be airworthy,” he says.
If Comair dies
The death of Comair would be bad for consumers, competition in SA’s air transport market and the economy. Comair supplies about 40% of available seats in the local aviation market.
When this enormous capacity in the market is taken out overnight, it puts pressure on existing airlines to step in, which can lead to higher ticket prices (which happened in some cases after Comair’s grounding). This causes harm to consumers.
SAA, Lift Airline and FlySafair have denied taking advantage of desperate passengers by hiking their airfares. FlySafair has argued that airfares were already determined long before Comair’s grounding and the airline has followed its normal pricing strategy.
As Kirby Gordon, the chief marketing officer at FlySafair, puts it: “Airlines work on a multi-price-point system, where the first seats on a flight are sold at our lowest price point. As the flight fills up and the departure date draws closer, the price of a seat starts to increase.
“With 40% less capacity in the market [from Comair], seats are selling out faster than ever before and we are reaching the higher end of the price-point system a lot quicker than expected and flights are leaving full.”
It will take a long time for Comair to return to its normal schedule because it is hard to restart an airline and win the trust of passengers. DM168
This story first appeared in our weekly Daily Maverick 168 newspaper which is available for R25 at Pick n Pay, Exclusive Books and airport bookstores. For your nearest stockist, please click here.