South Africa’s Comair Group, which operates LCC kulula.com and franchise flights for British Airways, has entered business rescue after learning that South African flight groundings may continue until November.
Privately owned Comair had been profitable every quarter for 73 consecutive years. However, the business reported a R564 million ($30.6 million) loss for the six months ending Dec. 31, 2019, after costs rose 14% and revenues grew by only 3%.
On March 23, Comair announced that it had initiated Section 189 redundancy proceedings as part of a financial recovery plan.
With the onset of the COVID-19 crisis, South Africa then mandated a halt to all flights on March 26 and Comair has not operated any passenger services since then. The country is planning a phased relaxation of the flight ban, starting with restricted air travel at COVID-19 “Risk Level 3,” and then moving to allow full domestic air travel at “Risk Level 2” once the threat has diminished. When “Risk Level 1” is reached, regional and international flying will be permitted again.
“Now that the phased lockdown has been extended, the grounding is likely to endure until October or even November,” Comair CEO Wrenelle Stander said May 5.
“These extraordinary circumstances have completely eroded our revenue base, while we are still obliged to meet fixed overhead costs. The only responsible decision is to apply for business rescue.”
Business rescue is a South African process, similar to administration, where external “practitioners” are brought in to restructure a company. Shaun Collyer and Richard Ferguson have been appointed as Comair’s joint business rescue practitioners.
Two other notable South African airlines—South African Airways (SAA) and South African Express (SAX)—are also in the midst of business rescue. The South African government plans to revive SAA in a new form, while state-owned SAX is being liquidated.
Comair has historically been more stable. The company went into decline after being hit by a series of exceptional items, including the Boeing 737 MAX grounding, set-up costs linked with a major maintenance transition, and South African Airways’ (SAA) entry into business rescue, which halted payments from a legal settlement between the two airlines. Comair had already begun implementing a turnaround plan before COVID-19 took hold.
“While we had started making good progress to fix the financial situation six months ago, the crisis has meant we have not been able to implement it as we intended,” Stander said.
The business rescue process will build on Comair’s turnaround plan, to preserve cash, cuts costs, dispose of non-performing assets and strengthen the balance sheet.
Comair said it is in constructive talks with a consortium of banks over bridging finance and looking at various other equity options. The airline’s shares were suspended following the business-rescue announcement.
Stander said Comair “remains solvent” but business rescue is “necessary” for a quick and focused restructuring. The airline still plans to resume operations once the government lifts flying restrictions.
“Through this process we intend to right-size our operations to be more efficient, agile and customer-centric. This includes, but is not limited to, reconfiguring our network and fleet mix, reviewing portfolios and joint ventures, increased digitisation of the business and new product development and delivery,” Stander said.
Comair has already axed its planned R75 million ($3.9 million) acquisition of Star Air Maintenance and Star Air Cargo. It is also disposing of Course Restaurant and closing urban business-lounge brand “SLOW in the City.”
Meanwhile, talks are underway with Boeing to cancel the airline’s 737 MAX 8 order and secure compensation related to the type’s ongoing grounding.
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