SAA’s R1bn pledge to Comair up in the air

Low-cost carrier operator to meet national airline’s business rescue manager over settlement

Comair, the listed operator of low-cost carrier kulula.com and British Airways in SA, says it will meet SAA’s newly appointed business rescue practitioner, to discuss the more than R1bn settlement it won against the national airline.

Chapter six of the Companies Act, which deals with business rescue procedures, puts a moratorium on creditor claims against a company in business rescue. According to the legislation, no legal proceedings and enforcement actions can be instituted against a company in business rescue, which is a legal process to rehabilitate a financially distressed company through a turnaround plan.

The act says a business rescue practitioner can suspend an obligation a company had, in terms of a contract, entered into prior to the business rescue process. However, the suspension of the agreements would have to be included in a business rescue plan that must be approved by creditors.

SAA, which went into business rescue last week, is supposed to pay Comair a total of R1.1bn as part of a settlement agreement relating to anticompetitive conduct by SAA dating back 14 years.

Comair complained that SAA paid travel agents to divert customers to its flights from 2001-2006.

In February, Comair said the companies had agreed on a payment schedule starting on February 28 2019 and terminating on July 28 2022, or earlier should SAA elect to make payments earlier than agreed.

Comair, which said on Friday that it expected earnings for the six months to end-December to fall more than 20%, said it intended to meet SAA’s business rescue practitioner, Les Matuson, “in due course” to discuss the settlement.

“It is too early at this stage to speculate on what is going to transpire with the payment due by SAA to Comair as a result of the settlement reached with them arising out of Comair’s damages against SAA as a result of their anticompetitive travel agency agreements,” Comair said in a statement.

The company did not provide further details on the planned meeting with Matuson.

Company spokesperson Susan van der Ryst said on Sunday: “We will provide more information once we have more clarity.”

Lawyer Alex Elliot, of Blackbox Law, said that Comair could no longer enforce the agreement after SAA filed for business rescue. However, Comair had the status of a creditor and could vote on the business rescue plan Matuson would come up with as part of the business rescue process, Elliot said.

Hans Klopper, of BDO Business Restructuring, who is the business rescue practitioner

for construction firm Esor Construction, said: “As a creditor, Comair is in no different position than other creditors. They must wait for the business rescue plan.”

Comair, which is facing fierce competition in a low economic growth environment, attributed the increase in earnings it reported for the year ended June 30 to the SAA settlement.

Full-year earnings increased from R326m in the previous financial year to R897m.

In its 2019 annual report Comair described the settlement as “a highlight of the year”.

The company has, however, declined to disclose the quantum of the scheduled payments from SAA. Comair's joint CEO Wrenelle Stander said the information was confidential.

According to the annual report, SAA made an initial payment of R389m on February 28 this year.

The Comair share price dropped 4.29% to R3.35 on Friday. The stock is down 36.92% since the beginning of the year.