Comair rescue puzzles ex-CEO
● Former Comair CEO Erik Venter says he is “surprised” at the airline’s decision to go into business rescue, which he thinks is unnecessary.
“It’s a very dramatic position to take. I don’t really understand why they went to that extreme. You normally go into business rescue when the balance sheet has been fully depleted and there’s nothing left to sell,” he said. “In Comair it’s quite the opposite.”
Venter, who resigned in July 2019 after 13 years as CEO and 23 years with the company, says it has eight “newish” aircraft purchased at exchange rates of on average R10/$ that are now “very valuable” when the rate is R18/$.
“They’re only a few years old so they’re still highly marketable. The surplus on those aircraft [after debt] is probably in the region of R3bn. And that’s about eight of the 24 aircraft, only a third of the fleet. It’s not as though they have to dispose of the entire fleet. So there’s a huge balance sheet still behind Comair.
“SAA has got no balance sheet. That’s the kind of situation where you say, ‘OK, there’s nothing left to fund the business, now you go into business rescue.’”
While Comair, which was heading for its first annual loss even before Covid-19 grounded its planes, talks about restructuring and taking to the skies again, Venter reckons some shareholders might prefer liquidation and a massive payout. Shareholders include Bidvest, which sits on the board, Allan Gray and BA.
The decision to liquidate the business will be that of the business rescue practitioners.
The real liquidation value of the company could be 10 times the current market capitalisation of R469.3m, Venter says.
Comair CEO Wrenelle Stander says the board thoroughly considered the decision, adding that while the balance sheet was an important consideration, Covid-19 has severely affected the company’s liquidity and impacted the airline industry’s risk profile. "Despite taking immediate action to preserve
cash and other significant steps to reduce costs, the tipping point was the announcement that the economy would only be re-opened gradually in risk-based stages with domestic aviation only being permitted, on a limited basis, in level 2. The consequence of this was that Comair would have no revenue inflow for up to six months,” Stander said.
Venter said: “I understand that in the very short term instant cash flow is an issue. But with the kind of value in the aircraft you could probably get a fair amount of refinancing … and not have to even think about liquidation.”
If Comair resumes operations, its success will depend on SAA, he says. The disappearance of SAA would relieve a lot of pressure on the supply side of the market, meaning the remaining carriers would get a better load — a big boost for profitability.
“If SAA disappears, Comair is likely to come back quite strongly. But if it continues it’s going to be oversupply again and someone else in the industry is going to have to cut back on capacity to survive.”
There’s a huge balance sheet still behind Comair. SAA has got no balance sheet
Erik Venter
Former Comair CEO