Almost cleared for take-off
Comair’s rescuers consider R1bn injection that could make airline fly again
● Kulula and British Airways (BA) could take flight on domestic routes again by December, if Comair’s creditors agree to a business rescue plan that would inject more than R1bn into the airline and allow the return of some of its former executives and directors. It would, however, pay trade creditors just 2.5c in the rand.
An unnamed consortium has offered to put R500m of equity into the airline, which went into business rescue in early May, with lenders injecting a net R600m of new debt. Comair will delist from the JSE.
The plan includes an exclusive deal with Discovery’s Vitality programme, and the consortium plans to bring in a 15% BEE partner within 12 months.
Comair’s business rescue practitioners, Richard Ferguson and Shaun Collyer, presented the key elements of the plan to creditors on Thursday but on Friday asked for an extension to publish the full details. They said a final binding offer from the preferred investor had been received only late on Friday and more time was needed for the plan.
It is understood that the preferred investor was chosen over a rival bid by a Comair-Lanseria management consortium which was supported by institutional investors including Harith General Partners. That bid would have put R700m of equity into Comair and reduced its debt burden, and could have had it back in the air by October.
The bid by the Comair-Lanseria consortium included setting up Kulula as the anchor airline at Lanseria International Airport, and introducing new tourist and corporate packages and routes. It would have retained Comair’s existing executive team and cancelled as much as possible of its order for eight Boeing 737 Max planes, which are still grounded pending safety approvals.
The practitioners would not comment on the unsuccessful bid, saying in an e-mail: “There were five offers received. Deloitte independently assessed those that could be taken forward. This offer was selected as it had the most potential ensuring Comair could continue to operate.”
The preferred offer includes a total of R1.4bn in debt funding, and a R40m offer to concurrent creditors, with the airline maintaining its relationships with Boeing and BA, and shifting to own more of its planes, financing them in rands rather than dollars.
It would cement an exclusive agreement with Discovery Vitality. But airline industry sources queried whether such exclusivi- ty would breach SA’s competi- tion rules.
Employee numbers will be cut from 2,200 to about 1,800 and the offer will allow the return of former joint CEO Glenn Orsmond, former finance director Kirsten King, Iain Meaker, Brian Kitchin and Reshika Singh, most of whom had resigned.
Comair’s descent into business rescue came after it reported a loss following seven decades of profits. Under former CEO Erik Venter, it departed from its successful formula of tailoring costs closely to revenues and went on a spending spree, buying or leasing a fleet of new planes and starting new businesses. A document compiled for the business rescue process showed it more than doubled its debt over the four years to December 2019 and increased its debt service costs tenfold.
Under its current leadership, it was being cleaned up and turned around, but the Covid crisis precipitated its demise.
If the preferred offer is accepted, the airline could fly from December 1. The practitioners said the new management would decide on how many flights. “It will depend on demand at the time it recommences flight operations. It will not be a full schedule, with a gradual seven-month ramp-up planned until June 2021,” they said.
Given the changes in SA aviation since March, the practitioners said it was impossible to say what the market might look like by June.
The Comair offer comes after SA went to lockdown level 2 this month, opening provincial borders and allowing leisure tourism, enabling domestic airlines to ramp up their operations. However, only FlySafair, Airlink, Cemair and Mango have restarted scheduled flights since the lockdown was lightened.
SAA, SA Express and Comair remain grounded because all are still in business rescue; industry experts say it will take time for their planes and crew to be made ready for a start-up.
Airlines Association of Southern Africa CEO Chris Zweigenthal said in June that SA’s domestic aviation was flying only 3.5% of passengers flown in June 2019. This had increased to 7.5% in July and would probably be higher in August, as leisure travel opened.
Many people were still not prepared to fly, and with SA’s international borders still closed, there has not been the international travel that provides 20%-40% of domestic airlines’ feeder business. However, Zweigenthal expects activity to pick up later this year
The industry had collaborated closely with the government in developing Covid-19 protocols for planes and airports, Zweigenthal said.
None of the airlines was at full capacity at the moment and the industry was having a tough time with a massive liquidity crisis, he said.