CAPE TOWN - Listed airline company, Comair which operates British Airways and Kulula.com announced the group will enter business rescue.
Comair CEO, Wrenelle Stander, said the company, which reported a half-year loss of R564 million faced an unprecedented situation following the Covid-19 lockdown.
“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," said Stander.
“We completely understand and support the government’s reasons for implementing the lockdown, however as a result we have not been able to operate any flights. Now that the phased lockdown has been extended the grounding is likely to endure until October or even November. 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," she said.
In terms of the lockdown Comair was required to stop flying on 26 March and has not operated any passenger services since. The Covid-19 crisis has also severely affected the global airline industry.
A number of carriers have gone out of businesses. Others such as Virgin Australia and Air Mauritius have implemented restructuring processes, similar to business rescue.
“Comair remains solvent and an important contributor to the South African economy. This is a necessary process to ensure a focussed restructuring of the company takes place as quickly as possible so we can take to the skies again as a sustainable business and play our part in the county’s airline industry,” says Stander.
Shaun Collyer and Richard Ferguson have been appointed as the joint business rescue practitioners with effect from 5 May 2020.
Comair was granted approval to suspend the trading of its shares on the JSE with immediate effect. The business rescue practitioners will provide shareholders and all other stakeholders with further updates throughout the process.
The business rescue process will build on the turnaround plan that Comair management was already implementing. It aims to preserve cash, cuts costs, dispose of non-performing assets and strengthen the balance sheet. The Section 189A process, which was part of this plan and that began on 23 March, will continue.
The business rescue practitioners will work with the management team and the board towards Comair resuming operations in accordance with all regulatory requirements, including the health protocols to prevent the spread of Covid-19. Stander said Comair will resume its operations in accordance with government directives and will continue to engage with government to accelerate the opening of the airline industry.
“The health and welfare of our customers, crew and the public is the overriding priority and we will only operate when we are sure we can do so safely," she said.
Customers with existing bookings will be able to rebook flights within 12 months of their departure date. There will be no charge for any changes made before 1 November 2020.
“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,” says Stander.
“We are confident that with the work we’ve already done and the support of our stakeholders we will get through this process and will be a more sustainable business, better positioned to continue serving the flying public and contributing to the South African economy.”
The business rescue practitioners will contact all stakeholders and suppliers to plan the way ahead in accordance with the processes set out in the Companies Act.
In its H1, FY20 results Comair reported a half-year loss of R564 million. Although revenue grew by 3% this was not enough to offset cost increases of 14% resulting from significantly higher fleet and maintenance costs.
Prior to the unprecedented difficulties resulting from the Covid-19 crisis Comair management, together with an external advisory team, had been implementing a turnaround process.
Actions taken to date include:
- Finalisation of Phase One of a two-phase Section 189A process, resulting in a streamlining of the executive team, saving R23 million;
- Implementing Phase Two of the Section 189A process to reduce overall headcount;
- Mutual termination of the STAR Air Cargo transaction;
- Disposal of the Course Restaurant;
- Closure of SLOW in the City;
- Engaging Boeing on the cancellation of 737 MAX 8 orders and payment of compensation relating to the grounding of the 737-MAX 8.
Additional steps the company has since taken include:
- Participation in industry initiatives to lobby government for special aid/ concessions for the industry and an earlier start-up date subject to agreed health protocols being put in place;
- Negotiations for bridging finance with a consortium of banks. These have been constructive and are ongoing;
- Investigating the options available to raise additional capital including a rights issue or convertible preferred share issue or convertible loan note issue.