Comair faces a race against time to strike a deal with its funders, shareholders, staff, suppliers and the lessors of five of its aircraft. Once that’s done it needs to swiftly restore public confidence by delivering a safe and reliable service.
“The grounding was an absolute last resort,” Comair CEO Glenn Orsmond tells the FM. “We will need to earn back the market’s trust by working hard to convince everyone that we are here to stay.”
Comair, which operates British Airways (BA) and Kulula, suspended flights late on May 31 after a cash crunch halted operations.
Jonathan Ayache, CEO of rival airline Lift, says it will be difficult for Comair to recover because the latest suspension again affected many passengers.
Orsmond says Comair, which went into business rescue in May 2020, faced several unexpected events since its creditors approved a rescue plan in September 2020. “We did not foresee the second, third, or fourth Covid waves. The government placed severe travel restrictions on passengers. Then SA was redlisted from November 2021 until mid-December because of the Omicron variant, which halted international travel,” he says.
In March the Civil Aviation Authority (CAA) suspended BA and Kulula, a move that was “unjustified”, says Orsmond. The rising oil price also cut profit margins of airlines across the world. “Every $5 a barrel increase costs us close to R100m a year. When we planned our budgets, oil was $70 [R1,083] a barrel. Now it is $120.”
It is now also the low season for local airlines. “What happened on May 31 was an accumulation of these events,” says Orsmond.
An aviation source says several events put Comair in a weak financial position when Covid struck, including the implosion of SAA, which meant Comair was not paid in full by SAA for the R1.1bn anti-competition settlement. “Being in and out of the market is damaging for any airline. Comair has been dealt a rough hand,” the source says.
FlySafair marketing director Kirby Gordon says the airline maintained a conservative cash position going into Covid. “However, the Omicron reality and the increase in the oil price also hit us hard,” he says.
Ayache says airlines and the travel and tourism industry have had a tough time since the onset of Covid. “Since Lift launched 18 months ago, the cost of jet fuel tripled, and it is our biggest input cost. In addition, the local airline market has not recovered to pre-Covid levels, and passenger volumes are at about 70% of 2019 levels,” he says.
Orsmond hopes Comair can strike a deal to put BA and Kulula back in business. “Comair is a substantial, solvent and profitable business, but we have had a liquidity squeeze. The two airlines generate R5bn in annual turnover. We move 4-million passengers a year who make up 40% of the local market,” he says.
He declined to say how much money Comair requires, citing confidentiality agreements. “It is never an absolute number; it depends on how the finance is structured between equity, debt, and the deal’s timing. We want to raise the funding as soon as possible. The longer it takes, the harder it gets, and the amount required grows over time.”
He says that after the five-day CAA suspension was lifted, Comair sales returned “almost immediately to the pre-suspension levels” of about R100m a week.
Orsmond says passengers can apply online for BA ticket refunds or use the tickets to travel on SA Airlink. It is also negotiating with SAA on accepting BA tickets. Comair is refunding passengers who bought Kulula tickets.
Comair was criticised for its ticket sale shortly before suspending operations. “The sale was triggered a week before the suspension,” says Orsmond. “You do not wake up one morning and decide to run a sale. There is an entire process that you need to follow. On the morning of May 31, we were not expecting to close the airline that night. We engaged with all the stakeholders and hoped to reach a successful outcome, but we realised late that evening [of May 31] that we would not. The sale had absolutely no financial benefit or impact on our cash position.”
Comair’s need for extra funding was flagged by Comair’s business rescue practitioners, Richard Ferguson and Neil Hablutzel, in a status update at the end of April. They noted that the company needed to raise extra working capital.
“We need to develop a solution with the lenders, investors, suppliers, staff and lessors,” Orsmond says.
Comair, which has a fleet of 20 aircraft, has about 1,200 staff represented by three trade unions: the National Union of Metalworkers of SA, Solidarity, and the Airline Pilots Association.
“We are engaging daily with unions,” says Orsmond. “Comair paid its employees up to May 31. We are working with a skeleton staff. The employees keep their rights even if Comair suspends its operations.”
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