Comair prepares to restart operations
Even though shareholders such as Allan Gray will walk off with nothing, as they would have if the company was liquidated, the R500m lifeline in exchange for virtually all of Comair will rightly bring back one the biggest employers in the sector and ensure competition in the aviation sector is maintained.
When it tumbled into business rescue in May, Comair, which traces its roots to the 1940s offering chartered flights to some of the remotest places in Africa, framed the form of bankruptcy protection that allows a financially distressed company to delay creditor claims against it or its assets as the best route to revival. While the company made mistakes, including an extravagant spending spree under previous management, it can unlike SAA genuinely count itself as unlucky to have been caught up in the industry’s worst crisis to date.
The process allowed Comair to leave behind some of its heavy financial luggage — employee costs, debt repayments and aircraft orders — while turnaround specialists work out a plan to help it emerge as a fit and lean machine to navigate what looks likely to be a turbulent few years for the industry.
The investor group, which include Martin Moritz, Pieter van Hoven and Rodney Sacks, have drawn up a sound plan for the company to take to the skies again. On top of taking ownership, they have secured a R100m advance from financial services group Discovery, which will buy services under its Vitality programme that rewards clients for healthy lifestyle choices.
It is also in talks with lenders for R600m of new debt while convincing banks to delay by a year payments on R800m in debt. Just as important, the investor group will retain the British Airways franchise, allowing it to compete in both the budget-friendly and the well-heeled SA market. Sure, the plan also entails cutting 400 jobs in a country where the unemployment rate is expected to notch up gloomy milestones in the coming months as whole industries embark on large-scale cost-cutting to navigate challenges posed by the Covid-19 economic contagion.
But it will also save 1,800 jobs. That compares with all the jobs being lost if creditors decide that winding down the company would maximise their returns when they meet to consider the merits of the proposal on September 18. It’s hard to imagine them sending the company straight to liquidation, which according to business-rescue practitioners would take as much as four years to complete and would hand secured creditors substantially less dividend while unsecured lenders will walk away with nothing.
Turnaround specialists Shaun Collyer and Richard Ferguson, who were appointed in May to run the process, have rightly worked out that there is a reasonable prospect that the company can be rescued. Granted, the post-Covid 19 business conditions are likely to be brutal, at least for a few years, even after a Covid-19 vaccine is developed and rolled out. China, the US and Europe, which have rolled back some of the travel restrictions, are offering a glimpse of demand-recovery trends.
Millions of passengers have yet to return to flying. Figures from International Air Transport Group show that demand was stuck at just over a fifth of the 2019 levels in July.
Global airline losses from the pandemic could top $84bn (R1.4-trillion), according to Iata forecasts, as an increasing array of videoconferencing platforms and lingering fear about the disease hit demand for both business and leisure travel.
But the consortium has a few things working in favour of their high-stakes gamble: Comair should return in lean shape after shedding almost three quarters of its debt load that gobbled up R332m in interest costs, or nearly half of its 2018 operating profit, and 18% fewer workers than when it entered the crisis.
Given that the consortium plans to roll the planes out of the hangar during peak holiday season in December, it stands a better chance of limiting losses and ensuring competitors like FlySafair do not corner the market.
