Comair requires more funding

Unrelated grounding aside, the operator admits it needs additional investment …
Comair was due to be operating as a ‘sustainable business’ and exit business rescue by the end of this month. Image: Tod Burns

Comair says it will require “further funding” in order “to continue with its operations on a sustainable basis”.

This emerged in the most recently available business rescue status report, published at the end of January.

Read: CompCom warns airlines against price gouging after Comair grounding

It says the “Covid-19 Omicron variant, and the consequent international travel bans, in particular by the government of the United Kingdom” had an “adverse impact on flown revenue for the company versus its projected revenue over the holiday season”.

Put simply, the inbound tourists which it had expected, particularly on British Airways, did not arrive.

The report says the airline conducted a financial analysis in January which confirmed that it had “lost approximately R100 million in previously booked but ‘unflown’ revenue”.

This “negatively impacted the results for December” – and the financial position of the company.

The airline says its executives together with the ‘Comair Rescue Consortium’ (whose offer was accepted by business rescue practitioners and creditors in September 2020) are in the process of “considering various options” in order to meet its funding requirements in the short to medium term.

Read:

A spokesperson for the company confirmed to Moneyweb on Tuesday that: “Comair has been in an ongoing process of restructuring its balance sheet from both a debt and equity perspective since the beginning of the year, which has involved ongoing engagement with Comair’s investors and lenders to ensure that the appropriate type and quantum of funding is raised.”

The February status report is not yet available on the group’s website. Whether any progress has been made in securing additional funding has therefore not been publicly disclosed.

Flights grounded

The group, which operates low-cost carrier Kulula and regional British Airways flights under licence, has been indefinitely grounded by the South African Civil Aviation Authority (CAA).

The CAA suspended Comair’s Air Operator Certificate (AOC) privileges on Saturday for 24 hours, and on Sunday confirmed that the AOC was “indefinitely suspended pending the operator addressing all the findings as communicated by the regulator on Saturday morning”.

Neither Kulula nor BA operated by Comair have flown since lunchtime on Saturday.

The grounding is related to concerns raised by the regulator and is not at all related to the airline operator’s funding requirements.

Funding

The rescue consortium has invested a total of R500 million in fresh equity in the business, with additional funding from lenders of R1.4 billion; R600 million of this was new debt.

An additional R100 million was received from Discovery in what was effectively an advance on future ticket sales.

This was made by airline partner Discovery Vitality upon commencement of ticket sales on October 31, 2020.

Read: Discovery Vitality reduces discount flights, overhauls travel benefits

The group commenced flights following approval of the business rescue plan on December 1, 2020. It suspended flights in July 2021 after leisure travel to and from Gauteng was banned. Operations then recommenced on September 1, 2021.

Slow Lounge sale

Comair announced in August that it would dispose of its Slow Lounge business to FirstRand (whose higher value clients are provided with a certain number of complimentary visits annually) for R250 million.

If it did not sell the lounges, it said, it “would likely not have emerged from business rescue” because of the severity of the Level 4 Lockdown conditions in June/July.

Restart costs

In the business rescue plan, restart costs were estimated at approximately R700 million.

The most significant contributors to this post-commencement finance included: “R101m in aircraft maintenance and insurance costs, R120m in retrenchment costs, R100m IATA [International Air Transport Association] deposits and R109m in fuel deposits”.

The plan says “the balance relates to existing contracts with IT and other vendors, medical aid costs and an additional R58m has been provided to account for any unforeseen aircraft maintenance costs”.

The timing of debt and equity injections saw most of this funding flow by the end of November 2020.

The plan envisaged that 15% of equity would be “allocated to a suitable BBBEEE partner within 12 months”. This has ostensibly not occurred (there has been no announcement in this this regard from the company).

The original intention was also for Comair to be operating as a “sustainable business” and therefore exit business rescue by the end of this month. With material funding constraints and this weekend’s indefinite grounding, this seems all but impossible.

Listen as Luvuyo Silandela of the Civil Aviation Authority unpacks Comair’s compliance woes (or read the transcript here):

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The ANC supports a bankrupt business with taxpayer money while they let the viable, taxpaying business fail. This political mechanism creates a gravitational hole at the center of the economy that swallows all the job opportunities in the economy and consumes the foundations of the social grant and the public sector wage bill.

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