Comair, the South African operator of British Airways’ local franchise, and low-cost carrier Kulula.com, has expressed its intention to halve its Boeing 737 fleet (in different variants) as part of a rescue plan intended to keep its future operations afloat.
A Comair Boeing 737 MAX 8. Photo by Preston Fiedler | AeroNewsX
The actual fleet consists of 26 Boeing 737-800 and 737-400 (distributed in both BA and the distinctive Kulala green livery) from which the company intends to keep 13 and 3 aircraft respectively, while the sole 737 MAX 8 that was delivered back in February 2019 remains grounded due to the global grounding of the aircraft type. Likewise, the airline will also look to renegotiate aircraft leases and it is still unknown if the remaining 7 Boeing 737 MAX that are still on order will be accounted for in the yet to be released rescue plan. The aircraft's delayed delivery has led to increased costs at the airline, which is against the backdrop of US$45 million in pre-delivery costs for the undelivered 737 MAX.
The airline, which had run a profitable business for its 74 year history, announced in late-March that it would file for bankruptcy protection in what Comair’s Chief Executive Wrenelle Stander described as “the only responsible decision” given the travel restrictions that were put in place worldwide amid the COVID-19 pandemic, forcing the airline to stop its operations overnight starting March 17. Another reason for its financial distress is an unrecoverable amount of R790 million from South African Airways (itself in distress) in a Competition Commission settlement. For the first time in the airline's history, it announced a net loss before tax in February 2020. Unable to sustain the business, it aimed at preserving cash, cutting costs and jobs in a bid to strengthen its balance sheet.
“It was considered that a downsized fleet would be more in keeping with what the company could afford to operate”, the carrier stated.
In this matter, the carrier also mentioned that its “aim is to return Comair to the skies by November for the benefit of everyone” and that they “remain on track to do this but need a little more time to complete a suitably comprehensive and sustainable plan” so that the prosperous future of the company is ensured. This was also expressed to the airline's creditors who expect a meticulously planned course of action if the company wants their support.
However, according to the business rescue practitioners appointed by Comair in May, more time is required to publish the business rescue plan, which would result in a later than expected date of publication than the legally required 25 business days after the appointment of the practitioners. This is in order to allow for an independent calculation of the liquidation option, as well as the incorporation of the views of various business stakeholders such as shareholders and employees. The business rescue plan is therefore expected on the 23rd of June 2020.
So far, employees have been put on unpaid leave and retrenchment proceedings are ongoing. According to one of the business rescue practitioners, Mrs. Shaun Collyer, “This unfortunate hardship has been imposed on Comair employees as a consequence of the Covid-19 lockdown and State-of-Disaster Act.”
A Boeing 737 MAX 8 operated by Comair as a BA franchisee. Photo by Preston Fiedler | AeroNewsX
In any case, practitioners have contemplated a substantial cash injection as vital to restart operations for which fixed costs must be covered and fuel supply must be secured. This recapitalization process will therefore depend on the six potential lenders that have shown interest over a total of 30 that were initially contacted. “In terms of the restructuring plan, it is likely that the existing shareholder base will be substantially diluted,” the airline added. Additionally, the practitioners’ intention is to have the rescue plan “substantially implemented” by the end of March 2021, when control would be given back to the board.
Moreover, the company’s shares had been suspended on the Johannesburg Stock Exchange and the company has already reported a first-half of 2020 loss of R564 million (US$33.5 million).
Comair operates in South Africa as a domestic branch of British Airways under a license agreement, as well as the budget airline Kulula.com, which directly competes with Mango Airlines in the base they both share at the Johannesburg O.R. Tambo International Airport. It operates flights within South Africa, key destinations in adjacent countries, as well as the island state of Mauritius in the Indian Ocean.