Fri, 10 Jul 2020

The existing shareholder base of Comair is likely to see substantial dilution in its proposed restructuring plan, the airline's business rescue practitioners said during a briefing on Tuesday.

JSE-listed Comair operates low-cost airline Kulula.com, as well as British Airways domestically as part of a licence agreement. It opted to go into voluntary business rescue in March, when it was no longer able to operate due to coronavirus flight restrictions. The board decided business rescue would be the best option for long-term survival.

The practitioners believe there's a reasonable prospect for the company to be saved as its assets exceed its liabilities.

Before going into business rescue, the group had already started restructuring procedures.

As part of the business rescue process, employees have been placed on unpaid leave and retrenchment proceedings are continuing, under the auspices of the CCMA.

READ | Comair to restructure, cut jobs

"This unfortunate hardship has been imposed on Comair employees as a consequence of the Covid-19 lockdown and State-of-Disaster Act," said Shaun Collyer, one of the business rescue practitioners.

According to the plan the practitioners want to propose, creditors would be paid according to the probable liquidation dividend determined in accordance with the provisions of the Companies Act. This will be raised through the sale of non-core assets, any equity capital raised, and/or the issuing of shares. The target date for this to happen is 31 October 2020.

After consulting with local and international experts, the practitioners concluded that a downsized fleet would be better for the company if it wanted to afford to operate with expected lower demand for air travel once the Covid-19 crisis is over.

The practitioners indicated that their proposed business rescue plan would, therefore, include the rationalisation of the current fleet from 27 aircraft, including the grounded Boeing 737 MAX8, to 13 737-800s and three spare 737-400s.

Currently its aircraft are in a preservation programme to ensure that they are ready to fly again when needed. Before flights can be resumed, however, fuel suppliers would have to be secured as well as numerous other costs covered - costs which the airline cannot cover without a cash injection.

READ | SAA rescue plan calls for taxpayers to cough up further R4.6 billion

Notwithstanding the easing of restrictions on domestic business travel in South Africa as from 1 June, Comair would need funds if it wants to aim to take to the skies again before November this year, the practitioners told creditors and employee representatives on Tuesday.

The practitioners have approached over 30 potential funders to provide a cash injection for the company. Discussions with six of these are still continuing in an attempt to recapitalise the company in order to resume domestic passenger operations by 1 November.

The practitioners will aim to have their business rescue plan "substantially implemented" by 31 March 2021, with the goal of handing the company back to its board of directors and management at that point.

In their briefing, the practitioners also referred to a deal Comair entered before it went into business rescue. This was for Comair to acquire tech company Infinea's 50% shareholding in SA aerotech technology company Nacelle. The aim of the deal was to give Comair full control of IT infrastructure, customer data, flight systems and support services.

However, Comair is currently unable to fund the acquisition. It has agreed to pay for the 50% shareholding in instalments over 17 months once funding has been secured.

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