Business rescue plan for Comair approved

2nd October 2020

By: Rebecca Campbell

Creamer Media Senior Deputy Editor

     

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The proposed business rescue plan for private-sector airline group Comair was approved by a decisive majority of creditors and shareholders in a vote late last month. Comair operates the British Airways in South Africa and Kulula low-cost carrier brands. The preferred investment consortium for the group is composed of several former members of the Comair board and executive management. This consortium will inject new equity of R500-million into the group and receive 99% of its shareholding in return (after the business rescue plan’s suspensive conditions have been met). Up to 15% of the shareholding will be transferred to an appropriate broad-based black economic empowerment partner within 12 months.

However, a further R1.4-billion is needed to relaunch the airline. This will be obtained from lenders in the form of R600-million in new debt and R800-million in deferred debt (interest will be deferred by six months and capital payments by 12 months). The group will also be delisted from the JSE and a new board established.

The relaunch of the airline necessitated the cutting of operating costs and the increasing of ancillary revenues. The workforce will be cut from around 2 200 to some 1 800 by means of early retirement, voluntary retrenchment, and enforced retrenchment (under Section 189 of the Labour Relations Act).

The relaunched Comair will retain its relationships with Boeing, British Airways, Discovery Vitality and Slow Lounges. Its aircraft will be returned to service in a phased manner over a seven-month ramp-up process. The plan is to restore the fleet to 25 aircraft, including two Boeing 737 MAXs.

Should all go as planned, Comair should restart operations in December, under both the British Airways and Kulula brands. Subsequently, it should exit business rescue by March 31 next year. After that, it should again be a sustainable business. Its fleet should be at full strength by June next year.

“When the lockdown [against Covid-19] happened, business rescue became the only responsible course of action,” explained current Comair CEO Wrenelle Stander. “Had we not made that tough decision Comair would not have flown again. There may still be a few bumps on the way ahead, however, now that the plan is adopted, at last clearer skies are now in sight.”

However, should the suspensive conditions required by the business rescue plan not be met, the company would have to be wound down in such a way as to realise the best returns for its creditors. “That doesn’t diminish what an important moment this is for Comair, its employees, the investors and the South African flying public,” affirmed Richard Ferguson, who is one of the business rescue practitioners (BRPs). “After nearly six months of intensive work and negotiation in a fraught economic environment, it is an exceptionally positive result.”

“We are thankful for the support of the creditors and shareholders and humbled by the overwhelming support from the Comair staff,” stressed Comair rescue consortium representative Glenn Orsmond. “We are excited at the prospect of rescuing Comair and restoring it to its former position as the pre-eminent airline in South Africa.”

However, in the run-up to the vote, the National Union of Metalworkers of South Africa (Numsa) accused the Comair BRPs of trying to blackmail the airline’s employees into giving up their rights. It condemned them “in the strongest terms” and asserted that the BRPs had not consulted Comair’s employees on the proposed business rescue plan and that they were trying to unilaterally force workers to accept changes to their terms and conditions of employment.

The union recognised that there could be legitimate constraints and challenges that could require sacrifices on the part of the employees. However, it argued that it was “quite apparent” that the BRPs and proposed investors were trying to exploit the airline’s “disastrous economic situation” to undermine the position of the workers in a manner that amounted to “perverse exploitation of those who are most vulnerable”. In short, the BRPs and investors were engaged in “a violation of workers’ rights in terms of the Labour Relations Act . . . We reject any attempts to bully employees into signing.”

Regarding the proposed new management for the relaunched Comair, the union pointed out that they had previously held executive positions in the airline. “We have good reason to be concerned because under their leadership the airline ran into financial trouble, and this was long before the Covid-19 pandemic hit our shores,” highlighted Numsa. “Therefore, why should we believe that this time around the same people who were partly responsible for the financial distress of the airline would be best placed to run a successful airline in the future?”

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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