South African private-sector airline group Comair recently had to issue a Further Trading Statement on the JSE’s SENS news service. (Comair operates the British Airways and Kulula low-cost carrier brands in South Africa.) The latest release was a follow-up to a previous trading statement, issued on SENS on December 4 last year.

In the December statement, Comair had warned that its earning per share (EPS) and headline earnings per share (HEPS) for the second semester (July to December) of 2019 would be more than 20% lower than for the same period in 2018. In its latest release, Comair stated that it was finalising its results for the second half of 2019 and that it now expected its EPS and HEPS for this period to be more than 170% lower than for the second semester of 2018.

The result is that the company will experience “a loss and a headline loss” for the second half of last year. “The decrease in earnings relative to the comparative period [in 2018] is attributed to an increase in operational costs pertaining to aircraft lease and maintenance costs arising from the replacement of five owned B[oeing] 737-400 aircraft with five leased B[oeing] 737-800 aircraft,” reported Comair. “In addition, there has been an increase in aircraft line maintenance costs arising from the transition of the fleet from SAA Technical to Lufthansa Technik.”

In addition, the company’s revenues have been hit by the cumulative losses it has suffered as a result of the continuing grounding of the Boeing 737 MAX. The MAX was grounded by the US Federal Aviation Administration on March 13 last year (other major regulators had already grounded the type). As a result, Comair’s first such aircraft, a 737 MAX 8, was also grounded (after it was delivered to the airline), while its second MAX 8 was grounded in the US before delivery. Its third MAX 8 should have been delivered this month, but will not be.

The airline has not received any revised delivery schedule from Boeing. “No accrual for compensation from Boeing has been raised to date; however, negotiations are under way,” stated the airline.

Another issue covered by the latest statement was the settlement agreement between Comair and State-owned national carrier South African Airways (SAA). Under the aggreement, SAA has to pay R1 108 040 000 (plus interest) to Comair, in instalments over the period February 28, 2019, to July 28, 2022. (This agreement was in compensation for anticompetitive behaviour by SAA, which harmed Comair, during the 2001 to 2006 period.) But SAA failed to pay the instalment due on December 28 last year, following the placing of the flag carrier into business rescue on December 5.

“Consequently, the future recovery of the outstanding amount is uncertain,” warned Comair. “A loss allowance of R285-million was provided for in terms of IFRS9 (International Financial Reporting Standard version 9) loss allowances against the SAA damages claim receivable as at 30 June 2019, prior to SAA going into business rescue. The IFRS9 loss allowance as at 31 December 2019 remains to be determined, with reference to the outcome of the business rescue proceedings in respect of SAA.”

According to its website, Comair operates a total of 26 Boeing 737 single-aisle airliners, divided between its British Airways and Kulula brands. The fleet is divided into 23 Boeing 737-800s and three 737-400s. Comair owns ten of the 737-800s and all three 737-400s; the other 13 737-800s are leased. As pointed out above, its 737 MAX 8 versions remain grounded; the company ordered eight of this model. (The MAX is the fourth generation of the 737 type; the 737-800 is one of the third-, or ‘next-’, generation types, while the 737-400 is one of the second-, or ‘classic-’ generation models.)