British Airways CEO Alex Cruz has answered MPs on the impact of COVID-19 on the airline and its plans for recovery.
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Alex Cruz, British Airways CEO & Chairman, June 2020 (Image Credit: British Airways)
British Airways CEO & Chairman appeared before the House of Commons Transport Select Committee today, Wednesday 16 September.
Alex’s former boss Willie Walsh appeared before the Select Committee in May. IAG formally rejected the findings of the committee which criticised the airline for planning large scale redundancies and proposing changes to staff terms and conditions. Willie Walsh later branded their views “completely irrelevant” to The Sunday Times. Alex Cruz also criticised their report as based on rumours and emotions and not fact.
Alex was the sole witness in the hearing. Those who are familiar with Select Committee hearings will know that there can be a fair amount of grandstanding by MPs. Today was no exception.
Alex was clearly well prepared for the hearing. This was, perhaps, in the knowledge that not only MPs, but also his new boss Luis Gallego, would be watching. At times it seemed like he was venturing from answering MP’s questions into advocacy. At the start of the hearing he was clearly trying to get ahead of their questions and criticisms. Alex was also far more politically attuned, with references to the airline’s role in a post-Brexit UK.
If you were to sum up the differences between the performances of Willie Walsh and Alex Cruz, Willie sounded like he had been briefed by IAG’s lawyers whereas Alex sounded like he had been briefed by BA’s PR team.
In terms of some of the main points:
Staff Redundancies
Alex criticised the decision by the GMB and Unite trade unions to wait some 73 days before engaging with the airline on negotiations on redundancies and changes to terms and conditions.
Alex was keen to emphasise the airline has gone far beyond the minimum statutory consultation in order to secure an agreement with the unions.
As of last Friday, 7,200 staff have already left the airline. The total number of redundancies is expected to be approximately 10,000. Unsurprisingly, the threat to “fire and rehire” has been lifted, which Alex maintained was there as a legal technicality to cover all possible outcomes.
Quarantine and COVID-19 Testing
Lack of passenger confidence in flying is considered a serious impediment to the recovery of flying.
Last week, BA flew 187,000 passengers compared to nearly a million in the same week of 2019. The airline is currently burning through £20 million of cash a day.
Alex criticised the government’s approach to imposing mandatory 14 day quarantine on arriving passengers from high risk countries at short notice without taking into account regional considerations. This is not only disrupting passengers’ plans but also its own operations.
BA has called for a trial of different COVID-19 testing regimes on the London – New York corridor to reduce the mandatory quarantine period to the minimum possible.
BA will convert more cargo-only long-haul flights into scheduled passenger services from mid-September onwards.
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British Airways Boeing 787-8 Dreamliner (Image Credit: Heathrow)
British Airways is to reinstate a number of long-haul routes at London Heathrow in the coming days.
The airline will also launch a new four times weekly service from London Heathrow to Lahore from Monday 12 October 2020, complementing its existing service to Islamabad which has also increased in frequency.
The following routes will also return from mid-September onwards:
Africa Abuja – Daily from Wednesday 16 September
Central & South America Buenos Aires – Initially only on Friday 25 September Mexico City – Twice weekly on Thursday 24 September
North America Atlanta – Daily from Saturday 19 September Grand Cayman – Only on 17 September, 1 October, 15 October Houston – Three times weekly from Sunday 20 September Philadelphia – Twice weekly from Sunday 20 September
Flights to Chicago O’Hare will also benefit from twice daily passenger flights on some days in late September.
Please see here for a full list of where BA will fly to in September.
Passengers are of course subject to entry restrictions. BA has provided a list of links to country-by-country guidance and relevant forms that must be completed before departure on its website.
Like other long-haul routes that have been reinstated at Heathrow, these have already been served by cargo-only flights. With airlines adopting a laser like approach to cash conservation, BA is likely to reinstate scheduled passenger flights where there is sufficient underlying cargo demand. There are few long-haul routes left where at Heathrow BA is operating only cargo flights such as Bangkok, Johannesburg and Kuala Lumpur.
Airlines will benefit from an extension of a waiver of “use it or lose it” slot rules until 27 March 2021.
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London Heathrow Terminal 5 (Image Credit: Heathrow)
Airport Coordination Ltd, the body responsible for governing the allocation of slots at London airports, has granted an extension of the waiver of “use it or lose it” rules until the end of the winter season.
However, reform of the slot waiver process is proposed by the European Commission to address concerns that it restricts competition.
Ordinarily airlines are required to use their airport slots for 80% of a season to avoid forfeiting them. Following a ruling by the European Commission airlines are currently benefiting from a waiver of this rule. This means they can cancel as many flights as they like without risk of losing their slots.
There had been doubts as to whether the waiver would be extended into the winter season. Indeed, only three weeks ago, ACL advised airlines that they should plan for the waiver not to be extended into the winter.
European Commissioner for Transport Adina Valeăn has today, Monday 14 September, issued a statement announcing the Commission’s intention to extend the slot waiver.
The Commission has published a report for the European Parliament and Council identifying shortcomings with the current process, namely that incumbent airlines are not handing slots back to slot coordinators in sufficient time for others to use on a temporary basis.
Adina Valeăn has made it clear in her statement that as full slot waiver has been granted for the whole winter season, incumbent airlines are expected to follow the spirit of the waiver and hand back slots sufficiently early for other airlines to use them.
Welcome to London Air Travel’s weekly briefing on air travel around the world, as published every Monday at 06:00 BST.
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Concorde Seat Arm Rest (Image Credit: Sir Terence Conran / Factorydesign for British Airways)
Welcome to London Air Travel’s Monday Briefing for the week beginning 14 September 2020.
Hubert Horan: The Airline Industry Is In Denial
The consensus amongst airlines and industry bodies is that passenger demand will recover to 2019 levels of demand from 2023.
Government wage support schemes, accelerated aircraft retirements and delivery deferrals and new sources of debt will see at least most the industry’s major players through in the interim.
One analyst has struck a discordant note. Herbet Horan gave an interview to the Financial Times’ Alphaville Blog last week (it should be free to read if you register with FT.com).
Put simply airlines and their investors are in a complete state of denial as to the scale of crisis facing aviation. The industry has faced a near total collapse in revenue, without a commensurate fall in costs. Hopes of a ratcheting up of demand when travel restrictions are lifted is wishful thinking. The drivers of airline profits, corporate and long-haul travel, have been obliterated. No other industry would carry on this way when faced with such a collapse in demand.
Not only that measures that airlines thought would have insulated them against shocks have actively worked against the industry restructuring itself. Consolidation in the US market, which the industry would thought make airlines stronger, has prevented the necessary restructuring as these airlines are now simply too big to fail.
Hubert Horan proposes that, for the three major US carriers, bankruptcy should be the proper course of action with control taken away from management and existing investors wiped out.
We may soon find out whether these predictions are correct.
Alex Cruz To Appear Before Transport Select Committee
We’ve not heard much from Alex Cruz lately, partly because BA has been keeping its head down. Alex had also been overshadowed by Willie Walsh.
Alex will be appearing before the Transport Select Committee this coming Wednesday at 09:30. No doubt members of the Select Committee will want to discuss job cuts at the airline, whereas Alex will want to press the need for airport testing.
Readers in the UK will be able to watch the session on BBC Parliament.
BA Long-Haul Additions
A couple of small additions to BA’s long-haul network at London Heathrow.
BA returns to Abuja this Wednesday. BA will also operate a one-off scheduled passenger flight to Grand Cayman on Thursday.
Sir Terence Conran
Sir Terence Conran passed away on Saturday. Although well known for founding Habitat, the Design Museum and many restaurants, he also worked with BA and Factorydesign in the late 1990s.
Sir Terence and Factorydesign were commissioned by BA to redesign the Concorde cabin interior with the aim of bring the outside of the aircraft as its status as a 20th century design icon to its interior.
Sir Terence also redesigned by the Concorde Rooms at London Heathrow Terminal 4 and New York JFK Terminal 7. These lounges featured many 20th century design classics such the Charles & Ray Eames lounge chair.
Sir Terence, who also flew on the last Concorde flight from New York JFK on 24 October 2003, said of Concorde in the foreword of “Supersonic – The Design And Lifestyle Of Concorde”:
Concorde is the most iconic aircraft of all time and I can honestly say it is the most beautiful and exhilarating man-made object I have ever seen. It is one of the few designs to take my breath away.
Do not think I exaggerate when I say Concorde is the single most important piece of design in my long lifetime. Will we see anything quite so elegant, beautiful and optimistic again? I’m sad to say perhaps not, but that may be the challenge for our great designers, engineers, innovators and artists. Can you work together to create something beautiful, powerful, and iconic it pushes the boundaries of our imagination. Can you make us dream like that again? Can you show us the future?
IAG has provided an update on its capacity and restructuring plans as it has launched a €2.7 billion rights issue.
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International Airlines Group Tailfins
IAG has formally launched its €2.7 billion rights issue. In doing so the group has provided an update on its capacity plans for the rest of the year and the restructuring of its airlines.
As is usual for updates to investors from IAG these are very matter of fact and only include plans that have actually been decided, and not any measures that may be under consideration – the rights issue was itself was denied until the official announcement.
IAG has also only given information on bookings and capacity plans at a group level. It’s a given that Iberia and Vueling benefit more from a recovery in short-haul travel than BA, which is more exposed to corporate and long-haul travel.
Booking Trends
After new bookings collapsed almost entirely in April and May, they returned to 30% of prior year levels in June.
As IAG has previously indicated, the strongest recovery was in domestic bookings (primarily Spain), then short-haul, with long-haul some way behind.
New booking activity is said have levelled off in July. Short-haul bookings have fallen slightly following the decision by the UK government to introduce mandatory quarantine measures and other European governments also introducing a mandatory quarantine on passengers returning from Spain.
As expected, long-haul bookings remain significantly depressed due to travel restrictions. However, it is said that they have improved slightly since mid-August.
Many airlines have said that significant pent-up demand is released when travel restrictions are lifted.
Capacity Plans
As measured in Available Seat Kilometres (ASK), capacity in the 3rd quarter of 2020 has been reduced by 78% compared to 2019.
In the 4th quarter of 2020, IAG plans to reduce capacity by 60% compared to 2019. These are larger reductions than IAG set out at the end of July:
IAG 2nd Quarter Results Presentation, 31 July 2020
Overall capacity in 2020 is expected to be 63% lower than 2019. In 2021, current plans are that capacity will be reduced by 27%. This is of course subject to change.
In IAG’s “downside” planning scenario for deciding on the size of rights issue, it has assumed a worst case scenario of a 66% reduction in capacity for 2020 and a 35% reduction in 2021.
Given the significant uncertainty on the lifting of travel restrictions and the availability of a vaccine for COVID-19, if travel restrictions remain in place in to 2021, IAG will have to raise further funds.
Cash
As at 31 August 2020, IAG had total liquidity of €7.6 billion.
This comprised of €5.8 billion of cash, cash equivalents and interest-bearing deposits and €1.8 billion of undrawn and committed general and aircraft facilities.
This compares to total liquidity of €10 billion at 30 April 2020 and €8.1 billion at 30 June 2020:
IAG 2nd Quarter Results Presentation, 31 July 2020
BA Restructuring
British Airways is expected to reduce its headcount by up to 13,000 employees.
By the end of August, 8,236 employees had left the airline. This was mostly by way of voluntary redundancy.
IAG says has BA has reached agreements with pilots, engineers and Heathrow customer service staff. An agreement in principle has been reached with Unite for Heathrow based cabin crew and a consultative ballot is expected to start shortly.
Other consultation discussions are said to be continuing with Heathrow ground handling and cargo operations staff, UK Contact Centre employees and Gatwick based cabin crew.
The next major update from IAG should be at its third quarter results presentation on 30 October 2020. It’s not known whether its annual Capital Markets Day is going ahead this year.
Luis Gallego has succeeded Willie Walsh as Chief Executive of IAG.
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Luis Gallego, Chief Executive Designate, International Airlines Group (Image Credit: Iberia)
Luis Gallego will today, Wednesday 9 September, start his first full day as Chief Executive of IAG.
When Luis, perhaps metaphorically speaking, takes his seat at IAG’s offices near Heathrow he will have a full in-tray.
It’s no exaggeration to say that the decisions made over the coming months and years will set the course for the group for the rest of the decade.
Whilst Luis Gallego is relatively unknown in the UK and is likely to have a very different management style to Willie Walsh, he has been a close protégé.
Luis has led Iberia since 2013. During that time Luis completely overhauled its management and relaunched its brand image. Prior to that, Luis led Iberia Express, frequently hailed by Willie Walsh as a model of operational excellence.
Here’s a glimpse of what is sitting in Luis’s in-tray:
COVID-19
The most immediate issue is of course COVID-19.
Yesterday, IAG successfully completed a rights issue to raise €2.7 billion from shareholders. This is dwarfed by €11 billion and €9 billion in state support for Air France-KLM and Lufthansa.
There is no sign of anything close to a coherent reciprocal approach between national governments on reopening borders to air travellers with consistent prerequisites and no need for quarantine restrictions. IAG’s largest long-haul markets in the Americas, and other key BA markets in India and South Africa are likely to be closed for some time.
IAG’s business model has always been to have full ownership of its airlines and make financial decisions based on “rational” investment criteria.
Willie Walsh appeared to leave the door open to IAG seeking state support in an interview with CNN last week. Should national governments provide financial support to individual IAG airlines in exchange for equity stakes, this will become problematic. Tensions between individual IAG airlines have arisen in the past and these could be exacerbated by national governments seeking to interfere in fleet and route planning decisions.
IAG will also have to expect greater influence from Qatar Airways, whose support was critical to the rights issue and has resulted in it placing two non-Executive Directors on IAG’s board.
Air Europa
IAG confirmed yesterday that it is still intent on acquiring Air Europa in 2021, subject to a renegotiation of the original purchase price.
According to a report in El Pais, Air Europa is seeking state support of €400 million. Whilst it may be easier to secure regulatory approval for the purchase of Air Europa when the airline industry is on its knees, regulators may still demand significant concessions on overlapping routes.
IAG must be relieved that its planned purchase of Norwegian did not go through, and with Delta having to write down its stakes in AeroMexico and LATAM to zero, that it eschewed taking minority stakes in airlines. With rising debt levels IAG is unlikely to have the means to make further acquisitions in the coming years, but it will have to look for more non-equity partnerships to drive traffic in to its networks.
LEVEL
IAG had big ambitions for LEVEL as a pan-European low cost brand.
At its Capital Markets Day in 2018, IAG set out plans to grow its fleet from 14 aircraft in 2019 to 42 aircraft in 2023.
LEVEL has since closed bases in Amsterdam, Paris Orly and Vienna. It is left with two aircraft at Barcelona, operated through Iberia’s Air Operator Certificate.
When IAG launched LEVEL it made much of the speed of the launch and the use of other IAG assets. It later admitted that the use of Iberia’s aircraft and AOC was in fact because it had to pre-empt a planned launch of long-haul routes at Barcelona by Norwegian.
If the acquisition of Air Europa goes ahead IAG will have five brands in Spain (Air Europa, Iberia, Iberia Express, LEVEL and Vueling). These will inevitably have to be rationalised.
London Gatwick
BA is currently operating a limited long-haul schedule at Gatwick.
It is likely that the transfer of short-haul flights to Heathrow will become permanent to protect BA’s Heathrow slots.
Should BA substantially downsize at Gatwick, the question is what should replace it. IAG’s other brands do not have anywhere near the brand recognition of BA in the South East. None have gained any significant traction in the UK market.
IAG effectively leaving Gatwick would leave the market wide open for easyJet and Wizz Air to expand. This would, in turn, affect BA at Heathrow in the medium term.
Welcome to London Air Travel’s weekly briefing on air travel around the world, as published every Monday at 06:00 BST.
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Daily Mail Front Pages, Friday 4, Saturday 5, Monday 7 September 2020 (Image Credit: Associated Newspapers)
Welcome to London Air Travel’s Monday Briefing for the week beginning 7 September 2020.
Calls Grow For Rapid Airport Testing
It’s not often you see headlines sympathetic towards airlines on the front page of the Daily Mail – the master of the SEASONAL TRAVEL CHAOS front page headline – let alone three in the space of four days.
The Mail has joined the Telegraph in a growing campaign for the UK government to introduce rapid COVID-19 testing for arriving passengers at all ports and airports. This would replace the current whack-a-mole approach to mandatory 14 day quarantine restrictions. Tests would be paid for by passengers for a small charge.
In a letter obtained by the Telegraph a number of airports have warned the Prime Minister and Chancellor that a decision must be made on testing as soon as this week to avoid causing irreparable damage to the industry. MPs are due to debate the matter in the House of Commons on Thursday.
Virgin Atlantic went as far as it could last week to effectively say its survival depends on the reopening of transatlantic routes.
A cursory scan of BA’s September schedule where a number of business heavy short-haul routes have been suspended for the month suggests that business travel simply will not return without a radical change in approach. Willie Walsh pointed out in The Times last week that business travellers coming to the UK will not accept a mandatory 14 day quarantine when they typically stay for less than 7 days.
In a sign of how bad things are for the hotel industry the 474 room Hilton Times Square is closing – not a location many would choose in New York, but symbolic nonetheless. (CNBC)
Willie Walsh Departs IAG
IAG holds its Annual General Meeting tomorrow. What should be a pedestrian affair will be anything but.
Shareholders will be asked to vote in favour of a €2.7 billion rights issue. There are calls for shareholders to vote against IAG’s annual remuneration report which includes a £883,000 bonus for outgoing CEO Wille Walsh, based on IAG’s performance in 2019. The vote is non-binding, but a vote against will still cause embarrassment. Even fairly sympathetic voices towards IAG have suggested the bonus should be waived, as it has in the past.
Giles Agutter and Robin Phillips will also join IAG as non-Executive Directors, as requested by its single largest shareholder Qatar Airways.
Back to the rights issue, there is the question of will this be enough to see IAG into 2021 and whether it will need to seek state support. Speaking to Richard Quest on CNN International last week, Willie appears to have softened his views towards state support:
I have changed my views a little bit because as you know I’m strongly opposed to state aid, and I’ve always defined state aid or a bailout as something to help a company or in this case an airline that has failed or is failing. I think in this situation, many of the airlines that have received state aid were in good financial shape before this crisis and deserve to be helped.
The thing that we have to focus on Richard is a lot of this state aid has come in the form of debt. So the balance sheet of all of these airlines will be severely stressed as a result of this.
Now we’ve taken the view that before you can ask for help, you’ve got to help yourself, you’ve got to do everything you can. within your own power to as best you can address the challenges you face and that’s what we’ve been doing. So, I don’t believe we need state aid, I can’t rule it out so obviously I’m finishing up next Tuesday. My successor Luis Gallego will have to make these decisions going forward.
This probably isn’t the last you have heard from Willie Walsh. He has according to an interview with The Irish Times been offered a number of non-executive positions.
Willie Walsh will step down as Chief Executive of International Airlines Group on Tuesday 8 September.
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Willie Walsh, Chief Executive International Airlines Group (Image Credit: International Airlines Group)
This is not how the script was written.
Willie Walsh was supposed to retire as Chief Executive of International Airlines Group in March of this year.
He would have been able to claim that he had proved the doubters wrong. In ten years, IAG had become a highly profitable model of airline consolidation and “rational” disciplined financial investment. Not only that, it consistently paid dividends to shareholders. IAG was about to pull off a “transformational” deal through the acquisition of Air Europa that would turn Madrid into a major aviation hub to rival Amsterdam and Frankfurt.
COVID-19 put paid to that.
On Tuesday 8 September, as Willie Walsh steps down as Chief Executive handing over to Luis Gallego, its shareholders will be asked to contribute €2.7 billion through a rights issue.
It brings to an end 15 years of leadership of BA and IAG. Like much of his tenure, the final months have been dogged with criticism from trade unions, MPs and staff.
Willie Walsh, who has no time for “noise”, insists that he is right and that taking on considerably more debt instead of pursuing painful structural change, as Air France-KLM and Lutfhansa have primarily done, will only store up problems for the future.
Willie Walsh Joins BA
Willie Walsh joined BA as CEO in 2005, having previously occupied the same role at Aer Lingus.
He joined Aer Lingus as a pilot in 1979 and subsequently became a representative for its pilots union. Having been described by Aer Lingus management as a “really terrible bastard to deal with” he was invited to transfer to the other side of the negotiating table.
Willie’s style was a sharp contrast to his more emollient predecessor at BA, Rod Eddington.
Whilst Rod Eddington had overseen reform at BA, particularly post 11 September 2001, he was viewed by industry commentators as having avoided confrontation with trade unions and dodged the most difficult tasks.
Working practices at London Heathrow, which were no model of efficiency, had to be reformed ahead of the airline’s move to Terminal 5 in 2008.
Immediately before Willie’s arrival, there had been wildcat industrial action by BA ground staff at Heathrow, the third consecutive summer of industrial relations tensions. The Economist even speculated that BA’s move to Terminal 5 could be the aviation equivalent of the Wapping dispute of the 1980s when Rupert Murdoch took on the print unions.
There was also the issue of BA’s escalating pension deficit, which had resulted in an empty aircraft order book to replace the fleet of 57 Boeing 747-400 aircraft.
In both cases, doubters were proved wrong and the issues were largely resolved behind closed doors.
There were still volatile times. Willie Walsh stood in the early hours of the morning of the opening of Terminal 5 to greet passengers arriving on the first flight from Hong Kong, seemingly unaware of the chaos about to ensue. There were questions as to whether Willie should pay the price. Afterwards, Willie was candid in accepting that BA should not have allowed delays in the terminal’s construction to truncate testing before opening.
The restructuring of BA’s Heathrow cabin crew fleets the next year led to at protracted and, at times, unedifying, conflict.
The IAG Era
Willie Walsh left BA in early 2011 to take up the role of Chief Executive of IAG, formed as a “brand agnostic” parent of BA and Iberia, something Willie has always regarded as unique and his creation.
However, as is evident in IAG and BA’s response to COVID-19, Willie left making it clear he thought his restructuring of BA was unfinished business.
Whilst IAG has proved many sceptics wrong, there have been mis-steps. It wasn’t until that long ago that Willie was convinced that BA did not need to change its “yin-yang” layout in Club World due to its space efficiency. BA would have been spared a lot of criticism had introduced an entirely new business class seat with the Airbus A380 and Boeing 787 in 2013. BA’s high profile IT failures pointed to a lack of investment which has been addressed with a higher profile for IAG’s Chief Information Officer.
It was until only recently that IAG appears to have taken a look at the relative positioning of its brands in the market. Talk of “stretching” the BA brand a few years ago has been reversed. Staff engagement measures are also conspicuously absent from any IAG investor presentations.
Having led Aer Lingus immediately after the events of 11 September 2001 (and seen Ryanair’s blockbuster Boeing 737 aircraft order with a degree of envy) and BA during the 2008 financial crisis, Willie had always maintained that airlines must prepare themselves in the good times to withstand industry down turns.
How do you judge Willie Walsh’s tenure at BA and IAG?
Well, what would be the counter factual? Would the BA of 10 or 20 years ago survived COVID-19 without bespoke state support? Absolutely not.
Whilst IAG is better placed than most airline groups to withstand COVID-19, it remains to be seen whether it will be able to rely solely on self-help measures, let alone pull off a “transformational” deal it has always wanted to do in a downturn.
If IAG has to seek bespoke support from national governments this may fundamentally compromise IAG’s governance and structure. Should COVID-19 continue to severely impact airlines well into 2021 we may see the European governments take a more active role in the industry and much of the consolidation of the past two decades reversed.
Airlines have been invited to apply for the bmi remedy slots at London Heathrow. However, this is subject to a legal challenge.
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bmi British Midland
You could be forgiven for thinking you had heard the last about the bmi remedy slots at London Heathrow.
For the uninitiated, when IAG acquired bmi British Midland in 2012, the European Commission approved the takeover subject to British Airways making slots available on certain overlapping routes where it considered that competition would be lessened. These were London Heathrow to Aberdeen, Edinburgh, Nice, Cairo, Moscow and Riyadh.
Virgin Atlantic was first to snap up the slots, launching with great fanfare “Virgin Atlantic Little Red”. It flew, using aircraft leased from Aer Lingus, to Aberdeen and Edinburgh, as well as Manchester.
In spite of considerable speculation that Virgin Atlantic was going to pull off a clever ruse to convert the remedy slots to long-haul use, which was prohibited under the slot release procedure, it closed Little Red in 2015.
The slots have now been re-advertised by Mazars, which acts as a trustee, for the summer 2021 season. 41 weekly slot pairs are available, comprising 5 daily slot pairs, 4 additional slot pairs on Saturday and 2 additional slot pairs on Sunday. Interestingly, the advert comes with the following warning:
However, potential applicants showing interest are advised of the fact that the rights to these slots on offer are subject to an ongoing dispute and therefore may ultimately not be available for applicants or be subject to return by any successful applicant.
British Airways’ Africa franchise Comair plans to gradually resume flights from December 2020.
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Comair Boeing 737 Aircraft (Image Credit: Comair)
British Airways’ franchise partner in Southern Africa, Comair, plans to resume flights from December 2020.
Comair has been in a business rescue process since early May. It had been required to suspend flight operations on 26 March due to lockdown in South Africa. The airline had also been suffering due to high debt levels, the grounding of the Boeing 737 MAX and non-payment of compensation by South African Airways.
Under a Business Rescue Plan published yesterday, Wednesday 2 September, the airline will be recapitalised. It will receive a financial injection of R500 million by a new investor in return for a 99% shareholding in the airline.
Comair will also require additional funding from lenders of R1.4 billion. This will comprise R600 million of new debt. Comair’s existing debts will be deferred to provide the remaining R800 million, with repayments deferred for 12 months and interest deferred for 6 months.
It is intended that Comair maintain its dual brand structure, operating as British Airways under a franchise and as Kulula. According to the list of creditors BA was owed R50,998,152 (~£2.2m) by Comair. As a consequence of the Business Rescue process, BA’s shareholding will be wiped out.
Comair aims to resume flight operations from December 2020 with a view to operating a full flight schedule by June 2021.
It is expected that Comair’s fleet will initially comprise 20 aircraft of which 17 will be Boeing 737-800 aircraft and the remaining 3 will be Boeing 737-400 aircraft. This may ultimately increase to 25 aircraft and compares to a fleet of 27 aircraft before Comair suspended operations.
The Business Rescue Plan is subject to a vote by creditors and shareholders which will close on Friday 18 September.
