British Airways’ Africa Franchise In Business Rescue

British Airways franchise partner Comair has entered a formal Business Rescue Process in South Africa.

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Comair Boeing 737 Aircraft Matazo Kayama "Waves And Cranes" Project Utopia Livery
Comair Boeing 737 Aircraft Matazo Kayama “Waves And Cranes” Project Utopia Livery (Image Credit: British Airways)

British Airways’ franchise partner in Africa, Comair, has entered a Business Rescue Process.

This is a formal restructuring process, similar to Chapter 11 in the United States. Business Rescue Practitioners have been appointed to oversee the running of the company and a restructuring, with the aim of avoiding a liquidation.

Originally founded in 1946, Comair also operates the airline brand Kulula and SLOW lounges in Africa. Its airlines are currently grounded and it does not expect to resume operations until October 2020 at the earliest.

British Airways owns a 11.49% stake in Comair. It became a BA franchise in 1996. It operates routes to destinations in South Africa, Mauritius, Namibia, Zambia and Zimbabwe from its main hub at Johannesburg with a fleet of Boeing 737 aircraft. 

The BA franchise is clearly very important to BA’s brand presence in South Africa and providing connecting traffic to and from BA’s long-haul routes to London. Comair is one of two remaining BA franchise partners. The other being SUN-AIR of Scandinavia.

Comair’s state owned rival South African Airways is expected to be liquidated with a new airline formed.

Comair has issued the following statement. Note the comment from its CEO Wrenelle Stander about reviewing joint-ventures. Whilst Comair’s BA franchise is highly regarded, it is of course at liberty to end its franchise agreement with BA.

Tuesday, 5 May 2020: Listed airline company, Comair, today announced the group will enter business rescue to safeguard the interests of the company and its stakeholders after the Covid-19 crisis disrupted the implementation of a turnaround plan.

Comair CEO, Wrenelle Stander, said the company, which reported a half-year loss of R564 million for H1 F20, faced an unprecedented situation following the Covid-19 lockdown.

“While we had started making good progress to fix the financial situation six months ago, the crisis has meant we have not been able to implement it as we intended.”

“We completely understand and support the government’s reasons for implementing the lockdown, however as a result we have not been able to operate any flights. Now that the phased lockdown has been extended the grounding is likely to endure until October or even November. These extraordinary circumstances have completely eroded our revenue base while we are still obliged to meet fixed overhead costs. The only responsible decision is to apply for business rescue.”

In terms of the lockdown Comair was required to stop flying on 26 March and has not operated any passenger services since. The Covid-19 crisis has also severely affected the global airline industry. A number of carriers have gone out of businesses. Others such as Virgin Australia and Air Mauritius have implemented restructuring processes, similar to business rescue.

“Comair remains solvent and an important contributor to the South African economy. This is a necessary process to ensure a focussed restructuring of the company takes place as quickly as possible so we can take to the skies again as a sustainable business and play our part in the county’s airline industry,” says Stander.

Shaun Collyer and Richard Ferguson have been appointed as the joint business rescue practitioners with effect from 5 May 2020.

Comair was granted approval to suspend the trading of its shares on the JSE with immediate effect. The business rescue practitioners will provide shareholders and all other stakeholders with further updates throughout the process.

The business rescue process will build on the turnaround plan that Comair management was already implementing. It aims to preserve cash, cuts costs, dispose of non-performing assets and strengthen the balance sheet. The Section 189A process, which was part of this plan and that began on 23 March, will continue.

The business rescue practitioners will work with the management team and the board towards Comair resuming operations in accordance with all regulatory requirements, including the health protocols to prevent the spread of Covid-19. Stander said Comair will resume its operations in accordance with government directives and will continue to engage with government to accelerate the opening of the airline industry.

“The health and welfare of our customers, crew and the public is the overriding priority and we will only operate when we are sure we can do so safely.”

Customers with existing bookings will be able to rebook flights within 12 months of their departure date. There will be no charge for any changes made before 1 November 2020.

“Through this process we intend to right-size our operations to be more efficient, agile and customer-centric. This includes, but is not limited to, reconfiguring our network and fleet mix, reviewing portfolios and joint ventures, increased digitisation of the business and new product development and delivery,” says Stander.

“We are confident that with the work we’ve already done and the support of our stakeholders we will get through this process and will be a more sustainable business, better positioned to continue serving the flying public and contributing to the South African economy.”

The business rescue practitioners will contact all stakeholders and suppliers to plan the way ahead in accordance with the processes set out in the Companies Act.

Update 19 May 2020

The business rescue practitioners held their first formal meeting on Tuesday 19 May 2020.

Comair’s business rescue practitioners consider there are reasonable prospects for Comair to be rescued through the business rescue process. Comair’s assets exceed liabilities and it has a strong competitive position in South Africa.

The business rescue plan is expected to be published on Tuesday 9 June. A vote to approve the plan is expected on Wednesday 24 June.

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