The South Africa Comair, Johannesburg O.R. Tambo has issued a warning to investors that the dire situation being faced by South Africa’s commercial aviation industry has put its finances in a perilous position. The company, which operates a British Airways franchise alongside the low-cost brand Kulula Air, is preparing for a late 2020 resumption of service in a worst-case scenario.
“The five-week lockdown has caused the situation to rapidly deteriorate to a point where the company finds itself in a very difficult financial position and shareholders are advised to exercise caution,” the Johannesburg-based company said in a stock market filing.
The announcement did give some background as to how and when flights might resume in South Africa. The government has a five-level system in place to deal with the gradual lifting of the lockdown, where “restricted air travel will commence at Risk Level 3, full domestic air travel at Risk Level 2 and regional and international air travel at Risk Level 1.” The statement added: “In terms of the government’s requirements, it is not anticipated that Comair will commence operating prior to October or November 2020.”
Shortly before the flight shutdown, the company reported an operating loss of in its interim results for the six months ending December 31. This is “mainly as a result of South African Airways [SAA] going into Business Rescue and failing to pay Comair an amount of ZAR790 million (Net ZAR505 million) [USD42 million; Net USD27 million], the company made an operating loss for the period of ZAR562 million [USD32 million].”
Comair said it is working to implement a turnaround process “focusing on cash preservation, cost-cutting, disposal of non-performing assets and a strengthening of the balance sheet, working with external re-structuring advisors to reduce costs, preserve short term liquidity as well as the restructuring of the balance sheet for long term sustainability.” It recently asked its employees to either take leave or unpaid leave for the extended lockdown period, as it cannot afford to pay all staff wages. Negotiations also continue with lenders about the provision of bridge financing.
In addition to these measures, Comair has also cancelled the purchase of Star Air (South Africa) (BRH, Johannesburg O.R. Tambo), it is speaking to Boeing (BOE, Chicago O’Hare) about the cancellation of an unspecified number of B737-8 orders as well as compensation relating to the aircraft’s grounding. It is also lobbying the government for special aid for the airline industry.
However, the situation at Comair is far from the worst position in South Africa’s beleaguered aviation industry. State-owned SAA is in administration and South African Express (XZ, Johannesburg O.R. Tambo) is in provisional liquidation. Even FlySafair (FA, Johannesburg O.R. Tambo), which had been expanding rapidly before the pandemic, is now calling for the government to waive fees so it can preserve cash during the flight suspension.