Comair’s wings clipped as BRPs struggle to fund business rescue

The complex nature of a business rescue and turnaround is a challenge that is discussed with every potential client. These complexities are also discussed with creditors and lenders who have to make the final decision about any reasonable prospect of saving the distressed company.

Significantly impacted by the Covid Pandemic, Comair was placed into business rescue in 2020 to address the main challenges presented by the Pandemic. Two years one, the company has just announced that it has grounded all of its Kulula and British Airways flights until further notice while the company’s BRPs secures the necessary funding to implement the rescue.

Deep regret

Speaking to News24, Comair CEO Glenn Orsmond said that the company deeply regrets having to take such a drastic measure.

“We deeply regret the inconvenience this suspension will cause our customers. We did everything we could to avoid it. Comair, the BRPs and the lenders are working all out to get the funding in place so that we can resume our normal flight schedule as soon as possible,” Orsmond told News24.

Orsmond told Fin24 last week that Comair has about 40% of SA’s domestic aviation market.

Significant troubles

The News24 article points out that the South African Civil Aviation Authority (SACAA) had imposed a precautionary suspension of Comair’s Aircraft Operating Certificate (AOC) in March for five days after what it called a series of incidents, including issues with the landing gear indicator on one of the flights.

In December last year the Competition Tribunal approved FirstRand Bank’s acquisition of Comair’s airport lounges in Johannesburg, Cape Town and Durban to get a cash injection of about R250 million.

Orsmond heads the Comair Rescue Consortium (CRC), comprising several former Comair board members and executives, was selected as the preferred bidder. The Comair Rescue Consortium also includes, among others, the US-based founders of the Monster energy drink Rodney Sacks and Hilton Schlosberg.

The company’s business rescue practitioners (Shaun Collyer and Richard Ferguson) and have advised that the process to raise the necessary capital is in progress and that there is reason to believe funding may be secured. Once received, the airline will be able to recommence operations.

Please sir, can I have some more

In other news, the South African Post Office has pleaded for more time and financial resources to implement its turnaround strategy.

On 31 May (yesterday), the South African Post Office briefed the National Assembly painting a bleak picture of the current state that the company finds itself in.

A EWN article pointed out that the South African Post Office said that it had recorded a loss of R2.3 billion for the 2020/21 financial year which showed an increase of R469 million compared to the previous year.

Acting deputy chairperson of the post office board, Sipho Majombozi, told the committee that the SOE was still in ICU and needed the financial support.

“We are still in the doldrums and therefore the analogy of a skorokoro (a broken down, beaten up motor vehicle) still holds, of being in the ICU and requesting the intervention of funding and resourcing,” Majombozi said.

The article points out that Acting CEO Nomkhitha Mona said that it was not going to be possible to turn around the company immediately and they would need resources.

“The environment has changed and therefore we need an organisation that moves with the time. Now I think what we need are two things: we need time, and we need some funding,” Mona said.

Significant trouble

The two cases above show that, even if there is every indication that there is a reasonable prospect to save a company, challenges will always impact the implementation of a business rescue/turnaround plan negatively unless every eventuality has been addressed.

With the case of Comair, it is concerning that this announcement comes mere months after the SACAA grounded the company because of technical issues. These were put down to challenges with its maintenance supplier, Lufthansa Technik which maintained that the company provided a quality service to all of its customers at all times. Interestingly enough, Comair didn’t cancel its contract with the company following the incident.

This all adds up to something else going on behind the scenes at the company which may come to light at a later stage. One has to question what the reputational damage to the company will be following the most recent announcement. Even if 40% of the industry’s capacity will be replaced once the company secures its funding, this will impact the company.

There is no indication that Comair wont receive its funding. Further, there is also no indication that the company doesn’t have a reasonable prospect of being rescued. Having 40% of the market share is a good way to entice investors as they have a very good chance that they will see a significant return on their investment.

The Post Office faces a steeper challenge though. On 13 June, Turnaround Talk will take a closer look at its turnaround strategy and what we can expect from the company going forward.