Founder: Turnaround Talk
Last night, Turnaround Talk hosted its second Round Table discussion of the year. An expert panel from Cliffe Dekker Hofmeyr Attorneys provided some key insights into the background that lead to Comair’s liquidation and what the liquidation will look like once the airline is placed into final liquidation.
Affected parties do have an opportunity to explain to the courts why the provisional liquidation should not be made final. However, Roxanne Webster, a Director at CDH’s Dispute Resolution Practice points out that she doesn’t see the courts accepting any reasons to hinder the progression of the liquidation.
One of the highlights of the highlights of the Round Table was the explanation of why Comair went into liquidation. CDH is of the opinion that the company fell prey to gray rhino risks which were unforeseen. Further, the reason why Comair’s BRPS couldn’t find the necessary liquidity to fund the company’s business rescue was that future risks were just to great.
While this is continuing in South Africa, a recent report by the International Air Transport Association (IATA) points out that Airline industry recovery gathering pace despite uncertainty.
Gray rhinos
Comair’s rescue seems to have flown under the radar, as observers were more distracted by enormity and political fascinations surrounding, amongst others, the SAA and Edcon business rescue proceedings. However, it appears that Comair was certainly not immune to the very same challenges, and some more, which faced other airlines’ business rescue proceedings. We recently saw that the business rescue practitioners applied to have the business rescue proceedings discontinued and to place the company into liquidation.
In the 2022 Deloitte Restructuring Survey, there was an emphasis on the highly uncertain economic environment created by gray rhino risks, being naively underestimated and to an extent unforeseen local and global geo-political risks such as war, climate change and pandemics. The takeaway of this finding was that companies operating in this environment require agility and resilience to survive.
Photo By: Zoë Reeve on Unsplash
When answering the question as to whether Comair was a victim of grey rhino risks, Belinda Scriba – a Director at CDHs Dispute Resolution Practice – pointed out that a massive contributor to Comair’s liquidity issues was:
- the travel ban imposed on South Africa by the UK and other countries. British Airways was also part of the Comair group and was a major victim of this announcement;
- the various inter-provincial travel bans imposed by the South African Government to try to prevent the spreading of Covid; and
- geo-political tensions which were caused by Russia’s invasion of the Ukraine which saw record fuel prices.
What des this mean for the South African airline industry?
International growth
The IATA report points out that air passengers are expected to hit 83 percent of pre-pandemic levels this year and the aviation industry’s return to profit is within reach in 2023 despite ongoing uncertainty, the International Air Transport Association said on Monday.
Industry losses are expected to drop to $9.7 billion this year, a huge improvement from $137.7 billion in 2020 and $42.1 billion in 2021, IATA said in an upgraded industry outlook ahead of its annual general meeting in Doha.
“Airlines are resilient. People are flying in ever greater numbers. And cargo is performing well against a backdrop of growing economic uncertainty,” the document quoted IATA DG Willie Walsh as saying.
The aviation industry was sent reeling by the pandemic, with passenger numbers plunging 60 percent in 2020 and remaining 50 percent down in 2021. Airlines lost nearly $200 billion over two years, a trend that was previously unthought-of in airline travel
The report adds that while some firms in the sector went bankrupt, others — backed often by states — have emerged from the pandemic with profits intact.
Profitability within reach
The IATA says that industry-wide profitability appears within reach in 2023, adding that North American airlines were expected to return an $8.8 billion profit this year.
More than 1,200 aircraft are expected to be delivered in 2022, while cargo volumes should reach a record 68.4 million tonnes despite economic challenges, it added.
“Strong pent-up demand, the lifting of travel restrictions in most markets, low unemployment in most countries, and expanded personal savings are fuelling a resurgence in demand that will see passenger numbers reach 83 percent of pre-pandemic levels in 2022,” IATA said.
Airlines, desperate to put the coronavirus pandemic behind them, go into the talks in Doha ahead of a potential summer of chaos with shortages and strikes that could threaten their recovery.
The report points out that while trade is roaring back to life, representatives from the aviation sector meeting until Tuesday in Qatar have a packed agenda with multiple geopolitical crises including the war in Ukraine and the environment.
Photo By: Blake Guidry via Unsplash
Visible cracks
The report points out that cracks are already showing in the sector’s recovery, though industry figures are optimistic about the future despite the issues.
In the past few weeks, delays and cancellations caused by a lack of staff at airports and strikes for better pay have wreaked havoc upon travellers.
The problems originate with the pandemic when airlines and airports laid off thousands of workers during its worst-ever crisis. Now, airline companies are scrambling for employees.
The report adds that reflecting the enduring disruption, the IATA was forced to move its annual general meeting from Shanghai to Qatar as China continues to grapple with the pandemic.
The global association represents 290 airlines, accounting for 83% of air travel worldwide.
A copy of the Turnaround Talk Round Table discussion will be posted on the Turnaround Talk website later this week.
