South Africa's Comair is to undergo a business rescue process. The mechanism allows for the airline to work through its challenges, keep creditors at bay, and restructure the business. Comair has been grounded since March, owing to a pandemic driven lockdown. While stressing the airline remained solvent, Comair's CEO yesterday said it was in the interests of everybody to enter into the business rescue process.

"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."

A stalwart of South African aviation hits headwinds

While owned and managed in South Africa since 1946, Comair now operates as a British Airways brand franchisee. Normally, the airline flies 20 Boeing 737s around southern Africa. But before the South African Government imposed lockdown caused the airline's grounding in March, Comair had been flying into strong headwinds.

The airline was rocked by governance issues and the grounding of several aircraft last year over maintenance problems. Comair had been sending its planes to SAA Technical for maintenance, but an audit of SAA Technical overcovered a raft of issues that blew back onto Comair. The airline has ceased doing business with the maintenance provider and won$60 million in compensation - the majority of which remains unpaid.

Issues such as these saw the usually profitable Comair post a $30.5 million headline loss in the last half of 2019. Comair had already put into place an in-house business turnaround plan.

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Comair lost USD$20.5 million in the last half of 2019. Photo: Bob Adams via Flickr.

The government imposed lockdown was the final straw

But the government imposed lockdown, and subsequent grounding has tightened the financial screws at Comair.

"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," said Comair CEO Wrenelle Stander in a statement yesterday.

"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."

Yesterday, the airline announced it was entering into a formal business rescue process and suspended its trading on the Johannesburg Stock Exchange.

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Comair's debts will be put on hold and creditors kept at bay. Photo: Aero Icarus via Flickr.

Under South African corporation law, the business rescue process allows a financially distressed business to be "rehabilitated." The financial affairs of the business are overseen and restructured by an external party. The business gets the chance to restructure its property, debt, affairs, other liabilities, and equity. Meanwhile, creditors are kept at bay.

It's similar to the Chapter 11 process in the United States and what we are now seeing at Air Mauritius and Virgin Australia.

Comair hopes to keep flying and trade out of difficulties

Overseeing the Comair business rescue process is Shaun Collyer and Richard Ferguson from South Africa's ASO Capital. They will work with Wrenelle Stander and her management team to get Comair back in the air as soon as the South African Government eases restrictions.

"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 digitization of the business and new product development and delivery," says Ms 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."