South Africa’s regional carrier Comair will not fly before October, the airline noted in a statement to its shareholders today. As well as the grounding of Comair and its low-cost brand Kulula, the airline is facing significant financial difficulties caused, in part, by COVID-19. It is undertaking measures to cut costs and is seeking to cancel its Boeing 737 MAX order.
Comair grounded until October
British Airways’ South African franchise Comair has extended its grounding for one of the most prolonged periods we’ve seen in the industry to date. The airline issued a statement earlier today, saying that it does not anticipate flying again until at least October, putting it on the ground for a full six months of the year.
The airline stopped flying on March 17th and could resume operations tomorrow when South Africa moves from Level 5 to Level 4 of its coronavirus containment strategy. 1.5 million South Africans are expected to return to work tomorrow as part of the easing of the lockdown, but Comair will not be returning to the skies.
In fact, no flying will be allowed just yet. According to the announcement, restricted air travel will only be permitted when the state descends to Level 3, with full domestic flying beginning at Level 2 and international travel not until Level 1. Within Comair’s ‘Cautionary Announcement’ to shareholders the company said,
“The level of the prevailing COVID 19 risk will determine the progression from Risk Level 5 to Risk Level 1. In terms of the Governments requirements, it is not anticipated that Comair will commence operating prior to October or November 2020.”
While there’s no specific timeline for the loosening of restrictions, Comair appears to be struggling with more than just the lockdown conditions.
Difficult financial position
While being unable to operate any flights is severely damaging Comair’s position, the airline noted that its issues run much deeper than that. Back in February, its shareholders were advised that the company made an operating loss for the six months prior of R562 million ($30m). While this is a weak headline figure, the responsibility did not lie on Comair’s shoulders.
As a result of South African Airways entering Business Rescue, the flag-carrying airline was unable to pay Comair an amount of R790 million ($43m). Although the net of this was just R505 million ($28m), it would have left Comair with a much less significant loss on its balance sheet.
In today’s statement, Comair admits it was already experiencing difficulties before COVID-19, but that the current situation has made things a whole lot worse. It said,
“Although, the Company was experiencing financial headwinds prior to the COVID 19 outbreak, 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 when dealing in the Company’s securities until a further announcement is made.”
The airline, which also operates the low-cost carrier Kulula, is taking all the steps it can to secure its future as a business. It said in its statement that it is reducing the number of executives in the business, canceling its planned acquisition of STAR Air Cargo, and will be reducing the number of staff in the company overall.
It has also said it is actively engaging with Boeing on the cancellation of the 737 MAX orders and to secure compensation on that front. In addition, it is lobbying the government to support the aviation industry financially and is seeking to obtain bridging finance ongoing.
What do you make of the grounding of Comair and Kulula until the autumn? Let us know in the comments.