Comair’s business rescue practitioners (BRPs) say that the airline is in a position to be saved, given that it is not “factually insolvent”, only in financial distress.
The administrators held their first formal meetings with creditors and employees on Tuesday (19 May), after the company entered business rescue on 5 May.
The BRPs, Shaun Collyer and Richard Ferguson, covered the procedural aspects of the business rescue process, the reasons why Comair had entered business rescue and the prospects of rescuing it.
Comair reported a half-year loss of R564 million for H1 2020. This included R790 million that was unrecoverable after South African Airways (SAA) entered business rescue in early December 2019.
The money was for outstanding payments still owed on a R1.1 billion settlement of a Competition Commission complaint, the administrators said.
As a result of the Covid-19 lockdown, Comair has been unable to operate any scheduled passenger flights since 26 March 2020 and consequently has not been able to earn revenue.
When the government subsequently announced that the lockdown would be lifted in phases, and domestic flights would only resume in phase 2, Comair “had no choice” but to file for business rescue, they said.
The BRPs said it is important to distinguish between factual and commercial insolvency. Factual insolvency is when a company’s liabilities exceed its assets, while commercial insolvency is where a company is in a state of illiquidity, unable to pay its debts even though its assets exceed its liabilities.
Comair is not factually insolvent, the administrators said, noting that it has R7.42 billion in assets on its balance sheet, compared to liabilities of R5.48 billion.
Rather it is financially distressed because there is insufficient cash to pay ongoing costs and obligations and, with its flights grounded for an uncertain period, no opportunity to generate revenue.
Given this state of affairs, the practitioners said there are reasonable prospects for Comair to be rescued through business rescue proceedings, for the following reasons:
- Assets exceed liabilities;
- Comair is a critical infrastructure asset for South Africa;
- It is competitively well placed, having enjoyed a 39% market share for domestic travel and;
- There is immense goodwill and a longstanding reputation in the travel community and with the public and customers.
- He added that the successful rescue of Comair’s business would depend on the support of all stakeholders, and this would include post-commencement finance.
The next step in the business rescue process is the formation of a creditors’ committee and an employee representatives’ committee respectively. The business rescue plan will likely be published on 9 June 2020. The vote to approve the final plan is expected on 24 June.
Domestic flights coming back
The Airports Company of South Africa (Acsa) says that it is preparing for the resumption of some domestic flights under the country’s new level 3 lockdown.
While full domestic air travel is only expected at level 2, some domestic flights are expected to be allowed to operate under level 3, with conditions. The current regulatory framework is unknown, with new rules expected from the Department of Cooperative Governance and Traditional Affairs expected in the coming weeks.
However, presenting to parliament’s portfolio committee on Transport on Monday (18 May), Acsa proposed that airlines be allowed to run at 20% – 25% of the domestic travel volume undelr level 3, and be limited to certain times of the day.
Under the proposals, prioritisation would be given to the ‘golden triangle’ of OR Tambo International, Cape Town International and King Shaka International, with flights initially running between 06h00 to 09h00 and 15h00 to 18h00.
Provision would also have to be made for inter-provincial road transport routes which are considered as feeders to the three main airports, it said.