Kulula.com owner’s fleet to be halved, retrenchments to continue

The business rescue practitioners of JSE-listed Comair intend to halve the number of aircraft used, they said in a notice to shareholders on Friday.

They will also continue with the retrenchment processes already started before the company went into business rescue. This is because the reduced aircraft fleet will also reduce Comair’s operational requirements.

Comair, which operates its on low-cost airline Kulula.com as well as British Airways domestically under a license agreement, opted to go into voluntary business rescue in March, when it was no longer able to operate due to coronavirus flight restrictions. The board decided business rescue would be the best option for long-term survival.

Also on Friday, the practitioners asked creditors for a short extension for the publication of the business rescue plan. They had originally aimed to publish the plan on 9 June, but have asked for this to be extended until 23 June.

‘We believe we remain on track’

This is because Comair is still in the process of finalising its financial statements for April. This information is required so the practitioners are able to reconcile creditors’ claims with the company’s records.

Furthermore, Comair is awaiting the independent calculation of the liquidation dividend that creditors would receive if the company were to go into liquidation. This calculation must be included in the business rescue plan.
Lastly, the practitioners would like to consult further with affected parties – creditors, shareholders and employees – in order to prepare a thorough business rescue plan.

“We believe we remain on track to do this but need a little more time to complete a suitably comprehensive and sustainable business rescue plan,” they said in a statement.

In mid-May, the practitioners told shareholders that they believe there’s a reasonable prospect for the airline to be saved as its assets exceed its liabilities.

Despite lockdown Level 3 allowing for business travel, the practitioners said they intend to continue keeping Comair’s fleet of aircraft preserved in storage for now. It will only resume domestic passenger air travel on 1 November 2020, subject to it being commercially viable and the necessary funding being available at the time.

In the latest shareholder update the business rescue practitioners set out the key elements envisioned for Comair’s business rescue plan to restructure the business, its property, debt and other liabilities.

The aim would be to ensure the company can continue to operate on a solvent basis and to provide creditors a better outcome than if there simply was a liquidation.

The practitioners said they will identify which of Comair’s assets should be disposed of, and then proceed with the sale of those assets – some of them as going concerns.

Furthermore, they will aim to recapitalise the company by issuing Comair’s authorised ordinary or preferred shares to an investor or investors at a pre-determined price, subject to approval by shareholders and JSE requirements.

If Comair is able to successfully raise the equity capital, the current shareholders will be substantially diluted. The intention is that creditors – including employees with claims against the company – will be paid a distribution higher than the probable liquidation dividend.

Dollar-based aircraft

An aviation expert, who spoke on condition of anonymity, told Fin24 that the latest note by Comair’s business rescue practitioners is just a legal notification to comply with the Companies Act and does not in any way limit what might actually be done in the end.

“While it appears from the legal notice that Comair’s creditors might not be paid in full, in reality its dollar-based newer aircraft are worth much more than all of Comair’s debt,” they said.

“If Comair intends to reduce its fleet from 24 to 12, then by selling its eight 737-800s it can raise R4.7 billion, pay the remaining approximately R2 billion in debt on these aircraft, and have a surplus of R2.7 billion, which is significantly more than the estimated R1 billion owed to its creditors.”

The source said that while international travel is likely to be negatively affected for a long time due to the pandemic and, therefore, impact the marketability of long-haul aircraft, domestic travel is likely to recover faster. This makes Comair’s aircraft more marketable and will also be reinforced by Boeing’s ongoing production delays on the Max 8.

As for the notice about potentially issuing more shares, the expert said it was possible this was a formality in order to comply with the relevant legislation. 

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