The decision by the SA Civil Aviation Authority (Sacaa) to ground Comair’s entire fleet due to safety issues with some of its aircraft could sound the death knell for the once prosperous airline, which famously went for more than seven decades without making a loss.
The grounding at the weekend comes at an inopportune time for Comair as it canvasses funding to make up for about a R100m loss in revenue stemming from travel bans in the wake of the discovery of the Omicron variant.
It is also bad news for consumers and the broader economy as it takes out a regional airline accounting for 40% of airline capacity.
At the weekend, the aviation regulator announced that Comair, the operator of British Airways (BA) in SA and Kulula, has been grounded indefinitely until it has addressed all the safety concerns, which included an engine and landing gear failure on some of its aircraft.
The news came just over a year after the operator largely emerged from business rescue after tumbling into the form of bankruptcy protection alongside a slew of airlines across the world as pandemic-induced restrictions floored the industry.
Financial baggage
The process allowed it to temporarily leave behind its heavy financial baggage, including labour costs and an order for Boeing planes that were grounded across the world due to safety concerns. It paved the way for new owners to take over the company under the business rescue plan.
A group of investors — including former Comair directors Martin Moritz, Pieter van Hoven and Rodney Sacks, and an investment vehicle, Luthier Capital — agreed to inject R500m into the group in return for virtually all of the company.
Additional funding of R1.4bn, comprising R600m in new borrowing and R800m in deferred debt, was due to be secured from banks for the plan to be carried out.
It looked as though the company’s finances had been stabilised until the Omicron variant knocked the industry late in 2021 as the UK led the pack in imposing travel bans, forcing Comair to take a R100m hit in previously booked but unflown revenue, according to a statement posted on its website.
The revenue losses prompted the company to seek further funding for it to “continue with its operations on a sustainable basis”, according to the statement dated January 31.
A Comair spokesperson confirmed that the company had been restructuring its balance sheet from both a debt and
equity perspective since the beginning of the year, which has involved engagement with investors and lenders to ensure that the appropriate type and amount of funding is raised.
The regulator’s decision is likely to deepen Comair’s financial woes as it means it will be unable to generate much revenue for the foreseeable future, so banks and investors will potentially hold back.
Even if it survives, the reputational damage may be enormous.
“The potential implications of the suspension are considerable for the business rescue process, the airline, its employees, the travelling public and the country,” the Comair spokesperson said. “The longer the suspension continues, the greater the implications.
“This is why we are constructively engaging with the Sacaa to address the issues it has raised and get the suspension lifted as soon as possible. We have made some progress, with one of the four findings now closed. We have submitted additional responses to the others and believe that what we have provided goes beyond what has been asked for.”
Joachim Vermooten, an independent aviation analyst, said the grounding of Comair’s entire fleet seems harsh and inconsistent.
“Why not ground the specific aircraft and not the entire fleet? This [Sacaa decision] means that there are aircraft that are safe, but grounded,” Vermooten said.
He said the move to ground the entire fleet could kill competition in the industry, limit consumer choice and raise ticket prices.
Vermooten also suggested that the whole structure of aviation regulation in SA should be revised as the current model means Sacaa is an investigator, prosecutor and judge, which creates a conflict of interest. With Luyolo Mkentane and Thando Maeko
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