- An aviation economist takes a closer look at Comair’s financial situation and points out that it suffered huge losses during its two-year period of commercial rescue.
- Comair’s application for provisional liquidation lists the claims received to date, but it remains unclear how much creditors can expect to recover.
- Comair’s business rescue practitioners say the next step is to appoint a liquidator.
Creditors will line up to claim their share as local airline Comair goes into provisional liquidation. And although the details have yet to be ironed out, the amount owed could be close to R8 billion.
This was partly because Comair was undercapitalized and suffered huge losses in its corporate bailout, according to aviation economist Joachim Vermooten.
“Comair’s financial position – according to its draft balance sheet at the end of April 2022 – reflected a very low level of net equity of R84 million compared to the book value of liabilities of R3.971 billion,” Vermooten said. .
This excludes liabilities related to Comair’s agreement with US aircraft manufacturer Boeing for the purchase of its 737 MAX aircraft. Comair is waging a legal battle in the United States to try to get out of the deal.
“Comair suffered cumulative losses of R2.599 billion, which were partly offset by [a] the settlement of creditors, in terms of its commercial bailout, of R1.486 billion and other fair value adjustments…resulting in a cumulative net loss of R420.6 million, which is offset by equity Comair’s equity of R504.6 million,” Vermooten said.
“The list of creditors provided lists a cumulative amount of R5.058.6 billion identified as ‘voting interests’ [compared to] R7.826 billion for “complaints received” [so far]. Differences of 2.768 billion rand…may represent special acceleration, unwinding of financing structures and other penalties in the event of default. These higher amounts claimed at the book value of the liabilities should be negotiated by the liquidator.”
What can creditors expect?
It is still too early to say how much Comair’s creditors will recover and who will be paid first if the company‘s provisional liquidation is made final.
Comair’s Business Rescue Practitioners (BRPs) told Fin24 on Wednesday that a liquidator must first be appointed.
Comair operated its own low-cost airline kulula.com as well as local and regional flights under a British Airways franchise agreement. Comair has been in business rescue for two years and its Business Rescue Practitioners (BRPs) had to suspend flights on May 31 due to a lack of additional funding to continue operations. On Thursday, they announced they had to file for liquidation.
The application for provisional liquidation was necessary for Comair to preserve its aircraft fleet, valued at around R3.5 billion, for the benefit of creditors. All parties involved have until July 26 to provide the court with reasons why the provisional liquidation order should not become a final order.
An overview of the list of claims Comair has received from creditors so far shows who its lenders are and how much they are claiming. Nedbank filed the largest claim to date, for a total of R1.6 billion. Other claims from lenders are the US Private Export Funding Corporation (PEFCO) with a claim of R192 million, followed by Citibank (R611 million), Investec (R552 million), Absa (R332 million) and RMB (R180 million).
All lenders’ claims are secured except for a R258 million portion of what is claimed by Nedbank.
A Nedbank spokesperson told Fin24 on Wednesday that Comair has been a valued customer of Nedbank for nearly 20 years, having operated successfully in South Africa since 1946.
“Unfortunately, Comair has recently been impacted by external events negatively affecting [its] operations and financial viability, the most significant of which was the Covid-19 pandemic. We believe the liquidation of Comair will leave a tangible void in the South African aviation market,” according to Nedbank. The bank‘s unsecured exposure relates to liabilities related to unstolen banknotes.
Comair has received claims totaling R1.6 billion from aircraft lessors. The largest claims come from GY Aviation Lease (R1.1 billion), Sasof IV Aviation Ireland (R177 million) and Alterna Aircraft (R122 million). All lessor claims are concurrent and unsecured.
Trade creditor claims include fuel suppliers BP SA (R17 million) and Engen Petroleum (R98 million). For maintenance services, SAA Technical, a subsidiary of South African Airways, submitted a claim for R110 million, which is listed as a guarantee. Lufthansa Technik has filed claims totaling R387 million, of which R14 million is secured. Airline booking company Saber has filed a claim for R772 million.
Comair is also heavily indebted to various public companies in the aviation industry. Claims were received from Airports Company SA (R107 million), Air Traffic and Navigation Services (ATNS) for R53 million, SA Civil Aviation Authority (R8 million) and Meteorological Services of SA (R4 million).
Lanseria Airport filed a claim for R31 million, the Civil Aviation Authority of Zimbabwe for R51 million and British Airways PLC, with which Comair has a franchise agreement, a claim for R51 million rands.
The consulting company Metaco Holdings, filed a claim for 70 million rand.
Tobie Jordaan – head of corporate rescue, restructuring and insolvency at law firm Cliffe Dekker Hofmeyr – says the ranking of claims is hugely important to creditors.
“When a business rescue proceeding is replaced by a winding-up order, a distinction must first be made between the allocation of the proceeds from the sale of the encumbered and unencumbered assets. The proceeds from the sale of the encumbered assets will be d first allocated to the costs incurred for the maintenance, safekeeping, and realization of the encumbered assets and then to the creditors who hold the security interest in the specific asset,” explains Jordaan.
The proceeds from the sale of unencumbered assets will be applied as follows: (a) to liquidation costs; (b) payment of the Company Rescuer’s remuneration and expenses; (c) remuneration due to employees that became due after the start of the rescue procedure for the company; (d) payment of unsecured post-start-up financiers; (e) preferential creditors, such as employees, but taking into account the legal limitation of the privileged share of their claims; and finally (f) competing creditors.
“Competing creditors are all creditors who do not hold any security for their claims and include the remaining part due to employees after deducting the privileged part,” explains Jordaan.
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