Kulula is owned by Comair. Picture: SUNDAY TIMES
Kulula is owned by Comair. Picture: SUNDAY TIMES

Comair is talks with lenders about securing a financial lifeline as it battles a severe cash crunch due the Covid-19 pandemic, which it expects to keep its flights grounded until October.

In reaction, the shares in the owner of low-cost airline kulula.com fell as much as 21%, before recouping some of the losses to trade 10.16% lower at R1.15 in afternoon trade.

Comair’s balance sheet was already under strain before the Covid-19 outbreak prompted governments to enforce travel restrictions, with the group swinging into a R564m headline loss in its half-year to end-December. The group’s difficulties is the latest example of a wave of distress sweeping across corporate SA during the nationwide lockdown.  

“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,” Comair said in a statement advising investors to exercise cautions when dealing in its securities.

The company, which also runs British Airways flights in SA, also said it was weighing up increasing its equity via the issue of debt that can later be converted into shares, or through issuing convertible preferred shares to inject cash into the business.  

Convertible preferred shares are a from a debt-equity hybrid security that gives investors the assurance of fixed rate of return and the opportunity to exchange it for a predetermined number of ordinary shares.   

Comair’s statement come days after the aviation industry body group, the Airlines Association of Southern African, told Business Day the industry, which contributes R180bn to the SA economy, was teetering on the brink of collapse if the travel restrictions were not lifted soon.

The Airports Council International (ACI) World and the International Air Transport Association (Iata) issued a joint call on Thursday for government support for airlines, and airport operators.

This could take the form of tax relief, loans or loan guarantees, the associations said.

“The financial impact of the current crisis is unlike anything we have ever seen and requires urgent action by governments to assist the aviation industry to protect jobs, ensure essential operations and plan for recovery,” ACI world director-general Angela Gittens said.

Comair said it was participating in industry-led efforts to secure special aid for the industry.

Passenger volumes could take months, or years, to fully recover, said Joachim Vermooten, an independent aviation analyst, as the public health crisis batters even the well-capitalised airlines in an industry characterised by high fixed costs.

“The government will need to come out with some sort of response, perhaps offering support on a market share basis, if SA is to have a viable airline industry as the economy restarts,”  Vermooten said.

It not clear under what conditions the industry would be allowed to restart, said Vermooten. “If you take the example of China, which is resuming flights, they are limiting airlines to load factors of 70% of total capacity, whereas airlines need to operate beyond 80% in order to have any chance of being profitable in the current market,” he said.

Comair has also taken emergency measures to stay afloat. It has scrapped plans to pay a portion of the salaries of employees it had sent on unpaid leave and has started laying off workers.

Update: April 30 2020
This article has been updated with new information, industry comment and changes throughout

gernetzkyk@businesslive.co.za