Comair readies for job cuts
The plucky airline, which until this year had been profitable since inception, will not escape the looming cash crunch
Like the economy in which it operates, SA’s aviation sector will emerge from the current economic crisis in a very different shape to what it was a month ago.
With no commercial flights permitted anywhere in SA for at least the next three weeks, the full impact is hard to gauge. There are already casualties and more will follow.
Bankrupt state-owned carrier SA Express grounded itself more than a week ago, and while the plan was for SAA’s business rescue practitioners to reveal their turnaround strategy for the airline next week, it’s hard to see a future for it.
After all, SAA is regarded by many critics as a state-owned vanity project, in an environment where government spending priorities are going to be stretched more thinly than ever before.
In the meantime, private-sector competitor Comair is wasting no time in making cutbacks.
Hours ahead of President Cyril Ramaphosa’s announcement of SA’s three-week lockdown, and days after announcing the sudden departure of two senior executives, Comair revealed that it was embarking on a significant retrenchment process.
How many jobs will be cut is still an open question, amid mounting losses across several of its businesses, which span passenger travel, airport lounges, airline training and catering, among others.
"Despite our efforts over the past few months to preserve cash, maintain liquidity, divestment from nonperforming acquisitions, aggressive cost reduction across the group, taking back control of the fleet and unlocking further operational efficiencies, more remains to be done," said CEO Wrenelle Stander in a statement.
The airline said it was implementing section 189 of the Labour Relations Act, which makes provision for redundancies, as part of a financial recovery plan.
Investors have known for some time that the airline was facing difficulties. Its first-half results exposed the possibility of it making an annual loss for the first time in its 73-year history.
Costs were outstripping revenues and a host of decisions taken in previous years, to improve operating performance and overall growth rates, were now costing the company money.
For example, the airline has significantly higher fleet and maintenance costs than in previous years, because it took on the first of eight, now grounded, Boeing 787-800 Max aircraft, as well as five leases for additional 737-800s, as part of its fleet rejuvenation project.
As part of that it entered into a cash-lockup programme with Boeing to secure the new aircraft, but these weren’t delivered after two fatal accidents which showed flaws in the Max aircraft design.
Comair defended the decision as the right one at the time, as was the move of its maintenance from SAA Technical to Lufthansa Technik Maintenance International.
But that transition means it is paying two providers until at least June 2021.
In the weeks running up to the lockdown announcement, passenger numbers had slumped, causing the airline to cancel and combine flights as a result of lower demand.
But a full stoppage means it will have no income for nearly a month, possibly longer.
Few airlines can survive that collapse in cash flow and many carriers around the world are looking to their governments for support. SA carriers are going to find it hard to convince the government they are worth saving.