Comair flights cancelled, now in liquidation

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Re: Comair flights cancelled, now to be placed in liquidation

Unread post by Ugly Duckling » Fri Jun 10, 2022 5:21 pm

One 737 Max hangar queen while that saga was being sorted out between Boeing and the FAA must have cost many $
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Re: Comair flights cancelled, now to be placed in liquidation

Unread post by Bearcat » Tue Jun 14, 2022 11:59 am

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Re: Comair flights cancelled, now to be placed in liquidation

Unread post by evanb » Wed Jun 15, 2022 2:41 am

Millibar wrote:
Fri Jun 10, 2022 11:27 am
Can someone in the know please give an objective unemotional answer as to why this once great airline is now being liquidated?

What went wrong and when did Comair as the industry leader become doomed?

Surely it can't be blamed on Covid? Look at Safair and Cemair.
Everyone will have opinions on the matter, but here are some thoughts. I wouldn't ascribe the collapse to any one factor, but the collection of these all add up to something a lot bigger.

1) They made some poor moves with regards to fuel hedging, taking out hedges in 2014 for 26% of its fuel demand at $82. Oil prices then collapsed in 2015 and 2016. This really squeezed operating margins in years when they otherwise should have been flying high. SAA were shrinking on mainline domestic routes, oil prices were low, Comair's B737-800 fleet were delivering big operational and product improvements. Comair were otherwise printing money! This mean meant that the share price was massively depressed which meant going to market to raise capital for the new fleet was impossible. They had to borrow.

2) As a result, they were entirely reliant on debt for financing the new B737-800s, the last four of which were delivered during this time. This meant they were highly leveraged, but this wasn't itself a problem since interest rates were low and the business was generating more than enough cash. In 2015, 16, 17, 18 and 19, they were generating R600 million, R750 million, R973 million, R946 million, R854 million, respectively, from operations. One certainly sees the effect of this in Comair financial statements during this time, with operating margins rising (lower lease, fuel, maintenance costs) but depreciation rising (more assets to depreciate).

3) The leveraging suddenly became catastrophic once COVID came around since cashflow dried up suddenly, but they still needed to make repayments to banks. Likely that Safair and Cemair were nowhere nearly as leveraged, and thus not as vulnerable. It's questionable what happened from there. The Directors favoured business rescue rather than direct engagement with the banks (Nedbank is the biggest, but also RMB, Citibank, Investec and US EXIM). I can't believe that the banks wanted this or that squeezing Comair was in their interest. They were big loans with good assets, and in some cases, a lot of equity in the assets. For example, based on the last financials (30 June 2019), RMB had three aircraft loans outstanding (ZS-ZWA, B and C), with R329 million outstanding, but the book value of the two aircraft was R753 million (at the time the market value was significantly higher). Showing just how much equity was available, one of the RMB loans (for ZS-ZWC) was settled and refinanced with ABSA for R341 million (outstanding amount was R101 million with a book value of R236 million) in late 2019. Not all the debt had this equity available, particularly the newer deliveries, but there was certainly significant fiscal space.

4) When COVID hit, revenue dried up, but the monthly repayments of about R60 million on aircraft debt alone would have been a huge drain. Instead of working with the banks to reschedule or refinance, or even working with aircraft lessors to sell and lease back, they chose business rescue since this would protect them from the creditors. In doing so, they lost control of the process. I don't think they anticipated that the creditors would then cut a deal with Orsmond instead.

5) From this point, I think we know where it went along with the caveat that we no longer have access to financials. Comair struggled to regain operational integrity after COVID lockdowns. Then maintenance grounding was the nail in the coffin. One might ascribe that to the failure of LH Technik and Comair's cost cutting efforts in moving away from SAAT to LH Technik. That's not to say that SAAT didn't have its own problems, but Comair's grounding couldn't have come at a worse time, just when they were regaining their operational performance. Not only did the grounding mean lost revenue, but also big costs reaccommodating passengers, big costs getting aircraft back in the air and a massive loss of confidence by the public.
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Re: Comair flights cancelled, now to be placed in liquidation

Unread post by evanb » Wed Jun 15, 2022 2:56 am

Ugly Duckling wrote:
Fri Jun 10, 2022 5:21 pm
One 737 Max hangar queen while that saga was being sorted out between Boeing and the FAA must have cost many $
A little, but certainly not the killer. Repayments were R7.25 million per month (R29 million per quarter). They were also due some damages/compensation from Boeing. There were some court proceedings in the US that Comair were successful in and the aircraft was sold back to Boeing late last year.
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Re: Comair flights cancelled, now to be placed in liquidation

Unread post by GL » Wed Jun 15, 2022 6:43 am

evanb wrote:
Wed Jun 15, 2022 2:41 am
I don't think they anticipated that the creditors would then cut a deal with Orsmond instead.
Thank you Evanb, invaluable insights as always. Can you please explain this deal with Orsmond.
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Re: Comair flights cancelled, now in liquidation

Unread post by henkhugo » Wed Jun 15, 2022 8:08 am

Orsmond, it must be remembered, was a senior executive at Sun Air (liquidated), co-founder of 1time (liquidated), one of the founders of Skywise (ostensibly liquidated), and now CEO of Comair (to be liquidated).
That says it all....
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Re: Comair flights cancelled, now to be placed in liquidation

Unread post by evanb » Wed Jun 15, 2022 10:36 am

GL wrote:
Wed Jun 15, 2022 6:43 am
Thank you Evanb, invaluable insights as always. Can you please explain this deal with Orsmond.
I don't really know any details, so I'm purely speculating. May 2019, Comair announced it's acquiring Star Air. Almost simultaneously, Erik Venter resigns as CEO, to be replaced by Orsmond and Wrenelle Stander. Ormond was CFO of Star Air whereas Stander had been around Comair for a while. A slew of Directors resign over the coming months, ostensibly for corporate governance reasons, but the board really does loose a lot of experienced people. They lose people like Pieter van Hoven, Kirsten Emily King, Piet Welgemoed, Rodney Sacks and Martin Moritz in 2019.

Jump ahead to 26 February 2020, Comair release results for half year ending December 2019. It's a big loss, but mostly the write-down of the SAA settlement since SAA was now in business rescue. The underlying results were not great since they were taking a lot of short term costs for retiring a bunch of B737-400s and replacing them with leased B737-800s and took a lot of costs related to the LH Technik move. Excluding the SAA write-down, it was a loss of R50 million, but generated decent cash from operations, specifically R611 million in the half compared to R436 million in the same period in 2018 although this may be misleading due to some IFRS 16 changes (maybe closer to the same as 2018 in like-for-like). All good enough to have R416 million sitting in the bank, and paying a dividend.

Come March, lockdown starts. Comair take some minor cost cutting actions and cancel the Star Air transaction, but Orsmond remains Comair CEO. By this point, the board is very weak. In early May, Comair enter business rescue. The business rescue plan which was adopted in September 2019 was based around an "investor" proposal that significantly dilutes existing shareholders. By February 2021, almost all directors have now resigned, with only Orsmond and van Hoven (who had resigned back in January 2020) as directors plus the company secretary. It shouldn't be a stretch of imagination that Orsmond and van Hoven were part (or all) of the "investors" since they were the only directors.

So put two and two together. Comair didn't have to go into business rescue. They could have used their balance sheet to get through 2020. They had R4 billion worth of encumbered aircraft with R2.6 billion debt against it. The depreciation of the Rand meant that the market value of the aircraft were much more than the equity on the balance sheet. They could have restructured this debt (which they did anyway in business rescue). This is something they had done before. They had R1.2 billion of unencumbered aircraft that could have been sold and leased back, or just sold (they reduced the fleet size anyway in business rescue). However, an inexperienced board, led by Orsmond chose business rescue with the strategy that this would give them a lot of power negotiate with banks and lessors since it protected them from repayments. This gamble didn't pay off! Instead, a group of "investors" then offer some financing (honestly, not that much) to dilute shareholders and cut the same deals with banks and lessors that they could have done anyway - somewhat of a leverages buyout. That this went wrong with only Orsmond and van Hoven at the helm only leaves them to answer!
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Re: Comair flights cancelled, now in liquidation

Unread post by Christo » Wed Jun 15, 2022 4:29 pm

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Re: Comair flights cancelled, now in liquidation

Unread post by Deanw » Thu Jun 23, 2022 11:51 am

23 June 2022: SA Jewish Report
Comair – the end of a family airline

LIFT airline co-founder Gidon Novick felt a deep sadness when it was announced that competitor Comair would be liquidated last week. It meant the death of the airline company that was an intrinsic part of his childhood and the launchpad for his career.

Comair was the business his father ran for more than 50 years, and it was on this company that Shabbos dinner chatter focused for a lot of Novick’s life.

So, though he wasn’t upset to lose a competitor in a tough market, the end of Comair and its airlines, the British Airways franchise and kulula.com, signified the end of an era.

“I grew up in Comair,” Novick told the SA Jewish Report. “I wasn’t sad for the entity or brand, but for what my dad spent two-thirds of his life building. I felt for the people who had been there for many decades.”

Though Novick’s dad didn’t start the company, he took it to heights unimaginable for a private airline company in South Africa.

The concept of Comair was created by three South African Air Force pilots in the middle of Egypt when they were fighting for the allies in North Africa in the early 1940s.

Leon Zimmerman, AC Joubert, and JMD Martin decided to start a business that would offer pilot training, a charter service, and possibly sell the occasional aircraft.

For the first four or five decades, said Novick, Comair wasn’t just an airline but a general aviation company that included an agency for Cessna aircrafts.

Dave Novick, the son of a couple who escaped Latvia to South Africa in the 1930s, got his first job at Comair when he became a chartered accountant.

He was one of four siblings whose father battled to make ends meet as a carpenter in Doornfontein, Johannesburg.

JMD Martin, one of the founders, was Dave’s boss when he joined what was then a small aviation company in 1961 that was part of a large listed group. When Dave started, there were about 50 employees and two DC3 aircraft.

Martin Maritz joined four or five years later. The two and their families became close, even going on family holidays.

Within four years, Dave became managing director and Moritz, who had a legal background, worked closely with him as general manager. Dave and Moritz saw its potential, and decided to buy it out in 1978.

“They did a leveraged management buyout from the owners of the listed company, effectively using the strength of the company’s balance sheet to buy the company,” said Novick. In other words, they used the company’s assets to help acquire the shares as the two businessmen didn’t have the personal security to do the buyout.

“At the time, it wasn’t clear whether this was legally doable in South African company law, but it was accepted by the sellers. That is, until they changed their minds a few weeks later,” said Novick. “They decided they didn’t get the right price and this led to a stressful, drawn out court case that became a legal precedent in this particular aspect of company law.

“I was just a kid at the time, but I remember this as being a stressful time because it was either successfully buy it or be fired as executives and lose everything. The houses and cars were all company assets, which would have been lost,” Novick said.

He recalls it all being “a bit scary and leaving a lasting impression” on him. “Looking back, through this time, I learnt about resilience and how one must inevitably be prepared for struggles in business and in life.”

Ironically when Novick was studying to become a chartered accountant in the 1990s, he was faced with a question related to the Novick versus Comair case in his board exam. Clearly, it wasn’t difficult for him to respond.

The Novicks were an aviation family, always going to airshows. Each child got a chance to go the Cessna factory in the United States, and the boys all got their pilots licences as soon as they could.

Until 1991, when the domestic aviation market was deregulated, Comair was allowed to fly only secondary routes. The Novicks, as a general rule, didn’t drive out of Johannesburg, they would fly, including to the Kruger National Park (one of Comair’s routes) for weekends. They flew in DC3s – old World War II carrier planes.

After deregulation, Comair started building bigger routes, selling off smaller ones, and buying jet aircraft.

“We were conservative, being reticent to take on debt and growing slowly,” says Novick. However, the company did make some bold moves, like taking on the British Airways franchise, the first franchise for the airline outside of Europe, and later launching kulula.com, the first low-cost airline in Africa.

“My dad brokered the deal with British Airways, which strengthened the airline, and its frequent flyer programme grew 10 times in size over the first couple of years here,” he says.

A couple of years later, the low-cost airline model was created, with high density seating, no business class, with direct internet distribution. Comair jumped on it, launching kulula.com. “What you needed was a strong consumer brand because you couldn’t rely on agents to promote your product, so it needed in-your-face marketing,” he said. “It was revolutionary at the time.”

Novick had joined the company in 1998 and earned his stripes before becoming joint kulula.com chief executive with Eric Venter until 2011.

“By then (2011), the dynamics had changed and Bidvest was a major shareholder. It was time to have a single chief executive, and the board decided Eric was the guy to run it.”

Until then, Novick said, “My dad was still very much pulling the Comair strings and controlling strategy and I was running the nuts and bolts. I was interested in exploring new things, however it happened quickly, so it was traumatic.”

For Dave though, who was then chairperson of the Comair board, it was the end of a lifetime involvement with one company. “I underestimated the impact it would have on him. When I left, he left in tandem, and we sold our shares. It wasn’t just a business to him, it was his baby.”

Novick said after they left Comair, Shabbos dinners were more inclusionary and less business focused. However, many are relieved Dave, who passed away in 2019, wasn’t around to see the death of Comair.

“There’s a cycle of life and business,” said Novick. “New models come along, and businesses need to adapt.”

Novick launched his new airline, LIFT, at the end of last year, which inevitably caused pressure on other airlines.

He believes the reduction in capacity from the loss of Comair will be managed because the flying market is smaller.

“People are fortunately now travelling again for leisure, but it’s more expensive. The jury is still out whether they will resume flying for business, which was subsidising the cheaper tickets,” he said.

“The biggest crisis for us is the fuel price. A year ago, a plane would use R30 000 of fuel from Johannesburg to Cape Town, now it’s R100 000. That’s way more than half of our costs. So, it’s more expensive to fly, and fewer people can afford it.”

However, he is a firm believer that the industry will prevail and easily survive this knock.
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Re: Comair flights cancelled, now in liquidation

Unread post by Christopher » Tue Jun 28, 2022 12:30 am

There <were> questions arising for me from all of the foregoing; but Dean has pretty-much answered them with his several quoted articles: thanks, Dean!

The tragedy of all this is that Comair was such an admirable success story in the aviation world (Don van Dyke wrote an admirable company history called "Fortune Favours The Bold", mentioned on this website some years ago and prompting me to have acquired a copy) and Martin Moritz and Dave Novick were such gentlemen at the top. They inspired great loyalty among everyone under them. I worked for them back in the 1970s at Comair (Natal) under Eric Watkinson, who was also a director. The company was <strongly> managed and, as already told in previous pages, Piet van Hoven ran the airline very efficiently (DC-3s and F-27 Friendships in them days). Shame!

I was also going to ask whether Dave Novick was still alive; but that last article told me that he died in 2019 -- thanks again, Dean.

I'm left wondering whatever got that Mr. Orsmond into aviation in the first place: he doesn't seem to have done the industry much good, does he?
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Re: Comair flights cancelled, now in liquidation

Unread post by evanb » Tue Jun 28, 2022 1:42 am

Christopher wrote:
Tue Jun 28, 2022 12:30 am
I'm left wondering whatever got that Mr. Orsmond into aviation in the first place: he doesn't seem to have done the industry much good, does he?
Easy to knock a man when he's down, but he's been around the industry for a long time. While I've been critical of what happened at Comair, I don't question his passion and commitment to the industry, and his excellent contribution over decades.

He's led some important transitions and growth in the industry. His transition of Bop Air to Sun Air was very successful and an important part of the liberalization of air travel in South Africa. It got taken down by bigger, now familiar themes of the pre-liberalization establishment pushing out competition. He led 1time from its founding for eight years of success. It would be hard to pin the downfall of 1time on him. 1time was very unlucky and I think many view it as fantastically successful before a series of unlucky events. That said, it's probably fair to critique the founders for choosing to cash out their profits on 1time rather than continue to build it. It was probably the first mainline carrier that genuinely succeeded outside the normal pre-liberalization establishment.
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Re: Comair flights cancelled, now in liquidation

Unread post by GL » Tue Jun 28, 2022 9:15 am

My view on 1time's demise is that the market was already oversupplied with consequent paper-thin margins and they could not raise the capital necessary for a fleet upgrade from the MD82s to 737-800s.
There was that spike in oil prices and that killed them considering they were using about 20% more fuel per seat than kulula and Mango .
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Re: Comair flights cancelled, now in liquidation

Unread post by evanb » Tue Jun 28, 2022 10:24 am

GL wrote:
Tue Jun 28, 2022 9:15 am
My view on 1time's demise is that the market was already oversupplied with consequent paper-thin margins and they could not raise the capital necessary for a fleet upgrade from the MD82s to 737-800s.
There was that spike in oil prices and that killed them considering they were using about 20% more fuel per seat than kulula and Mango .
Indeed. They had much weaker access to capital and the founders had a make a call to risk their own money in the fleet transition. Kulula and Mango had much more established balance sheets. Had they begun that transition sooner they probably would have succeeded but that is inherently hypercritical when much of their earlier success was based on the fact that they operated a fleet which had much lower acquisition costs and allowed them to grow and build a brand much quicker.

I really miss 1time!
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Re: Comair flights cancelled, now in liquidation

Unread post by Glenn L » Wed Jun 29, 2022 9:28 pm

evanb wrote:
Tue Jun 28, 2022 10:24 am
GL wrote:
Tue Jun 28, 2022 9:15 am
My view on 1time's demise is that the market was already oversupplied with consequent paper-thin margins and they could not raise the capital necessary for a fleet upgrade from the MD82s to 737-800s.
There was that spike in oil prices and that killed them considering they were using about 20% more fuel per seat than kulula and Mango .
Indeed. They had much weaker access to capital and the founders had a make a call to risk their own money in the fleet transition. Kulula and Mango had much more established balance sheets. Had they begun that transition sooner they probably would have succeeded but that is inherently hypercritical when much of their earlier success was based on the fact that they operated a fleet which had much lower acquisition costs and allowed them to grow and build a brand much quicker.

I really miss 1time!
Me too! :/
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