Comair (South Africa) (MN, Johannesburg O.R. Tambo) is faced with the prospect of liquidation given difficulties in securing post-commencement funding (PCF) from lenders. The carrier, which operates a British Airways franchise as well as low-cost brand Kulula Air, has been in business rescue, a form of bankruptcy protection, since early May this year citing protracted losses deepened by the coronavirus pandemic which has hit the South African economy particularly hard.

Business Rescue Practitioners (BRPs) Shaun Collyer and Richard Ferguson have been scouting for financing to help resurrect the privately-owned firm. On July 2, the BRPs engaged a consortium of banks and aircraft financiers over ZAR226 million rand (USD13.56 million) in emergency financing needed to tide the carrier through until October when flights were expected to resume. While talks went on, the BRPs extended the deadline for the publication of a turnaround plan to late June and eventually to July 28.

However, according to a letter to Comair creditors dated 22 July and seen by Business Maverick, the BRPs said the banks and aircraft financiers had informed the airline the day before that they would not be extending any further funding to the company. No reasons for the refusal were given.

“In the absence of any PCF, and a capital raising process to underpin the financial and operational elements of a business rescue plan, we will have no other option but to conclude that there is no longer a reasonable prospect of rescuing the company,” they said.

Comair therefore faces the prospect of liquidation which would see its assets sold off in an effort to pay off debts of ZAR4.6 billion (USD276 million).

Without any meaningful revenue streams or credit lines, Comair has defaulted on its 2Q20 (i.e. April, May, and June 2020) insurance payments, including its entire fleet of aircraft (five B737-400s, one B737-8, and twenty-three B737-800s). The insurance payment was due on June 30.

According to the letter, after insurance broker Marsh sent a cancellation notice to Comair, the BRPs have urgently engaged lenders over emergency funds to pay outstanding monies by July 28, but have met "limited success".

Comair has also failed to pay more than ZAR30 million (USD1.8 million) to MRO providers, leading them to suspend fleet maintenance activities until the debt has been settled. The service providers have since taken the drastic step of denying Comair access to its aircraft and “are not permitting movement of the aircraft for repositioning purposes”. According to the ch-aviation fleets advanced module, almost all 29 aircraft are stored at Johannesburg O.R. Tambo although two B737-800s are at Lanseria while another is at Tel Aviv Ben Gurion.

In terms of would-be investors, Comair has attracted two unsigned offers from a consortium of investors willing to invest up to ZAR1.5 billion (USD90 million) in the firm through a combination of debt and equity, including a cash injection.

However, according to the BRPs, the potential deal has been jeopardised after Redford Capital, a corporate finance advisory firm enlisted by the BRPs to help raise capital for Comair, engage potential investors and buyers of the company’s assets, withdrew its services. The two unsigned offers are likely to collapse due to Redford Capital’s exit, Collyer and Ferguson said.

“As Redford Capital was instrumental in progressing these non-binding expressions of interest Comair will as a result be prejudiced by Redford Capital’s exit from the capital raising process.”

Redford's enlistment has proven controversial given Collyer and Ferguson are its directors. According to Business Maverick, aside from questioning Collyer and Ferguson's independence, creditors were also angry that the duo had proposed Redford Capital be paid a monthly retainer fee of ZAR250,000 (USD15,000), excluding VAT, in addition to a success fee calculated at 1% (excluding VAT) of the gross funding it has raised for Comair during its business rescue proceedings. The BRPs had justified the Redford Capital deal on the grounds that it was the only company willing to assist Comair with capital raising at a reasonable price.

Comair's board now have until July 27 to appoint a new corporate finance advisory firm.