Kulula.com owner negotiating with Boeing to cancel 737 MAX plane deal made in 2013

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Earlier this year Comair's rescue practitioners obtained an order from a US court. (Supplied)
Earlier this year Comair's rescue practitioners obtained an order from a US court. (Supplied)
  • Comair's business rescue practitioners are negotiating with Boeing to try to cancel a purchase agreement of 737 MAX planes.
  • The deal was concluded in 2013 and the first delivery to Comair was made shortly before a worldwide grounding of these planes.
  • Comair CEO Glenn Orsmond puts the negotiations and completion of the rescue process into perspective against the backdrop of the current state of SA's aviation industry.

The business rescue practitioners of Comair are negotiating with Boeing about cancelling its purchase agreement of eight 737 MAX planes.

The Boeing 737 MAX passenger airliner was grounded worldwide between about March 2019 and December 2020 after two fatal crashes - one by Lion Air and and one by Ethiopian Airlines.

Comair owns low-cost airline kulula.com and operates British Airways in SA under a licensing agreement.

Comair CEO Glenn Orsmond told Fin24 on Tuesday that the rescue practitioners will only exit once there has been substantial implementation of the rescue plan. Some of the outstanding issues include negotiations in terms of Comair's Boeing MAX deal.

The original deal was concluded in 2013 and was for Comair to buy eight Boeing MAX aircraft. Comair received only one of these and, shortly after receipt thereof, all MAX aircraft were grounded worldwide due to safety concerns. In addition, Boeing did not deliver the second and third MAX planes to Comair in accordance with the delivery schedule. 

Negotiations to find acceptable outcome

Earlier this year Comair's rescue practitioners obtained an order from a US court in which it recognises the South African business rescue process of the group. This is now enabling Comair to enter into negotiations with Boeing regarding the MAX deal to arrive at a mutually acceptable outcome, failing which, Comair may elect to litigate the matter.

But, he says, differences in how business rescue is handled in the US and South Africa can be "confusing". 

"What might be confusing is that the rough equivalent of business rescue, is the US Chapter 11 process. It is all handled in the bankruptcy court in the US. Therefore, it certainly does not mean Comair is bankrupt," says Orsmond. In fact, Comair's March activity was positive despite the overall domestic market still being about 50% of the normal levels before the pandemic.

"We don't have April data yet, but we expect it will be closer to 60% of what passenger volumes used to be pre-pandemic. It basically means only about 60% of people who used to fly, are flying again. Comair is operating its full domestic network and on our regional network we are flying to Harare and Victoria Falls, but not to Mauritius, as it is not open yet," says Orsmond.

"I would estimate that the domestic business market is still only about 30% of what it used to be before the pandemic. On top of that, there is still no international traffic. We are currently operating 17 aircraft and expect to have it up to 21 by June as we are expecting market growth over the next few months."

In his view, the current state of the SA aviation market is stronger than expected. 

In April this year, Comair's listing on the JSE was removed in line with its business rescue plan. The company is now effectively owned by five main investors.

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