The sneaky Comair deal

Bidvest quietly snapped up a 20 percent stake in Comair, which runs kulula.com... but British Airways sold four percent of its shareholding. So how bullish should you be about Comair? CEO Gidon Novick breaks down the deal, and gives his thoughts on the oil price.

Bruce Whitfield:
We are talking now to Gidon Novick, the joint chief executive of Comair because Comair share price movement has been the subject of quite a lot of conjecture and confirmation today, that during December, while most of us were on holiday, Bidvest acquired 20 percent of Comair, the company that runs BA in South Africa, and owns the kulula.com franchises in South Africa as well. And Gidon Novick joins us on the line now and was the investment a surprise to you, Gidon? Did it come out of the blue?

Gidon Novick:
Hi Bruce, yes it was bit, I must be honest. Over the year there has been a lot of interest in the company and a lot of interest in the share and that was certainly a very interesting investor to have on board.

Bruce Whitfield:
But certainly having an investor like Bidvest, which is a company which has got a finger in almost every single pie in South Africa, they have got a lot of tourism businesses under their belt, they are very involved in operations at our major airports as well in terms of ground handling, in terms of cleaning aircrafts and all those sorts of things as well.

Gidon Novick:
Yes, I guess we have got a lot to learn about them as well. But just a fabulous company to have on board.

Bruce Whitfield:
Is this the first time that Bidvest has invested in a Comair business?

Gidon Novick:
Yes, as far as I know and certainly as long as I have been around, that is the first time.

Bruce Whitfield:
Now I was just wondering, because Comair as one stage had a baggage handling business that operated exclusively for you. I was under the impression that Bidvest at some point may have bought that or may have invested in that, but I maybe wrong.

Gidon Novick:
No, we have still got that, it’s a company called CHS and it is still wholly owned by Comair.

Bruce Whitfield:
Okay, then I got the wrong end of the stick on that one. But there were a lot of shares going begging in the market toward the middle of last year when founders, including your father, the former MD, Piet van Hoven actually sold down their holdings.

There were something like 50 or 60 million shares that were sold in the first half of last year. Do you believe that these shares now, something like 84 million of them, which went into Bidvest hands in December, came from those shares that were available as much as six months ago?

Gidon Novick:
I was not privy to the exact deals, but it could well be and it basically leaves us, I was just doing a little graph on the shareholding base and we have got quite an interesting shareholding base, not only Bidvest, but British Airways also holds a big chunk of the company, around 14 percent and management are pretty heavily involved. And then we obviously did the BEE deal in the middle of last year which took up a chunk of shares as well.

Bruce Whitfield:
And your BEE shareholders; just remind me how many shares do they hold?

Gidon Novick:
That is a company called Thelo Consortium headed up by Ronnie Ntuli and that is 16 percent of the company.

Bruce Whitfield:
Which does not leave very much in the free flow, which possibly explains why people who have been wanting shares in the last couple of weeks have actually had to pay up quite aggressively for those?

Gidon Novick:
Yes, that could well be. If you look at the trading volumes, they have not been huge at those levels.

Bruce Whitfield:
There was something like 55 000 shares changing hands today, you closed at R2.97, but in July last year, this was a share price that was at R1.30.

Gidon Novick:
Yes, it has been amazing. We try not look at the share price. We, to be honest with you, have not looked at it for many years and have just got on with the business.

Bruce Whitfield:
And for many years, there has not been this much activity in the share price.

Gidon Novick:
Exactly, but it has been interesting to follow.

Bruce Whitfield:
Absolutely. I was talking to the Financial Director of Bidvest today, David Cleasby, he did not want to elaborate on the deal, because Bidvest in a closed period, but in previous cases, where Bidvest has made investments, minority stakes in companies like for example Tiger Wheels and there are others, Enviroserv, they have actually gone onto the boards of those companies and actually had a say in how those companies are run. Have you had any discussions of that kind yet?

Gidon Novick:
No, nothing at that level. So no representation on the board.

Bruce Whitfield:
Do you have any idea what they paid for their stake?

Gidon Novick:
Not really Bruce, again, my job is to run the company, I am not sure what goes on with the shares that change hands.

Bruce Whitfield:
It is an interesting one, one we are going to watch with a great deal of interest into the future, because with Bidvest’s involvement, no doubt the market is having a look at this and saying, if it is good enough for Brian Joffe, perhaps it is good enough for the rest of us as well and it is quite a strong expression of confidence in the future of Comair, one would think?

Gidon Novick:
Yes, I must say, we don’t know a lot about Bidvest and we would certainly like to learn a lot more there. They seem to be a fabulously successful company and it would be good to get to know them a bit better.

Bruce Whitfield:
If you just pick up their annual report as I did today Gidon, you actually realise how hard it would be if you tried to avoid Bidvest on any given day. It would be very, very difficult to do; they are very entrenched in the South African economy. One of the sellers last year was British Airways; they had 18 percent, and they are down to 14 percent now. Is that ominous at all, is there any discussion that perhaps British Airways is looking to get out?

Gidon Novick:
No not at all, our relationship with BA is on two levels: the one is the shareholding which they got into around about six or seven years ago and the main relationship is really the franchise and we have been going now for almost 10 years and I must say, we have become very, very dependent on each other in that time. We had an initial term with them on the agreement of 10 years, so we are coming up for renewal and we are looking to renew that for at least another 10 years so that we can continue with that.

Bruce Whitfield:
A little birdie tells me those talks are ongoing at the moment.

Gidon Novick:
Yes, it is quite a complex relationship. We are a tiny company compared to BA in the UK and it is a fantastic company to deal with on one level in terms of the resources and the access that it gives us. On another level, it is quite difficult in light of the speed in which things work, relative to how we work.

Bruce Whitfield:
What about the relationship with British Airways? Does it impact you at all that their cabin staff are threatening to go on strike at the moment? They had massive hassles in December with baggage handling and all sorts of difficulties. Those sorts of issues are completely separate from you?

Gidon Novick:
Yes, indirectly in a small way. We obviously take a lot of their travellers that come in from the UK, so hopefully there won’t be any disruption to those flights. And then, I guess just from a perception point of view, or a PR point of view, we have got to make it very clear that there is going to be no disruption to BA, Comair flights.

Bruce Whitfield:
What about the oil price? We have seen it under a huge amount of pressure. That has got to be good news for you? Is it really counting in your favour in terms of your hedging strategies, because I would assume, when oil hits $78 a barrel in July last year, you would have had a close look at your hedging strategies in terms of the oil price?

Gidon Novick:
Well here is the dilemma Bruce; you know, the oil price down to $50, do we take a hedge now and lock in a price for the future and that is a tough call that we have got to make. Is $50 the bottom? Is it going to go to $40? Is it going to retreat back to $60? Who knows, so the hedging is a bit of guess work. The strategy that we are adopting on the hedging is just to take a chunk of our exposure and hedge that and certainly not hedge the full exposure, so that if there is a spike either way, we can just smooth it out a bit.

Bruce Whitfield:
What percentage of your requirements would you hedge?

Gidon Novick:
At the moment we are looking at about 25.

Bruce Whitfield:
Okay, so it is not the vast majority. You don’t anticipate any big shocks in the oil market in the short term.

Gidon Novick:
We don’t, but again, at $50, looking as where it has been in the last couple of years, it is tempting to take out a bit more.

Bruce Whitfield:
There is a question that comes on our sms line; Craig saying when are you going to launch a Durban, Lanseria route? The last time I spoke to your colleague Erik Venter, he was saying the Cape Town, Lanseria route was working very well.

Gidon Novick:
Yes, Durban is coming soon, our guys are working on it. I would like to say March, but I am not 100 percent sure, but it is definitely in the pipeline, so please hang in there Craig.

Bruce Whitfield:
And there are also a couple of questions around the issues of other routes as well. Recently you opened up a route to Mauritius as well. That was pretty much sewn up by SAA and Air Mauritius in the past?

Gidon Novick:
Yes, as are so many routes Bruce, particularly around the neighbouring countries within Africa, so much protectionism, so little competition on so many of those routes and the Mauritian government last year took the bold decision of opening up the air routes to us and it has been a fabulous success. We don’t have many flights, we have just got a couple of flights a week.

Bruce Whitfield:
Are you filling those up?

Gidon Novick:
We are, mostly with leisure package tour business which is something relatively new for us and we are working very closely with the tour operators. We are also quite conscious of the seasonality unit. The kind of route that over the December period, for example, you cannot get enough capacity and it does spoil off quite dramatically in the off seasons. So we are going to watch it carefully. But just in terms of getting further into Africa and the Indian Ocean Island, it is a big step forward for us.

Bruce Whitfield:
Gidon Novick, we will leave it there, the joint chief executive of Comair. Thanks for your time this evening. The news today revealed here is that Bidvest has acquired 20 percent of Comair, watch that story with a huge amount of interest.