Fastjet – flying into clear air or more turbulence?

TANZANIA PUTS FASTJET (T) INTO LIQUIDATION AS FASTJET (Z) MAY SEE OWNERSHIP CHANGES

(Posted 27th November 2019)

Tanzanian authorities are driving the last nail into the coffin of Fastjet (Tanzania) as the liquidation of the company has now reportedly been ordered.
While national airline Air Tanzania lingered on the ground, debt ridden, mismanaged and without much operational capacity to fly, was Fastjet (Tanzania) most welcome to revive and drive air transport.
However, in line with the best tradition of past economic decisions taken, when Fastjet (Tanzania) had served its purpose did the hammers – notably plural – begin to fall on the company as ATCNews had repeatedly reported about in the past.
Regulatory bodies appeared to have been used to accomplish a political agenda, to remove an unwanted competitor from the Tanzanian skies, when Air Tanzania was provided with a new fleet, new management and new orders to perform or else. While this should not be too difficult for competent management, given that the playing field was tilted in their favour, are the signs though that the airline is again stacking up losses.

Besides information that liquidation has been ordered did additional fact come to light through a regulatory announcement Fastjet PLC made in London, that an Embraer owned by leasing company GECAS, which once upon a time was due to be deployed in Tanzania to replace the ageing and expensive to fly Airbus A319, has still not been deregistered by Tanzanian aviation authorities in what appears to be a clear breach of international convention.
Said Fastjet PLC in their filing: ‘One of the E190 aircraft which used to be leased from GECAS has yet to be deregistered by the Tanzanian authorities. Deregistration of the aircraft was due to be completed by 28 February 2019 and is the last remaining condition for the termination of the head lease agreement with GECAS but has not yet been satisfied. Fastjet Airlines Ltd applied for the deregistration of the E190 with the Tanzanian authorities who have yet to deregister the aircraft. In our opinion the Group has done everything necessary to allow de-registration of the aircraft.’
Added Fastjet PLC about their former Tanzanian operation: ‘Fastjet Airlines Ltd – Tanzania airline operation
On 26 November 2018 the Group sold its shares in fastjet Air TZ (BVI) Limited (“fastjet Air TZ”) which held 49% of fastjet Airlines Ltd (“fastjet Airlines”), the Group’s Tanzanian airline operation. Since that date, fastjet Air TZ (BVI) Limited and its subsidiary, fastjet Airlines Limited (the airline), no longer form part of the Group
.’
It all smacks of intense vindictiveness and should serve as a pointer for any foreign company considering investments in the aviation sector – but also other sectors of the economy – in Tanzania. What happened to Fastjet (Tanzania) can no doubt equally happen to others.

Meanwhile has Fastjet PLC in their most recent regulatory notification – the company is listed at the London Stock Exchange and as such subject to disclosure notifications – also spoken out about their Zimbabwean operation when they announced: ‘Despite significant financial and operational improvements in performance, the Company continues to be loss making with management expecting a loss after tax of c.US$7m to US$8m for the full year 2019 (2018: loss of US$65.0m). While the Group’s FedAir operation remains resilient and is expected to be profitable for the year, this has been off-set by the continued volatility and uncertainty in the Zimbabwean market. fastjet Zimbabwe has increased its year on year revenue despite the difficult trading conditions following the introduction of a new currency which effectively devalued the existing currency by up to 15 times its previous value at official rates and has pushed inflation rates to above 200%.’
The statement then added: ‘The Board expects further funding will be required by the end of February 2020 to enable the Group to continue operating in its current form.
The Group is therefore currently in active discussions with certain of its major shareholders to explore various options including raising equity capital and / or a restructuring of the Company involving the disposal of fastjet Zimbabwe (the “Disposal”). The Disposal would be made in receipt of a consideration of approximately US$8m from a consortium that would be led and underwritten by Solenta Aviation Holdings Limited (c. 60% shareholder in fastjet Plc today) and additionally by other local investors in Zimbabwe (the “Investor Consortium”). The Disposal would also relieve the Group of c.US$5.4m of current liabilities and c.US$3.2m of future aircraft capital expenditure which will be raised and funded by the new Investor Consortium directly. In addition, the Group would be granted an option to buy back its shareholding in fastjet Zimbabwe on the same divestment economics to which it would be sold, 3 to 5 years after the effective date of the sale.
The capital received from the Disposal would be utilised to settle the remaining current Group liabilities and for future working capital within the Group providing sufficient funding into FY2021. Upon completion of the restructuring, the Group would then consist of the FedAir business, the fastjet Brand and fastjet Africa (which incorporates the fastjet Central Systems business unit) and which also owns fastjet Mozambique. The Group would be contracted by fastjet Zimbabwe to continue providing the fastjet brand and airline management services.
The restructured Group would become a capital light business operating as a franchise house that would earn revenues through the fastjet brand and providing airline management solutions, whilst also continuing to hold its investment in the FedAir business. The Group’s strategy is to focus on franchise and providing airline management solutions to additional airlines in Africa that are independently owned, enhancing its overall revenues from these. Additionally, the Group would aim to only own airlines once they were cash generative and profitable, so avoiding the initial costs and significant cash losses through the airline startup phase and from operating in Africa’s sometimes uncertain trading environment
.’
Should this go ahead, would Solenta Aviation from South Africa, as has previously been the case, become the principal force behind the Fastjet brand which rollout into South Africa is still on the drawing board for either 2020 or 2021.

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