10 MILLION US DOLLARS CAPITAL INJECTION BOOST FASTJET’S FORTUNES
(Posted 29th June 2018)
Following overnight negotiations between the top Fastjet management and shareholders has agreement been reached to inject additional capital into the company of not less than 10 million US Dollars.
Through other measures can an additional 2.1 million US Dollars be raised.
Highlights of the announcement made by the company earlier today in London were, among others:
Highlights:
· The funds to be raised are expected to provide the Group with sufficient working capital for the remainder of 2018. Further to the change of operational structure detailed below, 50% of the net proceeds raised will be allocated to support the working capital requirements of the Zimbabwe and Mozambique operations and repayment of certain loans with the balance used to support operations in Tanzania and for preparations for the launch of services in South Africa.
· In addition to Solenta, as fastjet’s largest shareholder, supporting the Capital Raising, it is intended that Mark Hurst, currently CEO of Solenta Aviation, will join the board of fastjet from 2 July 2018.
· Mr. Hurst will be appointed as a Non-Executive Director and will be working closely with CEO, Nico Bezuidenhout on an ongoing basis. Mr Hurst will also be responsible for the country management of the Group’s Zimbabwe and Mozambique operations. Going forward, the Company will manage its treasury requirements in line with this revised operational structure with all current and future assets, cash and liabilities of the Group’s Zimbabwe and Mozambique operations remaining within these entities, including, once repaid the recently announced loan swap of US$5 million made to Annunaki Investments (Private) Limited. This loan, together with the US$2 million loaned to fastjet by SSCG Africa Holdings, are anticipated to be reversed and repaid by December 2018.
· Fastjet experienced a year of stabilisation in 2017 and achieved a number of successes, despite ongoing challenges:
o a significant reduction in the underlying cost base – operating costs reduced by 47%, overhead costs reduced by 58%;
o rationalised routes and right-sized capacity to fastjet’s markets;
o Re-fleeting programme completed with benefits clearly visible;
§ Q4 2017 load factors improved by 17 percentage points year on year to 77%;
§ Q4 2017 unit revenue increased by 27% year on year;
§ fastjet now operates two Embraer E190 aircraft in Tanzania, two Embraer E145 aircraft between South Africa and Zimbabwe and an Embraer E145 in Mozambique; and
o bar exceptional items, cashflow breakeven was achieved for Q4 2017.
· The introduction of three ATR72 aircraft will occur in key markets during Q4 2018.
· The Company successfully launched operations in Mozambique in the second half of 2017 and entered into a licence agreement with Federal Airlines (Pty) Ltd (“FedAir”), creating a platform for expansion of the fastjet Brand into South Africa.
· Trading in Zimbabwe continues to improve with revenue increasing by 111% year to April 2018, and PAT improved by 43% year on year.
· Some unexpected headwinds were experienced in 2017:
o Q4 2017 unforeseen engine event: c.US$6.9 million adverse cash-flow impact (US$4.0 million cost and US$2.9 million lost revenue);
o US$2.5 million historic (pre-2017) debtors write-down;
o greater than anticipated accumulation of restricted cash in Zimbabwe; and
o late entry of the two E190 aircraft in Tanzania due to regulatory delays (c.US$5 million adverse revenue impact).
· The Company has taken measures to address its liquidity challenges:
o as announced on 5 April 2018, entered into a US$12 million loan facility with Solenta Aviation Holdings Limited to fund the exercise of the Company’s option over the three ATR72 aircraft with the balance to be used for general working capital purposes; and
o as announced on 5 June 2018, entered into loan swap agreements of US$5 million in Zimbabwe in order to make available US$2 million of the restricted cash held within Zimbabwe.
· June 2018 is expected to be the most challenging month in terms of financial headroom for the Group during the 2018 financial year. The Capital Raising announced today is expected to provide adequate headroom for the remainder of the financial year.
· The intention, beyond this current financing, is for the Company to explore financing and/or joint venture options in South Africa to support full scale entry into that market. As the largest aviation market in Africa, the Board believes that South Africa, particularly routes to and from Cape Town, is strategically important to fastjet, which can utilise the current FedAir platform as well as fastjet management’s relations and track record in the country. Further announcements regarding the Group’s expansion into the South African market will be made as appropriate.
· Trading in the year to date has been in line with market expectations, reflecting the impact of the Stabilisation Plan, a strategy announced in the Company’s Interim Results in September 2016. The Company is positioned to capitalise on the African aviation opportunity, with African GDP and aviation growth expectations in 2018 amongst the highest globally.
Nico Bezuidenhout, CEO, commented:
“Today’s capital raising will give Fastjet the adequate headroom it needs for the remainder of 2018. Although there were some unexpected headwinds in 2017, the Stabilisation Plan put in place by the Board has significantly reduced the cost base of the company and right-sized the business. Trading in the year to date has been in line with market expectations and the Company is now well-positioned to capitalise on future growth.”
Changes on the Board of Directors
The Company also announces the appointment of Mark Hurst as a Non-Executive Director of the Company, with effect from 02nd of July 2018.
Mr Hurst has significant aviation experience with particular expertise in fleet management, aircraft sourcing, operating and leasing, as well as the development and implementation of operational efficiencies throughout the aviation value chain. He is highly regarded in the African aerospace sector for his operational track record, his ability to drive strategic initiatives in challenging environments and his value and supply chain management. Having been born and lived in Zimbabwe for twenty eight years, he has extensive country knowledge and additionally drove the development of Solenta Aviation Mozambique.
The Board believes Mr. Hurst’s Director appointment will further strengthen the Fastjet Board and constitutes another important building block in Fastjet’s growth plan and the development of its business.
Mr. Hurst will continue to serve in his current role within the Solenta Aviation group as Group Chief Executive, whilst supporting Mr. Bezuidenhout and his team with operational and strategic input.
Rashid Wally, Chairman of Fastjet plc, commented:
“I am delighted to welcome Mark to the Board of fastjet. He brings with him a wealth of relevant industry experience and a strong track record of operating in the African aerospace sector that will be of great benefit to the Company.”
The late entry into service of the two Embraer E190’s in Tanzania, costing the company an estimated 5 million US Dollars in revenues, is in the opinion of aviation pundits and observers entirely to blame on the Tanzanian regulators, who already have egg all over their faces after denying Fastjet landing rights in Kigoma, as was reported here some time ago.
After the revelation of the immense cost of delaying the type certification for the Embraer E190’s must this therefore also be squarely laid at the doors of the Tanzanian regulators.
It has been suggested to this publication that the delay was out of ill will – question asked to those responsible WAS IT? – on one level and to please political masters who in their ideological mindset are still rooted in the command economy set up of the 1970’s when Tanzania was firmly in the camp of communist world powers and took economic decisions which the founding father of Tanzania, Mwalimu Julius Nyerere late in his life termed a ‘mistake‘. Again is the question asked to those thought responsible WAS IT?
Government, in their drive to revive Air Tanzania, clearly here lost all good sense and measure and their wish being the regulator’s command tipped the scales, against Kigoma – for now at least – and forcing a huge revenue loss on the airline.
This does speak volumes about the mindset of government vis a vis private enterprise and events over the past year in other economic sectors of the economy clearly paint a picture that must raise the hairs on the back of every potential investor in that country.
How this will play out, and if the likes of Precision Air and Fastjet will have a level playing field when the additional jets ordered for the national airline arrive and begin flying with load factors below break even, only time will tell – as will ATCNews.org …
