UNITED KINGDOM: Fastjet In Financial Trouble, Fastjet In $10m Capital Search

Low-cost African airline Fastjet could effectively go out of business if further funds are not found from its shareholders and investors.

The troubled airline set up by easyJet founder Sir Stelios Haji-Ioannou, flies in several African countries including South Africa, Tanzania and Zimbabwe but has been in financial trouble for some time and withdrew its flights from Kenya in 2016.

It lost an average of $50m a year up until 2016 and has yet to file its 2017 results, which have to be published by Friday for it to remain listed on London’s AIM exchange

The company now says that if no new funds emerge, Fastjet may not be able to continue trading as a going concern.

The result was that within hours of the announcement Fastjet lost more than two-thirds off the value of its shares in a matter of hours.

Whilst initial discussions with certain shareholders have been positive, discussions are ongoing and there can be no guarantee of a successful outcome, it warned on Wednesday.

The airline started operating in 2012 with the backing of easyJet’s founder but has continued to consume cash, and it now had just $3.3m in its reserves.

Fastjet launched in Tanzania with an ambition to become a pan-African low-cost carrier, but it has struggled throughout with problems.

Fastjet announced plans to raise new funds through a proposed capital raising to bring in $10m (£7.6m) to see off turbulence looming over its future.

The company said the funds should deliver enough working capital to keep it in the air for the rest of 2018.

The African airline said today it plans to raise $10m made up of a placing by way of an accelerated book build to raise $7m and a subscription by its largest shareholder, South African airline Solenta Aviation.

The company also plans to raise up to £1.6m by way of an open offer made to qualifying shareholders.

Shares soared on the news after nosediving earlier this week.

Solenta Aviation boss Mark Hurst will join the board of Fastjet from 2 July as a non-executive director to work with the carrier's chief executive Nico Bezuidenhout.

Bezuidenhout said: 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.

Around half of the net proceeds raised will be allocated to support the working capital requirements of Fastjet's Zimbabwe and Mozambique operations, and repayments of certain loans, with the balance then used to support operations in Tanzania and for the launch of services in South Africa.

The news came after the airline's shares slumped earlier this week on the warning that should it be unable to reach an agreement with shareholders over new funding, it could cease trading.

Today, Fastjet said there were a number of challenges over last year but it delivered a significant reduction in its underlying cost base with operating costs slashed by nearly half.

The airline reported a $25.3m group operating loss - though that was down on the year before's $65.6m total. Revenues fell from $68.5m to $46.2m for the year ended 31 December 2017.

It did noted some unexpected headwinds over the course of the year including greater than expected accumulation of restricted cash in Zimbabwe, an unforeseen engine event, and the late entry of two aircraft in Tanzania due to regulatory delays which had a financial impact of around $5m on revenue.

This month is expected to be the most challenging in terms of financial headroom for the company, with Fastjet saying the capital raising announced today should provide adequate headroom for the rest of the financial year.

Looking further ahead, it plans to look into financing and possibly joint venture options in South Africa to support its push there.


Tourism Observer

MOZAMBIQUE: Aviation Industry To Improve

Fly Blue Crane recently announced plans to service Mozambique and is currently awaiting its foreign operator permits. The airline has been granted 14 frequencies a week between Johannesburg and Maputo and is expected to announce a launch date shortly.

“This is very good news for hotels and operators/travel agents who book Mozambique, provided the rates are good,” said Karin Sieberhagen from Serena Hotels.

Natalie Tenzer-Silva from Dana Tours said a low-cost carrier was needed to fly into Maputo. “We would welcome the arrival of any carrier that would offer competitive rates to boost the tourism market to Mozambique.”

However, Fly Blue Crane CEO, Siza Mzimela, said the Maputo route would require careful planning because the airline had been restricted to 400 seats a week on the route.

Restrictions in air access and high-priced flights have led to a decline in tourism to Mozambique, but tourism suppliers hope that the recent announcement by Fly Blue Crane will provide cheaper flight options to the destination.

Another factor cited by members of the trade as one of the things holding back tourism growth is protectionism.

South African airline operators have faced cabotage enforcement in Mozambique that has led to a decline in tourism business in the destination. “Any foreign airline or foreign carrier can only fly into one destination,” explained Brian Holmes, MD of Solenta Aviation Mozambique. The cabotage restriction prevents any commercial operators from flying to multiple destinations, for example to Vilanculos via Maputo.

“One of the effects from the enforcement of cabotage that we’ve seen, is that there’s a decline in business overall from a tourism perspective because it does make Mozambique an expensive destination,” said Holmes.

Federal Airlines used to operate scheduled flights from both Johannesburg and Kruger to Vilanculos. “We stopped that about three-and-a-half years ago and now our flights to Mozambique are on a private charter basis, which we provide as and when required,” said Nik Lloyd-Roberts, the airline’s Commercial Manager.

He said an increase in competition also contributed to the termination of scheduled flights.

“The route became unprofitable for us.” On future plans to service Mozambique, he said: “Unless they lift their foot off the cabotage there are no immediate plans from our side.”

Holmes said: “We’re not asking for anything more than what South African operators would be up in arms about if we did the same in South Africa.”

While local South African charters do have the disadvantage of cabotage, they do have some advantages. Holmes said South African operators did not pay the 14% VAT on charter flights nor a 10% withholding tax that Mozambique operators had to pay. Local operators in Mozambique are at a 24% disadvantage on local charters compared with South African operators, who come out cheaper.

Tenzer-Silva added that another challenge was the international ban on Mozambique-registered aircraft.

“This means that international travellers from certain European countries are not permitted to fly on any carrier registered in Mozambique because their insurance will not cover them. SA Airlink, being South African registered, offers an alternative to these travellers, however they do not service the domestic routes in Mozambique.”

According to Tenzer-Silva, Mozambique needs to be marketed as a stand-alone destination.

“Affordable and reliable air travel is a vital component, otherwise we are pricing ourselves out of the market.”

Currently Airlink operates flights from Johannesburg to both Pemba and Vilanculos on Mondays, Tuesdays, Wednesdays, Fridays and Saturdays.

Airlink also operates flights from Johannesburg to Beira, Nampula and Tete and from Durban to Maputo.

SAA offers flights to from Durban and Johannesburg to Maputo.