Thursday, 24 January 2013

Fastjet hits foreign ownership hurdle in South Africa

Fastjet is holding top-level talks with the South African government after several domestic carriers moved to block its acquisition of 1time Airline, citing foreign ownership rules.

The startup African low-cost carrier, which is backed by EasyJet founder Stelios Haji-Ioannou, had signed an option agreement to acquire South Africa's 1time in December 2012, one month after the latter entered provisional liquidation.

Fastjet had planned to resume operating "up to three" of 1time's 12 Boeing MD-80s if the deal could be finalised, as well as reinstating hundreds of employees. The 1time brand would then be phased out as Fastjet aircraft came on stream.

However, it emerged on 23 January that at least three local carriers - state-owned South African Airways (SAA); its low-cost subsidiary Mango; and British Airways affiliate Comair - are now pressuring South Africa's Air Services Licensing Council (ASLC) to block the acquisition.

"Mango has no objection against any new market entrant in principle," the SAA subsidiary tells Flightglobal. "What we do object to is the flouting of South African law as it pertains to aviation and business ownership vis-à-vis proposed 75% foreign ownership."

Under South Africa's Air Services Licensing Act, foreign ownership of domestic carriers is capped at 25%. This is to avoid giving foreign companies influence over the country's bilateral route negotiations - seen as an issue of national sovereignty.

But speaking to Flightglobal in London this week, Fastjet operations director Rob Bishton emphasised that the licensing act gives the transport ministry discretion to grant exemptions.

"It's an ownership discussion, which is ongoing," he affirmed. "We need to understand the detail around what we would inherit. Ninety percent of the negotiations [with 1time's creditors] are squared, and it purely comes down to this one issue of foreign ownership restrictions.

"It's not an unusual restriction around the world. There are plenty of airlines owned by UK-based PLCs that manage to sit down across the table and negotiate what that [ownership structure] needs to look like."

He described the tone of talks with the South African government as "supportive, very open and transparent", but declined to confirm what percentage stake Fastjet is seeking. "We're not going to be unreasonable," he insisted. "The negotiations are very constructive."

The ASLC will convene in February to hear arguments for and against the acquisition of 1time. In lieu of a final decision by the government, Bishton says the airline will proceed with plans for a new route linking the Tanzanian capital Dar es Salaam, Fastjet's operating base, with the South African city of Johannesburg.

"While we continue those negotiations over 1time, we intend to put a Fastjet [Airbus] A319 in and out of Johannesburg regularly, so our brand is there on the ground in South Africa," he confirmed.

"We expect to understand the position on Johannesburg before any of the other international routes," he said, adding that designations are being sought for 10 overseas destinations. These include Kigali in Rwanda, Lilongwe in Malawi, Harare in Zimbabwe, Entebbe in Uganda, Lusaka in Zambia, Juba in South Sudan, and Moroni in the Comoros Islands.

Fastjet launched operations in November 2012, initially deploying a fleet of three A319s on a pair of domestic Tanzanian routes. Its business plan envisages rapidly scaling up operations to become a point-to-point operator across the continent.

If the airline and the South African government can agree on mutually acceptable terms for the 1time acquisition, Bishton says Fastjet will reinstate as many laid off workers as possible.

"We will retain the skillset we need to start the organisation, and certainly a lot of key posts," he said. "We want to focus on locally based people, and people that have been within the organisation."

However, he acknowledges that operational differences between the two carriers' respective business models would see a significant number of jobs shed at 1time - which had employed 520 staff, including 74 pilots and 124 cabin crew.

"They did an amount of their own front-of-house airport work. They even did their own catering," he noted. "So restructuring would certainly need to take place. We would work as best we can to retain as many staff internally, but it has to fit the model. We outsource engineering and ground handling."

Plans to operate up to three of 1time's 12 MD-80s would also be re-evaluated if talks drag on for longer than three months, he said, as 1time's air operator's certificate could be amended to include A319s during this time.