/ 28 June 2013

Fastjet defends Zuma family link

Fastjet boss Ed Winter says it needs influential connections more than aviation experts.
Fastjet boss Ed Winter says it needs influential connections more than aviation experts.

London Stock Exchange-listed Fastjet, a potential but tentative new entrant into the South African aviation industry, has found itself constantly in local headlines over the past few months, first because of its unsuccessful efforts to rescue 1time and then for its choice of business connections, including Edward Zuma.

Its decision to concentrate on routes from Tanzania rather than on establishing domestic South African routes has also not been well received. But, Fastjet said its operational decisions had to do with regulatory hurdles and it was already well established with crew and aircraft in Tanzania.

On the controversy surrounding Fastjet's business connections, the airline's chief executive, Ed Winters, speaking to the Mail & Guardian, said business and political connections were vital in any country if operations were to succeed.

"We don't need people in airlines, we are experts in aviation, what we need is people in local business and politics. We need people with the knowledge, influence and ability to understand the local landscape [in order] to match our aviation capabilities."

Fastjet first announced its involvement with Blockbuster Investments in April. The directors include Edward Zuma (President Jacob Zuma's son), Yusuf Kajee and Paul de Robillard.

Zuma reportedly owes millions of rands in outstanding bills, and Kajee together with de Robillard — according to a Moneyweb report — are allegedly linked to tobacco smuggling through a South African Revenue Services investigation.

In its announcement in April, Fastjet said it had created Fastjet Holdings, an investment vehicle 75% owned by Blockbuster and 25% owned by Fastjet. The announcement attracted criticism in several media reports, as well as in a statement from competitor-to-be Comair.

But this investment vehicle has no bearing on whether Fastjet can operate domestic routes in South Africa.

South Africa's Air Services Licensing Act limits foreign shareholding in that 75% of voting rights have to be held by residents of South Africa, but Federal Air, Fastjet's local aviation partner, already holds the relevant licences to operate domestic routes and to do so under the Fastjet brand too.

"We have concluded a franchise agreement … there is no need for Blockbuster in our agreement," said Brad Dickson, Federal Air's commercial manager.

Kyle Haywood, the spokesperson for Fastjet South Africa, agreed: "For another airline like Federal Air, which is wholly South African owned, to be operated under the Fastjet brand, the creation of an investment vehicle technically isn't necessary."

Haywood explained that the investment vehicle was set up so that should Fastjet wish to acquire a stake in a local airline in future, the correct structure would be in place.

An exemption to the 75% shareholding requirement could be provided only in exceptional circumstances, said Andries Ntjane, the department of transport's deputy director of licensing and permits.

Fastjet first featured in South African headlines at the end of 2012, when it swooped in to save failing low-cost carrier 1time.

But when a deal could not be struck, the company decided to leverage on the existing media exposure and partner with Federal Air with the aim of launching a Johannesburg to Cape Town route in March 2013. However, the deadline was pushed back to July and later put on the back burner.

Ntjane said an application for exemption was submitted by 1time earlier this year to include Fastjet as a shareholder, but it "did not meet the requirements for effective control of operations and the liquidity of the company was still not addressed".

He said it was common throughout the world to limit domestic operations to local residents. In the European Union, the limit was 50%, while in the United States, it was 75%.

"It does not restrict new players from entering the market, but protects the domestic aviation market to ensure that the entry of foreign nationals is regulated for the effective control of air-services operations."

Despite the hullabaloo, Fastjet, branded as "Africa's low-cost airline", remains Tanzania's low-cost airline for now, operating four routes in the country.

But Winter said the real issue behind Fastjet's slower-than-expected takeoff in other African states was the level of protectionism of African governments. Bilateral agreements and other regulatory hurdles had taken more time than expected.

Earlier this month, however, the carrier was granted permission to launch international flights from Tanzania to South Africa, Zambia and Rwanda, "marking a major step towards establishing the first-ever pan-African, low-cost network," it said.

And, while Winter said establishing these routes would be the next priority, he noted that Kigali was not a viable route at present as a result of the costs associated with the ground handling services provided by state-owned RwandAir.

It's these hurdles which appear to have made the idea of franchising the brand the most practical.

Fastjet, in which Lonrho is a majority shareholder with a 44% stake, acquired the listed company's aviation division, known as Fly540, in June last year, with hubs in Kenya, Ghana and Angola still operating under the Fly540 brand.

On its website, Lonrho said it had completed its investment in the aviation sector, was no longer involved in the day-to-day management and that Fastjet had implemented its own self-funded strategy for development.

Winter said the company would be happy to take on local partners in each African company in which it operated, as long as Fastjet had some degree of control over quality.

Asked if franchising, or attracting local partners was Lonrho's way of getting out of the aviation business, Winter said: "No, it's a way of dealing with the environment we're operating in. The only way to create this pan-African brand is to create a franchise."

On the radar
Fastjet has had South Africa on its radar from the very start, Winter said. But it would not have sought to enter the market when it did had it not been for the opportunity 1time presented.

Still, he believes there is a need in the domestic market for a third, independent, challenger. Since 1time's demise, ticket prices had gone up 30% and there was now a market duopoly between Comair (Kulula.com) and South African Airways.

Winter was hesitant to commit to a new timeline for South African routes, but did say it would make sense to try to catch the festive season.

He said the highest priority was to get the Dar es Salaam to Johannesburg and Dar es Salaam to Lusaka routes up and running, with domestic routes to follow.