The new pan-African low-cost carrier being developed by easyJet founder Stelios Haji-Ioannou, FastJet, took a step close to becoming a reality last week after investment business Rubicon acquired control of existing African turboprop operator Fly540 from its parent Lonrho Aviation. Although the two businesses will initially operate as separate entities, the purchase will provide the means for the budget operator to launch operations at an accelerated timescale, with first flights set to commence as early as September this year.
Details about the new business first emerged late last year after Stelios Haji-Ioannou, who has had a long-running feud with various senior managers at easyJet, revealed plans to launch a new low-cost carrier. With ambiguous initial information the media was quick to claim the start-up would rival easyJet, but it has always been the intention of the operator to fly in emerging markets where the budget airline model is still in its infancy. In February 2012, Rubicon Diversified Investments, a linked in acquisition vehicle, announced it was in discussions to acquire Fly540 and a deal has now been agreed in principle pending final shareholder approval.
Fly540 has attempted to develop a low-cost model in Africa with entities in Kenya, Tanzania, Ghana and Angola but these are much smaller in scale than similar operators in other continents and have been exclusively flying with regional turboprop equipment. FastJet plans to take this to a new dimension by taking over many of Fly540’s primary routes and introduce larger 150-seat jets, most likely in the form of Airbus A319s, which are available in the second-hand market on operating leases. It is understood to be currently in final negotiations to acquire aircraft ahead of its launch, now slated for the final quarter of this year.
Rubicon's shareholders are expected to formally approve the Lonrho Aviation acquisition later this month, after which time EasyGroup will appoint Stelios to the Board and former Go Chief Operating Officer, Ed Winter, now a consultant on the project, will be appointed Chief Executive Officer of the start-up venture. At this time Rubicon will hold a 99 per cent share in Fly540 Kenya; 92.5 per cent in Fly540 Ghana; 90 per cent in Fly540 Tanzania and 60 per cent in Fly540 Angola.
Lonrho Aviation’s involvement with air transport in Africa began when, in October 2006, it subscribed for 49 per cent of the issued share capital of Fly540 Kenya for a cash consideration of US$1.5 million. At the time of acquisition, Fly540 Kenya provided some freight services from its base in Nairobi, and was seen by Lonrho as a base from which to grow a new passenger airline, initially in Kenya. The airline launched passenger operations in November 2006 initially on the trunk route between Nairobi and Mombasa and added a service to Kisumu from the capital in January 2007, with Malindi, Lamu, Kitale, Lodwar and Eldoret and international operations to Entebbe, Dar Es Salaam, Zanzibar and Juba following. This venture works closely with the Tanzanian business which offers links from Dar Es Salaam to Arusha, Mtwara, Mwanza and Zanzibar.
Operations extended into Angola in January 2011 with operations between Cabinda, Soyo and Luanda, while Ghanaian services began in December 2011 with one aircraft servicing routes between Accra, Tamale, Takoradi and Kumasi. This roll-out has established three strategic pan-African hubs, giving the Lonrho Aviation Group a network spanning West, East and South-West Africa. A Ugandan string of the business was discontinued in December 2011 and Lonrho Aviation’s interests in this market were disposed of earlier this month and therefore do not form part of the Rubicon acquisition.
Commenting on the relisting of Rubicon Diversified Investments and the reverse takeover by Lonrho Aviation, easyGroup chairman Sir Stelios Haji-Ioannou said: “This is another small but significant step in bringing the dream of low cost air travel to millions of people in Africa – the aviation industry's last frontier. Past experience shows by halving fares, a successful low-cost carrier can encourage those people, who have never previously travelled by air, to fly. For Africa, with its densely populated cities separated by great distances - this means a potential new market of millions.”
On May 8, 2012, Rubicon announced a 10-year brand licence agreement with easyGroup whereby Rubicon acquired exclusive rights to the Fastjet brand, conditional on the reverse takeover by Lonrho Aviation. As part of the agreement, easyGroup will receive a royalty of 0.5 per cent of revenues, shares equating to 5 per cent of Rubicon's issued share capital and an option to acquire a further 10 per cent at a price equal to a 30 per cent premium to the price of the last fundraising by the Company. easyGroup will also provide consultancy services to Rubicon throughout the 10-year term.
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