fastjet Plc: Trading Update and Restructuring Proposal
fastjet, the low-cost African airline, is today providing an update on trading, a proposed restructuring of the Group, and clarity on the liquidation order of fastjet Airlines Ltd (Tanzania airline).
Revenue for the ten-month period ended 31 October 2019 is US$34.1m* (comparative period 2018: US$ 28.3m*). On 21 October 2019, fastjet announced the suspension of flight operations in Mozambique which due to the ongoing supply and demand challenges in Mozambique had seen revenue in this country reduce to c.US$2m in H1 2019 (H1 2018: c.US$4m) and had resulted in continued losses of US$2.4m in H1 2019 (H1 2018: loss of US$2.7m).
Despite significant financial and operational improvements in performance, the Company continues to be loss making with management expecting a loss after tax of c.US$7m to US$8m for the full year 2019 (2018: loss of US$65.0m). While the Group's FedAir operation remains resilient and is expected to be profitable for the year, this has been off-set by the continued volatility and uncertainty in the Zimbabwean market. fastjet Zimbabwe has increased its year on year revenue despite the difficult trading conditions following the introduction of a new currency which effectively devalued the existing currency by up to 15 times its previous value at official rates and has pushed inflation rates to above 200%.
As at 21 November 2019, the Group had cash reserves of US$3.0m with no restricted cash (30 June 2019: US$3.4m). Of the Group's US$ 3.0m, US$0.8m is in Zimbabwe and currently unrestricted.
On 22 February 2019 the Reserve Bank of Zimbabwe formally announced the introduction of a new domestic currency which effectively devalued its domestic US dollar denominated assets and liabilities including cash balances. At the same time, it introduced an interbank exchange rate of RTGS$ 2.500 = US$1.00.
Since March 2019, due to the above changes, the RTGS$ to US$ exchange rates via interbank market have devalued significantly from the starting RTGS$2.500 to a current interbank market mid-rate of RTGS$ 16.11 as of 22 November 2019. This has driven a significant domestic inflation running to over 200%.
Capital requirements and restructuring proposal
The Board expects further funding will be required by the end of February 2020 to enable the Group to continue operating in its current form.
The Group is therefore currently in active discussions with certain of its major shareholders to explore various options including raising equity capital and / or a restructuring of the Company involving the disposal of fastjet Zimbabwe (the "Disposal"). The Disposal would be made in receipt of a consideration of approximately US$8m from a consortium that would be led and underwritten by Solenta Aviation Holdings Limited (c. 60% shareholder in fastjet Plc today) and additionally by other local investors in Zimbabwe (the "Investor Consortium"). The Disposal would also relieve the Group of c.US$5.4m of current liabilities and c.US$3.2m of future aircraft capital expenditure which will be raised and funded by the new Investor Consortium directly. In addition, the Group would be granted an option to buy back its shareholding in fastjet Zimbabwe on the same divestment economics to which it would be sold, 3 to 5 years after the effective date of the sale.
The capital received from the Disposal would be utilised to settle the remaining current Group liabilities and for future working capital within the Group providing sufficient funding into FY2021. Upon completion of the restructuring, the Group would then consist of the FedAir business, the fastjet Brand and fastjet Africa (which incorporates the fastjet Central Systems business unit) and which also owns fastjet Mozambique. The Group would be contracted by fastjet Zimbabwe to continue providing the fastjet brand and airline management services.
The restructured Group would become a capital light business operating as a franchise house that would earn revenues through the fastjet brand and providing airline management solutions, whilst also continuing to hold its investment in the FedAir business. The Group's strategy is to focus on franchise and providing airline management solutions to additional airlines in Africa that are independently owned, enhancing its overall revenues from these. Additionally, the Group would aim to only own airlines once they were cash generative and profitable, so avoiding the initial costs and significant cash losses through the airline startup phase and from operating in Africa's sometimes uncertain trading environment.
Whilst initial discussions with the Investor Consortium and the Group's major shareholders have been positive about the restructuring proposal, discussions are ongoing and there can be no guarantee of a successful outcome.
The Directors believe, based on current financial projections and funds available and expected to be made available, that the Group will have sufficient resources to meet its operational needs until February 2020. Accordingly, the Directors continue to adopt the going concern basis for the business. However, the headroom of available cash resources is minimal, and the projections are very sensitive to any assumptions not being met. If the Group is unable to carry out the restructuring proposal by the end of February 2020 it would be unable to continue trading as a going concern.
Update on E190 aircraft
One of the E190 aircraft which used to be leased from GECAS has yet to be deregistered by the Tanzanian authorities. Deregistration of the aircraft was due to be completed by 28 February 2019 and is the last remaining condition for the termination of the head lease agreement with GECAS but has not yet been satisfied. Fastjet Airlines Ltd applied for the deregistration of the E190 with the Tanzanian authorities who have yet to deregister the aircraft. In our opinion the Group has done everything necessary to allow de-registration of the aircraft.
Fastjet Airlines Ltd - Tanzania airline operation
On 26 November 2018 the Group sold its shares in fastjet Air TZ (BVI) Limited ("fastjet Air TZ") which held 49% of fastjet Airlines Ltd ("fastjet Airlines"), the Group's Tanzanian airline operation. Since that date, fastjet Air TZ (BVI) Limited and its subsidiary, fastjet Airlines Limited (the airline), no longer form part of the Group.
fastjet Airlines was recently placed into liquidation following a creditor application to the Tanzania courts. For clarity, this liquidation order does not relate to the Company or Group itself and is restricted to divested fastjet Airlines.
Mark Hurst, fastjet Chief Executive Officer, commented:
"The Disposal, if agreed, approved and implemented, would be expected to de-risk the significant uncertainty and cash drain that shareholders have historically suffered and allow the Group to continue operating under a more stablised and simpler business model. This revised strategy allows the Group the opportunity to create a single fastjet brand throughout key markets in Africa, leverage its key intellectual property of its brand and airline management solutions and invest in viable, already-established airlines where it can."
A further update will be made as appropriate.