--easyGroup-backed investment company buys Lonrho's African
airline assets
--Rubicon acquires Lonrho's aviation business for $85.7
million
--Lonrho will hold a 73.7% share in Rubicon; easyGroup will own
5%.
(Adds analyst comment in 10th, 11th, and 12th paragraphs and
background detail)
By Simon Zekaria
LONDON--Airline entrepreneur Stelios Haji-Ioannou's easyGroup
has taken a key step toward launching the first pan-African
low-cost carrier, dubbed Fastjet, to tap growing demand for
international travel in the continent's fast-growing economies.
EasyGroup has tied up with Rubicon Diversified Investments, a
London-listed investment company, that on Wednesday said it has
acquired the aviation business of Africa-focused conglomerate
Lonrho for $85.7 million in an all-share deal. Lonrho will hold a
73.7% share in Rubicon's enlarged share capital.
EasyGroup, which runs ventures from car hire to hotels and gym
membership and first said it would invest in Rubicon last December,
will receive a royalty from Rubicon in return for the initial 5%
investment, managerial advice, and use of the fastjet.com name.
Rubicon said Fastjet will use the existing route network of
Lonrho's airline, currently operating as Fly540, in Kenya,
Tanzania, Ghana and Angola as a platform for expanding in West
Africa before adding more destinations.
"We think it is an optimum time to go into Africa with the
low-cost model," said Fastjet Chief Executive Ed Winter, previously
the chief operating officer of easyJet PLC (EZJ.LN), the budget
airline Mr. Haji-Ioannou founded in 1995.
Easyjet, in which Mr. Haji-Ioannou's family remains the single
biggest shareholder, has become Europe's second largest budget
carrier by passenger numbers after Dublin-based Ryanair Holdings
(RYA.DB).
Travel across Africa is still dominated by long bus and rail
journeys, Mr. Winter said. "The market is amazingly under served.
It is the last frontier for aviation," he said.
Political uncertainty in many African countries, where transport
infrastructure is often in a poor condition and incomes remain low,
might make it harder for Mr. Haji-Ioannou and his fellow investors
to match easyJet's success in Africa.
"Despite the best efforts of [Lonrho], the airline business has
tended to be a source of disappointment," said Damian McNeela, an
analyst at brokerage Panmure Gordon. Lonrho's aviation business,
which reported total assets of $83.5 million at Dec. 31., made a
loss after tax of $19 million last year.
Lonhro blamed the losses predominantly on start-up costs but
Andrew Charlton at the Geneva-based Aviation Advocacy said Fastjet,
like rival airlines, will encounter the same infrastructure
problems which have long stifled African air travel.
"First, there are not very many airports and they are not as
efficient and well-resourced [as in other parts of the word].
Secondly, it is often quite difficult to get to the airports which
makes the catchment area quite restricted," Mr. Charlton said.
Safety issues related to a lack of skilled staff for air-traffic
control and maintainance also make Africa a challenging place to
operate, he said.
"Maybe with a low-cost mentality and a hard attitude [Fastjet]
will get over some of [these] issues, but I don't think it is going
to be an easy road," Mr. Charlton said.
Fastjet is yet to finalize its business plan or financing. "An
appropriate fleet of modern jet aircraft may require the raising of
additional funding," Rubicon said. Rubicon has cash GBP8.8 million
available for investment following completion of the deal, Lonrho
said.
Fly540, which carried over half a million passengers in the 15
months to 31 Dec. 2011, flies 10 aircraft, including two Bombardier
CRJ 100 jets and eight 50-seat to 60-seat turboprop planes. For
Fastjet, Rubicon intially intends to lease larger and more modern
narrow body jets with around 100 to 150 seats such as the Embraer
190, Airbus 319 and Boeing 737-700.
Fastjet plans to start with up to three such jets, operated in
parallel with the Fly540 fleet for a while before the Fly540 brand
is phased out.
EasyGroup's move may yet be challenged by easyJet which for some
time has had fractious relations with its founder, Mr.
Haji-Ioannou. The two sides signed a "comfort letter" in October
2010 that prevents the businessman from setting up a rival airline
or becoming a holder in another carrier under certain conditions.
EasyJet, which has recently started flying passengers to North
African destinations from Europe, declined to comment.
Rubicon shareholders will meet on June 29 to approve the
deal.
At 1402 GMT, Lonrho shares were up 4.2% at 10 pence, while
Rubicon shares fell 4.2% to 3 pence.
Write to Simon Zekaria at simon.zekaria@dowjones.com