AIR TRANSPORT

Despite launching operations on time and with load factors approaching 80%, African low-cost start-up FastJet has flown into a myriad of legal difficulties since taking to the skies in November 2012. Martin Rivers reports.

FAST AND
astJet, the Stelios Haji-Ioannou-backed carrier, not only disputes bills from one of its leasing companies and the Tanzanian government, but it is now embroiled in a complex ownership and branding battle with Five Forty Aviation, the parent company of its Fly540 affiliate. The strength of the respective legal arguments by FastJet and Five Forty Aviation will be determined in court, but it is clear that the dispute stems from the founding contract signed between the two parties last year. Both sides effectively claim ownership of the Fly540 brand, while rejecting liability for Fly540s historic debts. The merit of these claims is obfuscated by the complexity of FastJets corporate structure.

FURIOUS
F
Lonrho Aviation. Five Forty Aviation says that FastJet failed to meet the conditions of the acquisition, and it therefore merely held temporary licenses, which have since been revoked. To say that the situation is convoluted would be a gross understatement. The merits of the two opposing arguments cannot be second-guessed until court proceedings have progressed, but already questions are being asked about the robustness of due diligence by FastJet during the acquisition. January that those plans are not set in stone, saying: The fleet plan is driven by us being cash generative this financial year. Thats one of the fundamental golden rules by which were managing the expansion. With FastJets expansion trajectory still under review, Fly540s aircraft in Ghana and Angola are unlikely to stop flying any time soon. Fly540 Kenya is also expected to continue operations, although Fly540 chief executive Don Smith has yet to relinquish control of that unit. While FastJet seeks a declaration from Britains High Court compelling him to do so, it has, instead, signed an MOU with defunct Kenyan operator Jetlink Express in January. Fly540 Tanzania ceased operations two weeks before the launch of FastJet. As the three remaining Fly540 units continue flying amid uncertainty over their ownership structure, FastJet and Five Forty Aviation are duking it out over liability for the subsidiarys historic losses. The original complaint by Five Forty Aviation in January alleged that FastJet still had to repay $6.78 million to third parties, with Smith saying:

Reverse takeover
In June 2012, it launched a reverse takeover of Lonrho Aviation, which is the parent company of Five Forty Aviation. Under the terms of a reverse takeover, the acquired party (Lonrho Aviation) becomes a majority stakeholder in the acquiring party (FastJet, then known as Rubicon). The nature of this ownership structure both in terms of what rights it affords each party, and whether it was fully consummated is being challenged by Five Forty Aviation. But the ownership dispute is only part of the story. Licensing agreements between the two companies are also being contested. Five Forty Aviation is the parent company of four Fly540 operations in Tanzania, Kenya, Ghana and Angola, each of which holds its own air operators certificate (AOC). FastJet claims that it has sole and exclusive rights to these Fly540 brands because of its reverse takeover of

Losses deepened
Fly540s losses deepened between 2009 and 2011. Mindful of the subsidiarys weak performance, Lonrho Aviation had intended to wind down the Fly540 brand, retire its turboprops, and keep the AOCs for the newly introduced FastJet brand. Fly540s dissolution would run parallel to the scaling up of FastJets fleet, which currently stands at three Airbus A319s but had been forecast to reach up to 12 by the end of 2013. Operations director Rob Bishton insisted in

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LEGAL & FINANCIAL

FastJet and Five Forty Aviation: Both sides effectively claim ownership of the Fly540 brand, while rejecting liability for Fly540s historic debts.

Under the acquisition agreement, Lonrho Aviation now FastJet agreed to pay off this bank debt. To date, they have not done so. FastJet rejected that claim out of hand, saying the acquisition had been fully consummated and adding: Mr Smith certified in a document signed by him on 24 July 2012 that other than specified liabilities as set out in the document there is no other liability or indebtedness due to him or any entity controlled by him.

Escalated the dispute

But Five Forty Aviation escalated the dispute further in February, alleging that FastJet was responsible for another $7.7 million in debt. Perplexingly, even as Five Forty Aviation demanded that FastJet pay these legacy debts, it revoked the licensing agreements and ordered that the three Angolan and two Ghanaian aircraft be repainted. Smith in effect seemed to be saying that FastJet could keep the two subsidiaries debts and fleets, but that it must otherwise have no involvement in the business. FastJets response was predictable: Statements made by Don Smith suggesting he has the right to withdraw the

The question now is whether FastJet will be stalled, or will continue to move forward.
ERNEST ARVAI

brand are absolutely wrong and without foundation. The most disturbing allegation made by Five Forty Aviation is that FastJet failed to submit adequate safety reports. We have no way of assuring that the planes are safe to fly, Smith said in February, pointing to a flight on December 14 which, he alleged, flew with defects. FastJet said the service in question was a maintenance, nonpublic transport flight, for which all necessary permits had been obtained.

Fending off demands

Alongside the Fly540 dispute, FastJet is also fending off demands for $2.2 million in tax from the Tanzanian government and $2 million from Avmax Aircraft Leasing. Both claims are historic debts arising from Fly540s operations. FastJet is attempting to create the first panAfrican low-cost carrier and the concept makes good sense, concluded Ernest Arvai, co-founder of aviation consultancy Air Insight. The execution, however, could be delayed by disputes such as this. The question now is whether FastJet will be stalled, or will continue to move forward.

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