African LCC fastjet needs to restructure by February 2020, if it is to continue as a going concern, with the disposal of fastjet Zimbabwe forming part of its survival plan.

“The group will have sufficient resources to meet its operational needs until February 2020,” fastjet CFO Kris Jaganah said in a Nov. 27 trading statement. “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.”

The company is now in active equity and restructuring discussions with its major shareholders, which have responded positively to the proposals.

Fastjet originally launched with a Tanzanian airline in November 2012. The group previously had airlines in several African countries, but this presence has since been slimmed down to Zimbabwe (fastjet Zimbabwe) and South Africa (FedAir). The most recent airline to suspend operations, on Oct. 26, was fastjet Mozambique.

One option is to sell fastjet Zimbabwe to Solenta Aviation Holdings and a consortium of local Zimbabwean investors, raising approximately $8 million. Solenta Aviation Holdings already owns around 60% of fastjet Group.

“The disposal would also relieve the group of c.$5.4 million of current liabilities and c.$3.2 million 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, three to five years after the effective date of the sale,” Jaganah said.

Funds generated by the disposal would be used to settle group liabilities and to provide working capital into fiscal 2021.

“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,” fastjet said.

This would turn the group into a “capital-light” business. Revenues would be generated by the company operating as a “franchise house,” comprising the fastjet brand and airline-management services.

“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, [thus] avoiding the initial costs and significant cash losses through the airline start-up phase and from operating in Africa’s sometimes uncertain trading environment,” Jaganah said.

Fastjet CEO Mark Hurst added: “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 stabilized 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.”

Over the 10 months to Oct. 31, fastjet’s revenue rose by 20.5% to $34.1 million. The company also made “significant financial and operational improvements,” which are expected to cut full-year net losses to $7-$8 million, narrowed from $65 million in 2018.

Fastjet Zimbabwe’s revenues also rose despite difficult trading conditions, after the Reserve Bank of Zimbabwe introduced a new currency which devalued the existing currency by up to 15 times and pushed inflation above 200%.

FedAir’s operations are “resilient” and expected to be profitable for the year, although this stability has been offset by continued volatility and uncertainty in Zimbabwe.

Fastjet also clarified that its former Tanzanian airline, Fastjet Airlines, which was recently placed into liquidation was no longer part of the group. Fastjet Air TZ, which owned 49% of fastjet Airlines Ltd, was sold in November 2018.

“For clarity, this liquidation order does not relate to the company or group itself and is restricted to divested fastjet Airlines,” Jaganah said.

As of Nov. 21, the group as a whole had cash reserves of $3 million, $400,000 less than the same time the previous year.

Victoria Moores