fastjet, the low-cost African airline, today provides an update to the market and shareholders.
The Company continues to perform limited repatriation flights between Zimbabwe and South Africa. With the continued restriction on international travel into South Africa, the Company has maintained its suspension of scheduled flight operations with routine commercial flights suspended until at least 30 September 2020. At all times, the safety and wellbeing of the Company's staff and customers remain of paramount importance and focus. The Company continues to assess the situation daily and will provide further updates as and when necessary.
The President of South Africa announced on Saturday 15 August 2020 that the country would relax lockdown restrictions to Level 2 lockdown, effective from midnight Monday 17 August 2020. This means that the entire domestic economy may reopen for business including full domestic travel and resumption of all hotels, tourist resorts and associated business. A curfew remains in place in South Africa from 22:00 to 04:00 daily. The board of directors of the Company (the "Board") believes that South Africa entering Level 2 lockdown, which includes the removal of domestic air travel restrictions, is a good indication that the next relaxation should be to Level 1, which would then include international travel restrictions being removed. However, the Board believes that international travel will only resume from mid October 2020 at the earliest.
Legal claim in respect to FedAir
As announced on 24 July 2020, Carl Trieloff ("Trieloff"), an 18.85% shareholder of Federal Airlines Proprietary Limited ("FedAir") prior to its sale to Parrot Aviation Proprietary Limited ("Parrot") in October 2018 (the "Sale") and a selling shareholder on the Sale, has issued a claim that the Sale was not completed due to a technical breach of the share purchase agreement (the "SPA"), whereby a condition linked to regulatory approvals which has now been completed was not completed within the timeframe prescribed in the SPA. Trieloff claims that the technical breach has terminated the SPA and that all shareholders in FedAir prior to the Sale (the "Selling Shareholders") should be restituted. Trieloff has made a further claim, that remains unsubstantiated, for certain pre-emptive rights over all shares subject to any resale (the "Sale Shares"), if restituted and resold.
The Selling Shareholders, excluding Trieloff, of the remaining 81.15% in FedAir do not hold the same beliefs or claims as Trieloff and had confirmed their intention to offer back their shares to Parrot through a new share sale agreement with Parrot to resolve the technical breach. Following legal advice, Parrot entered into a new share sale and purchase agreement on 14 August 2020 with the Selling Shareholders, excluding Trieloff, for 81.15% of the share capital of FedAir (the "New SPA"). The financial terms were identical to the original SPA with the only substantive difference being the amendment to the condition that resulted in the technical breach.
In addition, despite Trieloff's claims to certain pre-emptive rights on all Sale Shares remaining unsubstantiated, as a condition to completion of the sale of shares from the Selling Shareholders to Parrot, agreed by both the Selling Shareholders and by Parrot, pursuant to the New SPA, Trieloff has been granted a 30 business day pre-emptive right to acquire the 81.15% from the other Selling Shareholders. In the event that Trieloff exercises the offered pre-emptive rights over the Selling Shareholders' shares, and further retains his own 18.85% shareholding, then a consideration of approximately US$2,585,000 (R44,400,000 at current ZAR exchange rates) representing 100% of the original share sale proceeds, will need to be paid to the Company by Trieloff. This will in effect amount to a reversal of the original Sale of FedAir.
Should Trieloff not exercise the offered pre-emptive rights then Parrot has agreed under the New SPA to repurchase the 81.15% shareholding held by the Selling Shareholders, excluding Trieloff. This would not involve the exchange of any consideration. Parrot would then engage separately with Trieloff on his own intentions, which could be to either enter a new sale agreement with him to sell his shares to Parrot thereafter, or alternatively for Trieloff to remain an 18.85% shareholder in FedAir, which would require the return of the sale proceeds originally paid to him under the SPA.
Solenta Investment Holdings (Pty) Ltd ("SIH"), a South African registered company, is one of the Selling Shareholders, and as a subsidiary of Solenta Aviation Holdings Limited ("SAHL"), it is considered a "related party" to the Company by virtue of SAHL being a "substantial shareholder" as defined in the AIM Rules for Companies (the "AIM Rules").
Although no consideration has been paid or will be paid by the Company, when aggregated with previous transactions entered into with SAHL or its subsdiairies during the prior twelve month period pursuant to AIM Rule 16, the entering into the New SPA by SIH (the "Transaction") is classifed as both a related party transaction and a substantial transaction pursuant to AIM Rules 13 and 12 respectively. The Transaction was identified as a related party transaction by the Board prior to being entered into on Friday 14 August 2020, but Liberum as the Company's Nominated Adviser were only consulted on Tuesday 18 August 2020.
Capital Requirements and Restructuring Proposal
The Company has secured approval from the Reserve Bank of Zimbabwe ("RBZ") to register certain historic Group intercompany loans made to Fastjet Zimbabwe Limited ("Fastjet Zimbabwe") with a value of US$22,524,738 as a legacy loan (the "Legacy Loan") and a further US$2,716,376 of Company creditors in Zimbabwe as blocked creditor funds. The Legacy Loan balance forms part of the total Group intercompany loan funding to Fastjet Zimbabwe since it first started operations, but none of the loans had formally been registered with the RBZ beforehand. These approvals with the RBZ are recognitions from the RBZ that the loans were effected under the prior 1:1 currency regime towards investment and continued support of the Company's operations in Zimbabwe. The Company is awaiting the final position from the RBZ on the next steps to expunge balances under the Legacy Loan, as new legislation is being drafted to govern this. In the meantime, the RBZ has allowed the Company to draw against the Legacy Loan in ZWL currency (Zimbabwe local currency) to settle fastjet Zimbabwe creditors of US$3,577,173. There is no guarantee of continued access to the Legacy Loan facility due to the foreign currency shortages that remain in Zimbabwe and the future financial benefit for the Company is difficult to quantify at this stage.
FedAir received a R12,639,647 (approximately US$760,000) COVID-19 Emergency Term Loan facility from its bankers, Standard Bank of South Africa Limited, and the loan agreements have been agreed and implemented.
The headroom of cash resources available to the Company, however, remains minimal and continues to be drawn down on to settle fixed costs and obligations of the Company. With the prolonged travel restrictions, which could continue into November 2020, the Company will require additional cash of at least US$1,500,000 before November 2020. If flight operations do not restart by the middle of October 2020, or the Company is unable to access further hard currency from the RBZ against the Company's Legacy Loan, or the Company does not complete a fresh capital raise before the end of the year, it will cease to be a going concern.
The Company has therefore approached SAHL, its main shareholder, to underwrite a capital raise following the delisting and registration of the Company as a private company which is expected to be completed by the end of September 2020. SAHL has confirmed to the Board it will be prepared to underwrite a capital raise of at least US$1,500,000 if called on by the Board, but on terms that still need to be negotiated and agreed.
The Board believes that, based on current financial projections, funds available and expected to be made available through the Legacy Loan facility or through a capital raise of at least US$1,500,000, together with the current creditor terms agreed, the Company will continue to have sufficient resources to meet its operational needs until the end of December 2020 should flight operations not restart by then.
Should flight operations restart by December 2020 and the Company completes a capital raise of at least US$1,500,000 before 31 December 2020, and further funds are made available through the Legacy Loan facility, then the Company expects to continue operating as a going concern until at least December 2021, based on current projections which would include passenger levels returning to pre COVID-19 levels within three months of resuming scheduled operations.
Following the passing of the resolutions at the Company's General Meeting held on 12 August 2020 regarding, amongst other things, the cancellation of admission of the Company's ordinary shares to trading on AIM, the Company's Board has also agreed to re-assess the proposed disposal of fastjet Zimbabwe to the investor consortium led and underwritten by SAHL and other local investors in Zimbabwe and whether this option remains attractive considering the delays incurred and the impacts of COVID-19 on these negotiations.
As at 14 August 2020, the Group had cash reserves of US$1.3 million with no restricted cash. Of the Group's US$1.3 million cash reserves, FedAir has a balance of US$0.6 million which cannot be transferred or lent in any manner to any other fastjet Group entity due to the covenants and restrictions agreed when accepting the COVID-19 loan facility. Of the FedAir US$0.6 million, an amount of US$0.24 million is new funds drawn down by FedAir under their approved COVID-19 loan. Of the remaining cash of US$0.7 million held by the Group, US$0.07 million is in Zimbabwe and currently unrestricted
Following the passing of the resolutions at the Company's General Meeting held on 12 August 2020 the Company is proceeding with the cancellation of trading in its ordinary shares on AIM. The last day of dealings in the Company's ordinary shares will be Friday 21 August 2020 and, at 7:00 a.m. on Monday 24 August 2020, the admission to trading on AIM of the Company's ordinary shares will be cancelled. Thereafter trading in the Company's ordinary shares will be transferred to the Asset Match trading platform on which shareholders will be able to trade their shares.
This announcement is released by fastjet plc and contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 (MAR), and is disclosed in accordance with the Company's obligations under Article 17 of MAR.
For the purposes of MAR and Article 2 of Commission Implementing Regulation (EU) 2016/1055, this announcement is being made on behalf of the Company by Kris Jaganah, Group Chief Financial Officer.