Fly Modern Ark twice offered to cut deal with SA Express
The merger offers were made before the financially fragile state-owned SAX faced the threat of liquidation for a debt of R87.3m to Solenta Aviation
An offer to merge with SA Express (SAX) was made earlier in 2017 by Fly Modern Ark SA, which plans to launch its own regional airline within the next six months.
An original offer was made in February to Public Enterprises Minister Lynne Brown and then again to her department in May, but after talks with Department of Public Enterprises officials nothing came of them. Fly Modern Ark founder Theunis Crous said the company was still open for negotiations.
The offers were made before the financially fragile state-owned airline faced the threat of liquidation for a debt of R87.3m to Solenta Aviation, which lodged its application for winding up in the High Court in Johannesburg last week. SAX plans to oppose the application, as it is contesting the amount owed.
In response to questions as to whether the department was considering the offer by Fly Modern Ark, spokesperson Richard Mantu said the department, in partnership with the Treasury, "is currently developing an optimal corporate structure for the re-alignment of state-owned airlines. There is an interministerial committee looking at the best practice to determine the most feasible and ideal corporate structure." The outcome would determine whether there was a need for external equity partnerships.
Fly Modern Ark’s February offer to purchase 80% of SA Express was turned down and the May offer which terminated on May 31 envisaged Fly Modern Ark taking 49% of a merged entity that would continue operating as SAX. The government would continue to own 51% of the merged entity.
Fly Modern Ark, which has Duduzile Primrose Crous as a president and director, sent its offer to the director-general of the Department of Public Enterprises, Mogokare Seleke. In terms of the latest offer, Fly Modern Ark proposed to inject R3.5bn in new assets, debt and operational funds into the merged entity.
Of the R3.5bn, R462m would be used to acquire 10 new MA60 passenger aircraft and two MA600F cargo aircraft; R474m for training, spare parts and tools; and R564m for operational, marketing and safety expenses and to settle SAX’s obligations. The airline would use the R1bn guarantee that government has extended to SAX.
The offer would depend on the "satisfactory completion" of a due-diligence probe into SAX and no deterioration in its business prospects, according to the letter of offer sent to Seleke. In terms of the offer, Fly Modern Ark SA would nominate key executive management.
Theunis Crous said the investor in Fly Modern Ark was the China Development Bank. The company, which was established in July 2016, acts as the facilitator and local partner for Chinese government-owned aircraft manufacturer AVIC XAC, which manufacturers Modern Ark aircraft.
It has also obtained the necessary certificate from the Civil Aviation Authority for the AVIC aircraft to fly in SA and has submitted an application for an airline licence. The company has a purchase agreement with AVIC XAC to buy 12 aircraft: 10 passenger and two cargo aircraft.
Because nothing came of the proposal to merge with SAX, Fly Modern Arc is to proceed with creating its own fully fledged regional airline, which will operate on the same routes in sub-Saharan Africa as SAX and SA Airlink does. It will have its own maintenance and training facilities.
Crous does not believe that the regional market is overtraded, especially if SAX is liquidated. A liquidation would be a bonus as Fly Modern Arc would be able to take on SAX staff. Crous said it would offer low-cost tickets and would use the less expensive airports.