All routes lead home
Protectionist bilateral agreements force airlines to innovate
ACOMBINATION OF higher fuel prices and the over-dominance of the State in the aviation industry has forced South Africa’s private airlines to innovate in order to survive and thrive. In addition to launching operations on lucrative routes in the southern African region, private airline operators Comair and 1time Holdings have had to find other means of survival.
After jumping into the tour operating and financial services industries, Comair is currently involved in negotiations to buy 49% of state-owned Air Malawi to circumvent the bilateral agreements that have been used by African governments to thwart competition. Should an agreement in Blantyre come to pass, the stake would give Comair exposure to virtually the whole of Africa, thereby limiting the effects of the bilateral agreements. By all accounts the Malawian government seems very eager for a deal with Comair, if its premature announcement of an agreement early September is anything to go by.
That agreement would immediately give Comair exposure to the lucrative BlantyreJohannesburg and Nairobi business routes, while those with other major cities in Africa and Europe only need Air Malawi to explore landing rights. Comair has been “looking” at flying to Entebbe, Uganda, for almost two years. All Comair CE Gidon Novick would tell Finweek is that it’s looking at the East African market. Any deal with Air Malawi would give Comair that exposure to more routes, with the privileges that come with being ally, the maintenance business contributed the most to group profit, with a 15% margin on R64m turnover at the interim period in 2008, while the airline attained a 6% margin before the oil price spiralled to more than $140/barrel, which resulted in a group-wide loss of R6m.
Orsmond sees the combined technical entity increasing revenue to around R300m in its first year of operation, which would bring the division to within a whisker of the R422m airline revenue in the six months to June. “That reduces oil exposure for the group,” says Orsmond.
Safair Technical has international maintenance licences approved by such regulators as the US Federal Aviation Author- a “national carrier”.
On the other hand, Comair’s smaller competitor on the SA domestic market – 1time – has had to go behind Imperial Holdings in order to lay its hands on Safair Technical, the maintenance business of Safair Ltd that Imperial until recently owned. The parties initially couldn’t reach an agreement and Safair was sold to an Irish company, with which 1time has now reached an agreement to buy 77,5% of Safair Technical.
The US$7,15m (almost R59m) buy will give 1time access to Safair Technical’s five hangars at OR Tambo International and Cape Town International airports and more than 300 staff. Combined with 1time’s own Aeronexus Technical it will become one of Africa’s largest aircraft maintenance businesses. Aeronexus Technical is currently operating at full capacity with a two-bay hanger facility at OR Tambo International. 1time CE Glenn Orsmond says: “We’re buying the extra capacity provided by the five hangars and the skilled employees of Safair. By this we’re also making sure the skills remain here in SA.”
Previously, 1time’s airline passenger business was its largest revenue contributor, followed by its maintenance facilities business, with the charter company the smallest with a 10% contribution. Tradition- ity, the European Aviation Standards Authority, International Operations Standards Association, as well as SA’s Civil Aviation Authority. The licences are held in respect of modern commercial aircraft types, such as Boeing’s 737 and 727 series, as well as 1time’s own McDonnell Douglas 80 series, among others. That should place 1time in a good earnings position, as many commercial airlines (among them Comair, which has now replaced its entire fleet with Boeing 737-400s) are now migrating to the more fuel-efficient Boeing 737-400 aircraft.
Safair still has the expertise to service clients flying older aircraft, particularly in the rest
Comair is currently involved in negotiations to buy 49% of stateowned Air Malawi to circumvent the bilateral agreements that have
been used by African governments to thwart competition.
of Africa. Coming with a guaranteed R50m net asset value, Safair Technical counts among its major customers Safair Operations (Africa’s largest aircraft lease company, now owned by Aergo Capital), Interlink and SAA Cargo.
To illustrate the frustration faced by private airline operators, Orsmond says the Angolan government recently granted extra landing rights in Luanda to SAA without affording any other SA company an opportunity to introduce flights there. That’s after 1time had been talking to Angola for at least two years with a view to resuming operations there.
Reducing oil exposure. Glenn Orsmond