1time Holdings Ltd. (1TM), a South African low-fare airline, is close to concluding talks to acquire a regional route while refinancing its fleet to buy new aircraft in an effort to return to profit.
The regional network deal “will be very transformative and will change the face of 1time,” Chief Executive Officer Blacky Komani, 48, said. He declined to name the company, which he said is not flying along the route for which it holds licenses, because talks are still in progress.
1time, which also provides technical maintenance services, may enter into a joint venture with the unidentified license- holder or buy shares in the company, he said. Expansion outside of South Africa is part of Komani’s strategy to return 1time to profit by 2014. 1time’s loss widened to 157 million rand ($19 million) in the year through December from 11.1 million rand a year earlier, the company said on April 26. Its shares plunged to a record today.
“Margins are far higher outside of South Africa as the market is not as congested,” he said in an interview at the company’s Johannesburg headquarters on May 18. Komani became CEO in October after his company, Mtha Aviation (Pty) Ltd., bought 25 percent of 1time.
1time’s liabilities exceeded assets by 295 million rand in fiscal 2011, casting “significant doubt” on the airline’s ability to continue operating, the company’s auditors, Nexia SAB&T, said in 1time’s earnings statement.
Removing Currency Risk
1time is in negotiations with a local funder to refinance dollar-denominated debt and remove currency risk, Komani said, declining to name the lender. “That will save us 60 million rand a year on both interest and currency fluctuations.”
The debt is the repayment on the company’s lease agreement on its fleet of 10 McDonnell Douglas Corp., including MD-80 aircraft, which are older and less fuel-efficient than Airbus SAS A380 and Boeing Co. (BA) 737-800 aircraft that are favored by competitors Comair Ltd. (COM) and South African Airways SOC Ltd., the state-owned airline.
The rand price of jet fuel jumped by 30 percent in the 12 months through December, increasing 1time’s fuel costs by 130.6 million rand. “By refinancing the aircraft we’re creating a resilient company with a strong balance sheet that can withstand the tough economic conditions with a high fuel prices,” he said.
The Airports Co. South Africa SOC Ltd., or Acsa, increased taxes at its airports by 70 percent on Oct. 1 as the government, which owns the operator, needed funds to pay for airport infrastructure built before the 2010 World Cup. Taxes will more than double over the next five years.
“Increasing fuel prices, weakening demand and increasing competition means the industry is in contraction mode,” Keith McLachlan, a senior equities analyst at Johannesburg-based Thebe Stockbroking Pty Ltd., said by mobile phone yesterday. 1time is one of the marginal operators that will struggle through what is a “perfect storm” for the industry, he said.
As part of the debt-refinancing negotiations, 1time will acquire newer aircraft, said Komani. The company is in talks with Airbus and Boeing, he said.
To lower costs, 1time has cut executive positions. Komani acts as chief executive officer of the group and of the airline company, positions previously held by two of the founding directors and major shareholders, the company said on March 13.
Finance Director Lorna Terblanche runs finances for the entire group, where in the past each of the company’s three units had its own finance director, while two human resources managers have been cut to one human resources director.
“The result of all this is that the decision-making process is much faster and simpler,” Komani said.
Running on Time
The airline’s on-time performance improved to 91 percent by the end of April, according to data on the website of Johannesburg-based Acsa. 1time’s on-time performance was 35 percent in April last year, Komani said.
“In the first quarter through March, 1time has paid out 657,000 rand as compensation to inconvenienced customers as a result of delays,” said Komani. In the quarter through March 2011, the compensation bill was 3.3 million rand. “The saving is far bigger than the 2.6 million rand. You now have fewer people who think you suck and never come back to fly with you.”
1time, after losing more than 70,000 rand a month on wasted food, has replaced sandwiches, muffins and most fruits with snack bars, which keep longer.
“That’s another 1 million rand a year in savings,” he said. “That’s as far as we can go on the cost-containment side.”
1time dropped 87 percent to 2 cents at the 5 p.m. close in Johannesburg, the lowest since the stock started trading almost five years ago and valuing the company at 5.6 million rand. The stock declined 6.3 percent yesterday, extending its drop over the past 12 months to 96 percent. That compares with a 38 percent slump in Comair, partly owned by British Airways Plc, over the same period. Mtha Aviation paid 70 cents a share when it acquired its 25 percent stake in March last year.
Komani, a father of three, pledged his family home while his partners in Mtha also put at risk personal assets as collateral for the 65 million rand stake purchase in 1time, which was funded through a loan by the Industrial Development Corp., a state-owned South African lender.
“We put everything we have into this company,” he said. “It must work. If it goes down, my home goes down with it.”
To contact the reporter on this story: Sikonathi Mantshantsha in Johannesburg at email@example.com