LOCAL airline Sol Air has clinched a deal with Hong Kong investor YAYA Sun which is set to inject more than US$100 million into the business. The new investment will allow the airline to introduce domestic and regional flights. Zimbabwe Independent business reporter Melody Chikono (MC), this week interviewed Sol Air managing director Nkosilathi Sibanda (NS) who spoke about funding, challenges and future plans. Below are excerpts of the interview:
MC: The last time we spoke you indicated that you have secured US$100 million from Hong Kong financiers YAYA Sun. Take us through the journey and give us an insight into what has been happening.
NS: What is happening right now is that there is a lot of hope for Zimbabwe and even foreign investors are showing renewed interest in investing in the country.
Remember there is not enough capital and for one to run a successful airline business there is need for a large capital base and to me you need about US$100 million.
This is a capital intensive business. Honestly, there is no one with that kind of capacity to do that with such an amount of money. So we are left with no option but to look externally where there is a lot of money. Unfortunately the biggest problem that was there is that payment out of Zimbabwe became a problem not only to repay what you would have borrowed but paying suppliers, for example in this instance we are talking about aircraft and things like fuel and other services that are available externally even if you managed to get funding locally.
Paying for those services requires substantial amounts to suppliers, services and equipment which you would have acquired thus it becomes a problem. However, there has been a study which shows that, basically, private investments in Africa have actually performed very well regardless of the political challenges that are being faced even though sometimes remittances of money have been a problem, the growth rate, performance and returns have been very good.
So where we are right now, we have the financiers coming into the country on June 22 to do a due diligence on the company because our intention is to commence services soon after the election. So if we do the due diligence successfully, we will possibly start paperwork as soon as the end of this month. This is also to ensure that the issue of the aircraft and everything will be dealt with by the Civil Aviation Authority (Caaz) and they begin to come into the country maybe in the last two weeks of August for the commencement of services.
There are a lot of things that need to be renewed, for instance the International Air Transport Association membership which lapsed because we were supposed to pay between US$8 000 to US$10 000 per year while we were not operating so all that needs to be renewed. It will take me about six weeks to have all that sorted.
We are going to pay US$40 000. To us it was pointless to pay while not operating.
I’m sure by end of July we will have paid. There is also money due to the government and Caaz we owe about US$20 000 which is US$10 000 each. I want to clear all at the end of the July and I have already started the process. The reason why we have to, especially with Caaz, is that they service the aircraft and inspect them. They are supposed to clear the aircraft as a requirement and thereafter we can then commence services.
The process itself is not very difficult but the reason is they have to make sure the planes are up to standard and that we have the money and will be able to handle the business properly.
MC: What challenges is the aviation industry facing?
NS: The biggest problem with this country is with policies which are unstable. They change according to which minister is in the office at the moment, who is the permanent secretary and everything. Their understanding of aviation is limited. What they need to understand is that their restriction of the skies is killing the aviation business and at the end there is underutilisation of aviation space, airports and aircraft. Government inconsistencies are killing investment potential. Government must be in a position to facilitate local investment instead of frustrating it especially right now when we are talking about the country being open for business. Actually when you speak to them as a local it is unbelievable how you are treated. It’s about foreigners, government is eager to entertain foreigners, but it must also be able to facilitate for local people in Zimbabwe.
MC: what are the timelines for take off?
NS: We are looking at the end of September to take off to the skies just after elections. We will start with domestic flights and gradually regional. Domestic routes are not a problem.
The reason why external routes take time is because there is a process which is done where government has to send out what we call diplomatic notices to those countries where you want to fly to indicate that this airline has been designated by the government of Zimbabwe to fly between that country and Zimbabwe. When it has been issued you need to apply to some countries to get a foreign licence.
That licence gives the right to open a bank account in that country and establish offices. That’s the process but in most cases once you get the government notices it doesn’t take more than a week. In our case we are yet to get the government diplomatic processes.
MC: Who owns Sol Air?
NS: Sol is owned by my colleagues and I. The shareholding structure is such that I own 75% while the rest own 25%.
It is under the Anderson Family Trust, which is my family. The general understanding of the aviation industry is very limited unless people see things happening; they are sceptical to put in money.
When we are dealing with this kind of business it is not an issue of small sums of money. These guys are giving US$100 million over 10 years over a grace period of 2 years at 4%.
MC: What is in it for YAYA Sun?
NS: We are going to appoint a finance director. There is a possibility that we will see the financiers take 30% equity and that equity will be relinquished when the loan is repaid in full.
MC: If all goes to plan, what is your outlook in terms of turnover in the first year of operation?
NS: When you are doing business projections, some of the things you are looking at are the network that you operate in and the current demand of the flights in the service.
The way we look at it for us it is very positive, we do not care about other airlines, what we care about is that we are up to the act. There are some routes which are in need of service right now which we have been looking at operating in. It takes about 18 to 30 months before an airline can begin to have impact in its operations. What you have to understand is that right now you can not say you are in business when you have one plane. No one will take you seriously; you need four to five planes.
In our case we have five and people will know we mean business. Apparently, they are still in the US.
We have two (Boeing) 777-300 and three (Boeing) 737-800, they have not been paid for, all they wanted was assurance that there was a financier and they have since received our financier endorsement.
An agreement has been made and a declaration of intent have been signed and approved by financiers.
They will be on a lease basis. We are going to pay for a year once off to the tune of US$43,6 million. We are also on the verge of acquiring two smaller small aircraft, turbo props, which are 30 seaters. These will do routes like Kariba, Buffalo Range, Lusaka and Tete. This will happen this year and we will be getting them from South Africa. I have got the information on them and will be passing it on to my financiers. We will be saying about US$45 million for 1 year upfront. We are yet to sign for them.
Considering this business, you will need US$10 million upfront for things like fuel.
We will need one million litres per month of fuel in reserves to ensure that we are safe.
MC: What will your airline offer that you have not offered before?
NS: We are going to offer reliable service. If we say we leave at 9 its going to be 9.
Fact File: Nkosilathi Sibanda
- 2001 to date: Managing director of Sol Aviation (Pvt) Ltd, t/a SOL AIR;
- 1995 to 2001: Chief consultant responsible for Africa at Aviation Consultancy Executives (ACE) in London, United Kingdom;
- 1997 to 1999: Director of the Confederation of Zimbabwe Industries-USAid-sponsored Business Linkages Programme;
- 1991 to 1992: Consultant Director–Indigenous Business Development Centre (IBDC), and BESA;
- 1983 to 1995: Air Zimbabwe Corporation: 1983 – 985: Avionics workshop Technician; 1985 – 1986:
- Technical Services Engineer; 1986 – 1992: Defects and Reliability Engineer; 1992 – 1995: Special assistance to the managing director;
- 1979 to 1983: Quality engineer at Negretti Aviation in Croydon, London, England;
- A holder of: International Labour Organisation Diploma in creation, management and development of small and medium scale enterprises;
- Master of Business Administration in Aviation (MBAA), University of Daytona Beach, Florida, US;
- Bachelor of Science in Aviation Business Administration;
- Bachelor of Science in Aeronautical and Aerospace Engineering;
- Higher National Diploma in Aeronautical Engineering;
- City and Guilds full technological certificate;
- Fellow of the Royal Aeronautical Society, London, England;
- Fellow of the Engineering Council, London, England; and
- Fellow of the Aerospace Association of America.