Fly540 under scrutiny after sale of shares to British firm

A recent change in the ownership of regional flights operator, Fly540, has run into strong regulatory headwinds, whose full impact is expected to be felt in Kenya and the UK.

Fly540’s continued operation as a Kenyan airline was last week hanging in the balance as analysts and regulators differed with its owners over the full import of last month’s sale of shares to a British firm.

See: Fly540 timeline

At the heart of the matter is the lack of clarity in Fly540’s new ownership structure, which is key to the airline’s continued holding of a licence as a Kenyan operator.

The change in ownership occurred after British investment firm Rubicon bought Lonrho’s African aviation business, including its 49 per cent stake in Fly540, for $86 million (Sh7.2 billion).

Rubicon further announced plans to acquire interest in a large portion of the remaining 51 per cent stake from the majority shareholder, 530 Investment, at a price of $2.25 million (Sh185 million) – raising its total interest in the firm to 99 per cent.

That would effectively remove Fly540 from local ownership, a requirement for its continued operation as a Kenyan airline.

The Kenya Civil Aviation Authority (KCAA), which regulates Kenyan airspace, said it was yet to be briefed on the $86 million (Sh7.2 billion) deal, warning that the airline’s designation would have to change if it transferred majority ownership to foreign hands.

“The CEO (Donald Smith) is the manager accountable for the operating certificate, which is not transferable,” said KCAA director general Hilary Kioko.

Mr Smith did not respond to questions as to whether he had reached a buyout deal with Rubicon on the 51 per cent stake as indicated in an earlier announcement.

He has, however, recently published a notice in local newspapers stating that the majority shareholder in the airline has not changed.

Rubicon said completion of the deal as planned would give it a 99 per cent “economic interest” in Fly540 and that it would appoint a new team of managers in the UK to run the new outfit.

Economic interest usually refers to securities in a company other than shares, including preferred stock, warrants, options, debt instruments and indirect interests that empower the holder to vote on key decisions.

Such interests can, however, be converted into equity giving the holders effective control of a company.

Mr Kioko said aviation rules required that the airline notifies the regulator of any changes in its ownership and apply for the relevant licence variations.