Shareholder row delays takeover of Fly540

The shareholder wars at Fly540 have hit plans to establish a low-cost airline in a takeover deal. File
The shareholder wars at Fly540 have hit plans to establish a low-cost airline in a takeover deal. File  

Regional carrier Fly540 has been hit by shareholder wrangles over the status of half a billion shilling debt that have derailed plans to establish the Fastjet brand in Kenya.

The Business Daily has learnt that Donald Smith, the CEO of the Kenyan wing of Fly540, has refused to let go of the company until $6.78 million (Sh593 million) of debts he guaranteed are paid.

The spat has scuttled plans to establish the Fastjet brand in Kenya, which informed the sale of a 49 per cent stake in the airline to Rubicon in June by Lonrho Aviation with the new owners offering to revamp Fly540 and remodel its business into a low-cost African airline.

The share swap was worth Sh7.2 billion and Rubicon had committed to acquire the remaining 51 per cent from Mr Smith’s investment vehicle, 530 Investments, to complete the deal and rebrand Fly540 into Fastjet.

Mr Smith says the deal has not been completed and his lawyers Mungu, Kimetto & Company gave Lonrho 14 days from January 9 to repay the Sh593 million or face legal action.


“We act for Five Forty Aviation Limited who have instructed us to demand from you the payment of US$6, 783, 551 being money due and owing to them,” said the letter to Lonrho seen by the Business Daily.

The letter was directed to Lonrho because records from Kenya’s registrar general’s office showed that 49 per cent stake held by the British investment firm had not changed to Rubicon by December 10.

Mr Smith claims that he agreed to guarantee the debts held by the Kenyan business that was financing other Lonrho aviation operations in Africa, especially the Tanzanian wing. He alleges that Lonrho undertook to repay the debts.

“The transaction hasn’t gone through. I still own 51 per cent of this airline,” said Mr Smith in an interview with the Business Daily on Wednesday.

But on Monday Fastjet maintained in a statement that they have settled Mr Smith’s dues and that the purchase of Five Forty Aviation Limited is a done deal.

“Don Smith and his partners have been paid all amounts due to them, a total sum of US$6.75m,” said Fastjet.

“There has never been any agreement that Lonrho Aviation would pay Mr Smith a further sum of US$7m.  The purchase of Five Forty Aviation Limited has been fully consummated.

"Mr Smith certified in a document signed by him on 24 July 2012 that other than specified liabilities as set out in the document, there is no other liability or indebtedness due to him or any entity controlled by him.”

The ownership spat has forced Fastjet to abandon plans to rebrand the Kenyan wing of Fly540 and inked a fresh agreement with rival carrier Jetlink to establish another low-cost airline.

The new airline will be used as a platform to launch the Fastjet brand in Kenya after receiving approvals from the boards of two firms and licences from the civil aviation authority, said the Fastjet statement.

The proposed airline will be a separate entity from the Jetlink, raising the possibility that it will rival Fly540.

Jetlink suspended its services in November due to cash flow challenges as it was unable to access about $2 million (Sh170 million) worth of ticket sales held in bank accounts in South Sudan.