Canadian Aircraft Company Snags Business Opportunity By Selling to South Africa
IT is a sale that smacks of politics as well as of business. It also is a deal that until a few months ago would have been illegal.
Last week, de Havilland Aircraft of Toronto sold $150 million worth of commuter aircraft to SA Express, a new South African airline. The deal could only be made because Canada's rules on trading with South Africa were relaxed two months ago, after Nelson Mandela, president of the African National Congress (ANC), announced that the country was again open for business.
The ANC already owns 51 percent of the airline and a Canadian businessman controls the other 49 percent. With this many wrinkles, the sale was not a simple matter. It also involved the Ontario government, a financial backer of de Havilland.
The sale includes 12 Dash 8 Turbo-Prop aircraft, plus an option to buy six more. The Dash 8 is a 50-seat commuter aircraft, which can land and take off from shorter runways more easily than conventional aircraft. It is used by commuter or feeder airlines.
SA Express will be operating feeder routes from smaller centers in South Africa, such as East London, Kimberly, and Bloemfontein, and connecting to the state-owned South African Airlines in larger cities, such as Johannesburg and Durban. This plan follows the North American ``hub and spoke'' system, where smaller centers feed large hubs such as Atlanta and Toronto.
William Deluce, the Canadian partner in the operation, owns one-fourth of Air Ontario, a Canadian commuter airline. In 1983, Mr. Deluce and a group of investors from the Cree Indian tribe in northern Quebec started up a commuter airline, named Air Creebec, in the Canadian north. Deluce owns 49 percent of Air Creebec, as he does the South African airline. His experience in Canada is the basis for his South African venture.
``We are in South Africa for two reasons,'' Deluce told reporters in South Africa. ``We have pretty well used up our niche opportunities in Canada. And we believe there is a very solid aviation business opportunity in this country [South Africa].''
De Havilland Aircraft, once part of the British aircraft firm, has had a number of owners, including Boeing Company. Frustrated by years of trouble with the tough union at the Toronto de Havilland plant, Boeing sold out to Bombardier Inc. of Montreal in March 1992. The province of Ontario helped out by buying 49 percent of the company for $49 million (Canadian; US$37 million).
Ontario's Premier Bob Rae was a major player in the deal, keeping a French competitor at bay. ``It's a very substantial investment,'' Mr. Rae said. ``It's the largest order that's been placed in some time.''
Ontario had worried that a slowdown in worldwide orders for aircraft would close the de Havilland plant for good. The company has a work force of 2,600, down from 4,200 in 1991. The company says the South African deal will save jobs. ``The agreement will enable us to maintain our current production level of two aircraft a month throughout 1994 and into 1995,'' says John Davy, a company spokesman.
The South African side of the deal involves Thebe Investment Corporation, an ANC-controlled company and a consortium of black business enterprises. Thebe Investment owns Southern African Airline Holdings, which in turn owns SA Express.
In a news release, Vusi Khanyile, managing director of Thebe, said: ``SA Express will be the first full-scale regional airline in Africa. We believe our formula of using international management expertise and capital coupled to strongly developed affirmative action programs will be a winning one.''
When SA Express is up and running, it will list its shares on the Johannesburg Stock Exchange, Mr. Khanyile says. ``The black community will enjoy preference with allocation of shares.''
The first aircraft will arrive in South Africa from Canada in February 1994. The air service is expected to start in the first quarter of the year.