Reunion-based Air Austral has finalized its equity joint venture with Air Madagascar, agreeing to take a 49% stake alongside the Madagascan government which will maintain a controlling 51% shareholding.

Air Austral, which is already partnered with Air Madagascar through the Vanilla Alliance, was selected as Air Madagascar’s preferred partner in March after beating a rival short-listed bid from Star Alliance carrier Ethiopian Airlines.

Building on this initial selection, the two Indian Ocean carriers signed a memorandum of understanding (MOU) to form the partnership in April.

In a joint press release, the two airlines said the MOU was firmed Oct. 9, cementing the terms and conditions for the joint venture. They said this marks the start of an “interim phase.” The strategic partnership will be fully finalized at the end of October, when Air Austral acquires 49% of Air Madagascar, closing the deal.

Air Madagascar will go through a two-stage turnaround over the next 10 years. During the first three years, Air Madagascar is aiming to recover and to lay foundations for future growth. After this, the airline will go through a growth phase, expanding its fleet and opening new routes.

Air Austral CEO and former SkyTeam managing director Marie-Joseph Malé said the two companies have spent six months refining their business plan. “We are now more determined than ever to join forces for our development and to strengthen our positions in the Indian Ocean,” Malé said.

Malé added that the agreement marks a turning point for the two companies, but he cautioned that there is still a lot of complex work to be done. Under the joint venture, the two airlines will focus on regional development and traffic growth.

The Madagascan government will continue to hold 51% of its national carrier and has committed to upgrading local airport infrastructure.

Air Austral will select Air Madagascar’s CEO and will be responsible for day-to-day operations, but the government will appoint the chairman. Air Austral has also committed to invest $40 million in its new partner.

More than 30 companies were interested in a strategic partnership with Air Madagascar, although only seven of these were pre-qualified to submit an offer.

Air Austral and Air Madagascar are both Indian Ocean carriers. They are also joined together through the Vanilla Alliance, alongside Air Mauritius and Air Seychelles.

The Indian Ocean Commission Vanilla Islands of Comoros, Réunion, Madagascar, Mauritius and Seychelles started pushing connectivity in 2012 and held a conference on regional air services in May 2013. This gave birth to the “Wings of the Indian Ocean” strategy, which was published in January 2014, calling for stronger inter-island links. In July 2014, two committees were created to pursue the project, one for the airlines and one for their civil aviation authorities.

Air Austral, Air Madagascar, Air Mauritius and Air Seychelles teamed up to form the airline part of this in 2015, launching the Vanilla Alliance under the leadership of Air Austral CEO Malé.

Victoria Moores victoria.moores@penton.com