A new Ugandan
airline: VULE Airways maiden flight for November 2017.
The directors of
VULE airline affirmed their awareness of the challenges of the business but
promised to start with six planes with a mixture of local, regional and
international destinations.
Come November 2017,
Uganda will have a new home grown airline named VULE whose coming is
overshadowed by the poor performance of about four Ugandan based airlines in
the recent past.
Speaking at a media briefing, the directors of VULE
airline affirmed their awareness of the challenges of the business but promised
to start with six planes with a mixture of local, regional and international
destinations with low budget operations.
Vule is positioning
itself as a budget airline giving affordable prices to Ugandans who want to
travel. This is the second privately owned carrier in Uganda, after the demise of Air Uganda, Alliance Air, Africa One,
Africa Airways and Victoria International.
“Vule will acquire
the aircrafts and will work out all the operational costs, you have known that
there are different taxes that we will take into consideration in order to come
up with a package that will be released very soon” Vule Airways Managing
Director, Mwesigwa Nviiri told journalists. However, given regional competition
driven by bigger players like Kenya Airways and Ethiopian Airlines among
others, Vule’s task ahead is clearly cut out.
Flights from Entebbe
to London
Weighing onto the
matter, industry stakeholders like companies in the tourism industry pointed
out that Uganda as a country lacks Forex, with very few exports in comparison
to the imports. So it would be good for Uganda to encourage tourists to come
spend money here and Vule could be the solution.
Vule will start
with a fleet of 6 Air-crafts that will be on lease, and hope to double the
fleet within a year in light of demand. According to the Board Director/Marketing
for Vule Airways Margaret Anne Mazzi Wampamba, the carrier currently has
two-forty seater small aircrafts that will be for domestic flights. The medium
ones — which are 100 seaters that will be used for regional flights all the way
down to South Africa. And for the longer routes, Vule also has the Boeing
777-300 that will be going from Entebbe to London via Tunisia.
Why
did Uganda Airlines collapse?
It should be noted that Uganda Airlines
was liquidated in 2001 where all operations were with effect stopped. By that
time, it was employing about two thousand employees yet it had no Aircrafts to
run. One of the two boeings 707 had crushed in Rome while the other was
declared junk and thus could not run. In effort to save Uganda Airlines, staff
were reduced from two thousand to four hundred and new planes were leased from
Australia and Air Zimbabwe but were not enough to operate on all routes most
especially to Europe. Today we therefore look at the possible reasons as to why
Uganda Airlines collapsed yet it played an important role in as far as
transporting people to and from Uganda was concerned. Many people have cried
for its reinstatement in order to ease transportation of goods and people as
well was promoting tourism in Uganda which has been earmarked by government as
an important sector of the economy. Earlier efforts had seen the government of
Uganda partner with a private investor to start Air Uganda but it was very
unfortunate that this same company collapsed last year as it could not conform
to international safety and flying standards.
It was discovered that at the time of
collapse, government did not realize the importance of a national carrier and
as such, it was not receiving funding and yet many people most of whom were
recommended by government officials were being recruited. Government did not realize
that having a national carrier would ease the movement of people and goods as
well as promoting tourism and tourist inflow to Uganda. This ended up weakening
Uganda Airlines until its eventual collapse in 2001.
Uganda Airlines was not protected from
competition from other companies such as Kenya Airways and other international
Air companies. By 1994, Uganda Airlines had reduced on it debt and all it
needed to recover was protection from other competing companies. While other
governments like Kenya were protecting their companies and injecting more
funds, the Government of Uganda just sat and relaxed leading to the collapse of
Uganda Airlines. Some think that there were some insiders whose plot was to
kill off Uganda Airlines since while the Government of Kenya and other
governments were waving off taxes and other expenses on Kenya Airways, Uganda
did not hence leaving it with lots of expenses and many staff.
The government of Uganda refused
companies like Swiss Air, Lufthansa and Sabena which wanted to rescue Uganda
and Airlines. One wonders why government refused this help yet it was not injecting
in any cent to run Uganda Airlines. And as such wows continued resulting into
the eventual downfall of Uganda Airlines.
As a result, nothing remained for
Uganda Airlines and when Air Uganda was introduced, many people were very
excited and looked forward to see what it would bring on board. This did not
work and in 2014, it also closed shop leaving Uganda with no National carrier
to its name. Many people are now urging the government to work toward
reinstating Uganda Airlines at they feel that in this century, it has a role to
play.
Source:
https://www.gorilla-tracking-uganda.com/why-did-uganda-airlines-collapse.html
Why Uganda Airlines Collapsed –
Museveni Explains
By
Kiyimba Bruno
Uganda air lines is one of the oldest airlines in
Africa. By the period it was constructed, many Ugandans were illiterate while
the few who had access to education were poor. The number of visitors coming in
the country were very few hence little income coming in the country.
“We let Uganda airlines collapse since it was
just making losses and at that time Ugandans were not traveling as much as
today” says president Museveni.
When we compare today’s costs for domestic flights;
The cost of traveling from Entebbe to Nairobi, a
journey that takes only 45 minutes, costs between USD 300 (shs1m) and USD 800
(shs2.5m) and the cost of moving in Turkish airlines to any town in
Turkey, costs between USD 50 to USD 200.
Uganda
Airlines to fly again, says Museveni
By
Yasiin Mugerwa
Kampala- After
nearly two decades in limbo, Uganda Airlines, a national carrier, could fly
again after President Museveni, in his first address to the new Cabinet
yesterday termed the lack of a national airline “a big shame,” criticising
Kenyan, Ethiopia and South African “brothers” for ditching the comradeship and
instead opting to exploit Ugandans.
The
president directed the new Minister for Works and Transport to conclude
discussions with investors to help Uganda start a national airline as a matter
of urgency.
“Ugandan travellers are suffering because of, apparently, not having a national airline,” Mr Museveni said, reading from a prepared statement.
“Ugandan travellers are suffering because of, apparently, not having a national airline,” Mr Museveni said, reading from a prepared statement.
“I
thought that our brothers in Ethiopia, Kenya, South Africa, etc. having
airlines would serve all of us. That, however, is apparently not the case,” he
said.
The Uganda Airlines, which was established in May 1976 under the Idi Amin government, was in 2001 liquated over heavy debts that stood at a tune of more than $6m (about Shs21b). The debt had been reduced from $12m (42.8b).
The Uganda Airlines, which was established in May 1976 under the Idi Amin government, was in 2001 liquated over heavy debts that stood at a tune of more than $6m (about Shs21b). The debt had been reduced from $12m (42.8b).
The
liquidation, a painful reality, did not settle in well with a number of
stakeholders, who blamed government for deliberately killing the airline.
Former Uganda Airlines managing director Benedict Mutyaba last year - at the height of news of Cabinet debating the revival of the national airline - told Daily Monitor that it was absurd that government could hurriedly sell an airline that had shown signs of recovery from a debilitating debt regime.
Former Uganda Airlines managing director Benedict Mutyaba last year - at the height of news of Cabinet debating the revival of the national airline - told Daily Monitor that it was absurd that government could hurriedly sell an airline that had shown signs of recovery from a debilitating debt regime.
However,
in an apparent U-turn, the President, without shouldering any responsibility
for its collapse, told his new ministers amid cheers that “in these five years,
Uganda will encourage the setting up of a national airline.”
Asked
to explain the President’s change of heart, the minister for Information and
ICT, Mr Frank Tumwebaze yesterday said Mr Museveni was concentrating on
building first things first- the foundation he has talked about.
“How could a crumbled economy support an airline, for example? Now that the base is strong, the walls can also be embarked on,” he said.
“How could a crumbled economy support an airline, for example? Now that the base is strong, the walls can also be embarked on,” he said.
While
some stakeholders questioned the business viability of Uganda Airlines in the
face of an impending stiff competition from Kenya Airways and other airlines
operating in the region, the President said a national airline “would help us
to save $420m per year Ugandans spend on travel”.
Apart
from joining the Uganda Airforce, the President said the opportunities for
graduates from Soroti Flying School were very limited, adding that “the
airlines of our brothers and sisters that benefit from Uganda should have
remembered to treat our children as their own because our purchasing power is
supporting them”.
In
a recent interview former transport minister Stephen Chebrot said government
had hired Ernst & Young to evaluate the viability of the airline and “the
results were astonishing”.
He
also revealed that government was looking at an average of $300m (Shs1
trillion) as the initial injection into the national carrier revival.
To
attract investors in the country, the President has instructed Investment and
Privatisation Minister Evelyn Anite to ensure that investors get free land for
investment and other incentives such as tax exemptions.
He
also instructed the minister to build 22 or 25 Industrial Parks, starting with
Namanve and Nakasongola, ordering that every year, five industrial parks should
be completed using the UPDF Engineering Brigade and prisoners.
“It
is not complicated technology. Make the access roads, pull electricity, pull
piped water, pull the internet under-ground cables etc. It is, mainly, civil
works. How can our engineers fail to do this?” Mr Museveni wondered, ordering
that negotiations for the Standard Gauge Railway must be concluded so that the
construction starts.
The
President has also ordered the new ministers to ensure that Uganda Revenue
Authority, Uganda Investment Authority and other power centres clear
investments within two days without fail, instructing Ms Anite to report to
him, if she gets any challenges in trying to implement this.
The
president, according to sources, also vowed to sack lazy ministers and thieving
public servants, in a bid to save his ambitious dream of transforming Uganda
from a poor country to a middle income status by 2020.
Uganda,
according to the Wold Bank, is a low income country with per capital income of
$714.6 against $1,045 required to join the league of middle-income nations.
ymugerwa@ug.nationmedia.com
One
year after Air Uganda collapse: A tale of half-truths
By Mark Keith Muhumuza
Around
this time, Air Uganda would have celebrated eight years of operation in Uganda.
However, its wings were clipped, after Civil Aviation Authority (CAA) had the
airlines’ International Operator Licence withdrawn last year.
The saga, which lasted almost a month, capped the eventual exit of the carrier by the end of August 2014.
A letter written on June 17, 2014 by CAA indicated the International Civil Aviation Organisation (ICAO) had found the carriers’ certification process irregular in an industry that was low on surveillance and less compliant to international requirements.
Thus, Air Uganda, just like other local airlines, according to CAA, had failed the audit and could not continue to operate, requiring the affected airline to consider going through a new recertification process.
The saga, which lasted almost a month, capped the eventual exit of the carrier by the end of August 2014.
A letter written on June 17, 2014 by CAA indicated the International Civil Aviation Organisation (ICAO) had found the carriers’ certification process irregular in an industry that was low on surveillance and less compliant to international requirements.
Thus, Air Uganda, just like other local airlines, according to CAA, had failed the audit and could not continue to operate, requiring the affected airline to consider going through a new recertification process.
Audit
faults CAA
Results of the ICAO audit only became available to the public in December 2014; four months after Air Uganda had folded.
Although the audit makes no mention of any particular airline, it made several recommendations, among them, dealing with inconsistences in CAA’s regulatory oversight.
Results of the ICAO audit only became available to the public in December 2014; four months after Air Uganda had folded.
Although the audit makes no mention of any particular airline, it made several recommendations, among them, dealing with inconsistences in CAA’s regulatory oversight.
“CAA
should strengthen the internal audit and quality assurance section with the
necessary techniques and technical skills to enable it effectively perform its
function including audit of the directorate of safety, security and economic
regulation,” the audit reads in part.
The audit also found CAA’s aviation, certification and regulation below the global requirement of 66.45 per cent, considering that Uganda was rated at 45.45 per cent.
The audit also found CAA’s aviation, certification and regulation below the global requirement of 66.45 per cent, considering that Uganda was rated at 45.45 per cent.
Compared
to regional authorities, including Kenya and Rwanda, which are rated at 77.27
per cent and 68.28 per cent, respectively in terms of effective regulation,
airlines certified by CAA had been considered risky for travellers and industry
trends.
CAA is also below the global average in terms of effective licensing, operations and air navigation services.
The Authority, however, did score above the global average in airworthiness, organisation and aerodromes.
CAA is also below the global average in terms of effective licensing, operations and air navigation services.
The Authority, however, did score above the global average in airworthiness, organisation and aerodromes.
The
half-truths
In a communication to MPs regarding the suspension of Air Uganda, the then Works minister Abraham Byandala insisted the carrier was towing a dangerous line, including incidents of near misses and crash landing.
Additionally, Mr Byandala said the airline had been warned to adhere to safety procedures, among which was failure to provide fleet maintenance documentation.
“The above irregularities presented a significant gap in safety assurance process within Air Uganda,” Mr Byandala said then.
In a communication to MPs regarding the suspension of Air Uganda, the then Works minister Abraham Byandala insisted the carrier was towing a dangerous line, including incidents of near misses and crash landing.
Additionally, Mr Byandala said the airline had been warned to adhere to safety procedures, among which was failure to provide fleet maintenance documentation.
“The above irregularities presented a significant gap in safety assurance process within Air Uganda,” Mr Byandala said then.
Byandala’s
argument continues to be shared by CAA, with the Authority maintaining it had
no option but to suspend Air Uganda operations.
“With incidents recorded on a regular basis and manuals and procedures irregularly altered, CAA had no choice but to withdraw the airlines Air Operator Certificate. The deficiencies were compounded by the results of an inspection of the Airline’s Maintenance Organisation (AMO) that was also found wanting,” Rama Makuza, the CAA managing director told this reporter.
“With incidents recorded on a regular basis and manuals and procedures irregularly altered, CAA had no choice but to withdraw the airlines Air Operator Certificate. The deficiencies were compounded by the results of an inspection of the Airline’s Maintenance Organisation (AMO) that was also found wanting,” Rama Makuza, the CAA managing director told this reporter.
Subsequently,
Air Uganda ceased operations, laying-off more than 200 staff in its commercial
and handling business.
Cornwell Muleya, the then chief executive officer, rubbished CAA’s claims, maintaining the responsibility to file maintenance and incident reports was not Air Uganda’s business since they were using leased aircrafts.
Cornwell Muleya, the then chief executive officer, rubbished CAA’s claims, maintaining the responsibility to file maintenance and incident reports was not Air Uganda’s business since they were using leased aircrafts.
He
further said as Air Uganda they could not risk their reputation in a highly
regulated airline industry, insisting CAA was to blame for failing to properly
file industry audits as well as conducting its oversight roles as recommended
by ICAO.
All locally licenced airlines were suspended meaning they did not meet international standards.
Before quitting, Mr Muleya saw through the sale of Air Uganda assets, debts, including shareholders equity and informing shareholders of the decision to fold the Uganda venture.
All locally licenced airlines were suspended meaning they did not meet international standards.
Before quitting, Mr Muleya saw through the sale of Air Uganda assets, debts, including shareholders equity and informing shareholders of the decision to fold the Uganda venture.
Wolfgang
Thome, a contributor with the travel news site - r-turbo, vocally criticised
CAA’s decision to suspend Air Uganda and other airlines, faulting the authority
for the woes afflicting Uganda’s aviation sector.
For instance he said Air Uganda could not afford the luxury of spending a day grounded since operating the airline business includes huge overheads.
A day without operation for an airline can result into huge losses considering many contracts are pegged on the company’s daily operations.
The situation could not be helped, given that Air Uganda was yet to turn into a profitable venture in its seven years of operation.
For instance he said Air Uganda could not afford the luxury of spending a day grounded since operating the airline business includes huge overheads.
A day without operation for an airline can result into huge losses considering many contracts are pegged on the company’s daily operations.
The situation could not be helped, given that Air Uganda was yet to turn into a profitable venture in its seven years of operation.
Negotiations
between Uganda Civil Aviation Authority and the Aga Khan Fund for Economic
Development, the majority shareholders in Air Uganda, which had been initiated
in September 2014 to discuss the revival of Air Uganda, collapsed with the
airline saying it would be hard to effectively operate, considering the huge
loses incurred and the massive reputation damage.
Experts estimate the airline to have posted more than $500m in losses before fully closing down in August 2014.
Experts estimate the airline to have posted more than $500m in losses before fully closing down in August 2014.
Talk
of reviving a national airline
The exit of Air Uganda opened talk of reviving Uganda Airlines, a government-owned airline, which was liquidated in 2001.
In several Cabinet meetings last year, this newspaper understands the Ministry of Works and Transport vouched for the revival of the national carrier with a view of buying shares in Air Uganda.
However, a paper, which was presented on the matter then, was sent back for reviewing, especially in the area of cost implication but many of the suggestions have been over taken by events, among them the closure of Air Uganda.
Other options, including finding joint venture partners or a go-it-alone option (100 per cent funding) had been discussed however, no conclusion has been discussed yet.
Reviving the national airline is also being supported by tourism sector with players such as Uganda Tourism Board, National Planning Authority and traders, saying it will help to market the country.
The exit of Air Uganda opened talk of reviving Uganda Airlines, a government-owned airline, which was liquidated in 2001.
In several Cabinet meetings last year, this newspaper understands the Ministry of Works and Transport vouched for the revival of the national carrier with a view of buying shares in Air Uganda.
However, a paper, which was presented on the matter then, was sent back for reviewing, especially in the area of cost implication but many of the suggestions have been over taken by events, among them the closure of Air Uganda.
Other options, including finding joint venture partners or a go-it-alone option (100 per cent funding) had been discussed however, no conclusion has been discussed yet.
Reviving the national airline is also being supported by tourism sector with players such as Uganda Tourism Board, National Planning Authority and traders, saying it will help to market the country.
The
bigger question
Up
to now, many have been and continue to ask why Air Uganda never sought legal
redress but the answer is grounded in the fact that the airline would be
required to go through the recertification process and then proceed to
court.
Another argument was that if Air Uganda or any other airline had any dispute it would be resolved through a tribunal, which CAA has never set up.
The CAA Act provides that all disputes in the airline sector shall be settled in a tribunal set up by the Authority.
Another argument was that if Air Uganda or any other airline had any dispute it would be resolved through a tribunal, which CAA has never set up.
The CAA Act provides that all disputes in the airline sector shall be settled in a tribunal set up by the Authority.
After
Air Uganda had exited Uganda, its routes were temporarily granted to Ethiopian
Airlines and Rwandair.
The exit also had a knock-on effect on ticket fares with Kenya Airways almost tripling its return ticket from Entebbe to Nairobi, Kenya.
A return ticket to the Entebbe-Nairobi route on Kenya Airways which had spiked to almost $800 (Shs2.4m) after the closure of Air Uganda has since dropped to $300 (Shs930,000).
The exit also had a knock-on effect on ticket fares with Kenya Airways almost tripling its return ticket from Entebbe to Nairobi, Kenya.
A return ticket to the Entebbe-Nairobi route on Kenya Airways which had spiked to almost $800 (Shs2.4m) after the closure of Air Uganda has since dropped to $300 (Shs930,000).
Cautious
on revivals of Uganda airlines
Mr
Francis Kamulegeya, the managing partner at PriceWaterhouseCoopers Uganda, is
cautious of the move to revive Uganda Airlines, saying it might not be a major
priority for government currently.
“The debate is still out there. We have to first ask why Uganda Airlines collapsed? Since we are expanding the airport, do we attract more international airlines or do we start our own and fly to those various destinations?” he says. The cost implication, if the revival was to be taken up would be high, considering that government has just secured a $350m loan from China’s Exim Bank for the expansion and rehabilitation of Entebbe International Airport.
“The debate is still out there. We have to first ask why Uganda Airlines collapsed? Since we are expanding the airport, do we attract more international airlines or do we start our own and fly to those various destinations?” he says. The cost implication, if the revival was to be taken up would be high, considering that government has just secured a $350m loan from China’s Exim Bank for the expansion and rehabilitation of Entebbe International Airport.
“If
government were to embark on forming a national airline again, against broad
counsel against doing so, they would need to recruit a team of proper experts
to set it up, and then inject at least $200m to acquire the right sized
aircraft, set up a maintenance base in Entebbe and start operations,” Wolfgang
Thome points out.
Uganda
Airlines revival suffers financial setback
By FREDERIC MUSISI
Kampala.
President
Museveni’s ambitious grand plan to have Uganda Airlines fly again as soon as
possible has encountered a headwind with the government stuck on how to raise
the initial capital to get the project off the ground.
An
official familiar with the multi-billion dollar project, told Sunday Monitor
this week that approaching an external source (China’s EXIM Bank being on top
of the list) was initially discussed as the immediate alternative at hand for
government to raise the initial investment capital. However, due to the ever
changing competing priorities, “there is a second thought on borrowing to
finance a project whose returns are very debatable” notwithstanding available
reports on the cost-benefit analysis of a national carrier.
The
National Planning Authority, which, together with ministry of Works, is
spearheading the project, had last year indicated that the initial capital
expenditure required to fly Uganda Airlines again was earlier put at $400m
(Shs1.4 trillion).
Since
the revival plans started on recommendation of a report by government agencies,
including the Uganda Development Corporation, Civil Aviation Authority and
National Planning Authority, the plan was/is for government to buy and operate
its own aircrafts like South Africa, Ethiopia and neighouring Kenya; for which
they needed to borrow at least $331m (Shs1.1 trillion) to purchase six
aircrafts for starters.
The
official also intimated that President Museveni is very keen on “borrowing the
Ethiopian experience, and probably having the Ethiopians help Uganda get the
first foot on the ground—including sharing of technical staff.
Ethiopian
Prime Minister Hailemariam Desalegn left the country yesterday (Saturday)
afternoon after a three-day state visit, but it is still unclear whether during
talks with President Museveni—at State House on Thursday and at Kisozi farm on
Friday—the two discussed the matter.
Works
minister Monica Azuba-Ntege confirmed to this newspaper on Wednesday they had
[that day] forwarded a White Paper to Cabinet outlining the several modalities
of getting the project off the ground.
“The
ministry of Finance gave us a certificate of implication for the project, and
this will guide the discussions,” she said. “Some of the modalities are;
whether we should operate the entity as a statutory corporation, through Public
Private Partnership (PPP)/co-financing, or we should just bring an investor to
operate it—but that is all subject to discussions.”
Asked
when Cabinet was likely to discuss the matter, Ms Azuba said “hopefully” next
Wednesday but “well, at least we submitted it.”
Like
our sources intimated, the minister, however, expressed misgivings on
government borrowing/turning to China’s EXIM Bank to secure funding for the
project, saying “our preoccupation right now is getting money for the oil roads
that are required to facilitate oil production” in the oil belt, Albertine
Graben, in South Western Uganda.
This
newspaper disclosed on Thursday that government is tabling a loan request of
more than $500m (Shs2 trillion) to Exim Bank, which will be supplemented by
withdrawals from the Petroleum Fund, and additional funding from the ongoing
budgetary cuts for financing 10 oil roads and a bridge in the Albertine Graben.
Government
is in great anticipation of a cash advance of $2.8b (Shs8 trillion) from Exim
Bank for financing the construction of the first phase of the Standard Gauge
Railway (SGR)—the 273km line running from Malaba to Kampala.
Exim
Bank already is financing other government’s expensive signature projects,
among others the $2.2b (Shs7 trillion) Karuma (600MW) and $590m (Shs2 trillion)
Isimba hydro-power dams, $500m (Shs1.8 trillion) Kampala-Entebbe Expressway and
$200m for expansion of the Entebbe airport.
A
report, the Presidential Economic Council Paper on the Revival of Uganda’s
National Carrier, prepared by government agencies tasked to plot the process,
recommended that if Uganda Airlines is to be revamped, government should
consider buying brand new aircraft instead of leasing.
Attempts
to reach the National Planning Authority were futile as our repeated calls were
not answered by press time.
During
his inaugural address to Cabinet last year, President Museveni termed the lack
of a national airline “a big shame,” criticising Kenyan, Ethiopia and South
African “brothers” for ditching the comradeship and instead opting to exploit
Ugandans. “I thought that our brothers in Ethiopia, Kenya, South Africa, etc.
having airlines would serve all of us. That, however, is apparently not the
case,” he said.
Finance
minister speaks out.
The
minister of Finance, Mr Matia Kasaija, yesterday said reviving the national
carrier is not a top priority in our economy at the moment.
“We
don’t have money for it right now. We have already reached our borrowing limit
and as such, we are prioritising roads at the moment,” he said.
The Finance minister said they would focus on the airline after tackling the key priority areas at the moment.
The Finance minister said they would focus on the airline after tackling the key priority areas at the moment.
NPA
report on the project.
“Government will purchase the aircraft using loan finance sourced internationally at an interest rate of 5 per cent per annum and over periods of 7-10 years (One A330-200 cost is estimated at $109.5m (Shs372 billion). Two are required, while a CRJ900 costs $27.96m (Shs95b),” the report points out.
“Government will purchase the aircraft using loan finance sourced internationally at an interest rate of 5 per cent per annum and over periods of 7-10 years (One A330-200 cost is estimated at $109.5m (Shs372 billion). Two are required, while a CRJ900 costs $27.96m (Shs95b),” the report points out.
Money
matters. Government proposes to borrow $331m (Shs1.1 trillion) for the purchase
of six aircraft to ply both regional and international routes. One of the
possible sources of the borrowed funds is the PTA Bank, which the report notes,
has shown the intention to finance the project.
The
89 page blue print notes that the revamped national airline would be spending
about $45.2m (Shs156.6 billion) annually on leasing expenses for six aircraft.
Golden
days. Uganda initially had an airliner, established in May 1976 under the Idi
Amin government but was in 2001 liquated over heavy debts that stood at a tune
of more than $6m (about Shs21b). The liquidation, a painful reality, did not
settle in well with a number of stakeholders, who blamed government for
deliberately killing the airline. - Jonathan Adengo
THE
NUMBERS
238b
The
government will inject $70m (Shs238b) for operating the airline as start-up
capital and working capital.
1.1trillion
The
government proposes to borrow $331m (Shs1.1 trillion) for the purchase of six
aircraft to ply both regional and international routes.
Should the govt revive Uganda Airlines?
By Vision Reporter
Added 28th February 2013 12:17 PM
By Joel Ogwang
Twelve years since the collapse of the Uganda Airlines in 2001, the Government plans to revive the national carrier in a move geared at boosting tourism and trade. However, this has attracted mixed reactions.
Formation and collapse
Following the collapse of the East African Airways in 1976 due to political squabbles among the East African Community (EAC) leaders, partner states were forced to start national carriers.
Tanzania took a head-start with Air Tanzania. Soon after, Kenya Airways (KQ) and Uganda Airlines started operations in 1977.
However, whilst Air Tanzania and Kenya Airlines stayed afloat, Uganda Airlines lasted just over two decades.
By 2000, the airline was not self-sustaining due to bankruptcy.
Attempts to privatise the airline to revive its profitability and competitiveness fell bare. Initially Air Mauritius, Inter Air, Kenya Airways and Sabena expressed interest but declined to submit bids, leaving only SA Alliance/ SAA by 1999.
SAA also lost interest, forcing the Government to liquidate the airlines in 2001.
Why it collapsed
Experts say the Government’s failure to support the airline to develop Entebbe International Airport as its hub, and the sale of its ground handling business to Entebbe Handling Services (Enhas), a company linked to foreign affairs minister, Sam Kutesa, led to its demise.
“Another reason was debts,” says a 78-year-old former employee who preferred anonymity.
“The Government owed the airline billions in unmet air travel bills.”
Government to revive national airline
However, the Government plans to revive Uganda Airlines.
“I am drafting a paper to present to the Cabinet about the viability of reviving the national carrier,” said works and transport minister Eng. Abraham Byandaala recently.
In its recommendations to the Government, the Civil Aviation Authority (CAA), the industry regulator, wants a study into the collapse of Uganda Airlines.
“The causes (of the collapse of Uganda Airlines) have to be analysed so that we don’t make the same mistakes,” says another source.
Ignie Igundura, the CAA spokesperson, said the Government is yet to respond to the recommendations.
“But there is a lot of (political) will to revive Uganda Airlines,” he noted.
Why a national carrier?
Reviving a national courier would boost Uganda’s tourism potential and positioning as a conferencing hub.
Entebbe boasts 24 scheduled and unscheduled international operators and 12 non-scheduled local operators. Its passenger handling growth stands at 1.5 million international passengers.
“There should be an airline that has a limb and spoke operation, picking passengers and dropping them at Entebbe (International Airport),” says Igundura.
“A national airline is a symbol of national pride. A Ugandan would feel proud to travel in a Uganda Airlines than with any other airline.”
A national airline would also offer cheaper internal fares, create employment and increase the taxable base.
But why does the Government have to revive the Uganda Airlines?
“Do we want to subsidise our high value exports? This does not require starting an airline. Exporters can be given concessions to reduce costs of the freight on existing carriers, which would be a whole lot cheaper than setting up a new airline,” says a source.
Starting a national carrier
A national flag-bearer can be started either through 100% government investment and ownership, or a public-private partnership.
For example, while Emirates Airlines, British Airways, Ethiopian Airways, Air Tanzania and RwandAir are government-owned, Kenya Airways is a joint-venture between the Royal Dutch Airlines, KLM and the Kenyan government.
Contrary to views that government enterprises are loss-making, Ethiopian Airlines posted a profit of $120m as of 2010, while Rwanda guaranteed $60m for RwandAir to purchase new aircrafts and fast-track Kigali International Airport as a hub.
“To start a hub, Uganda needs to invest about $500m to acquire five aircrafts, three of which would ply regional routes, while the other two take-on the longer routes,” says a source.
A hub would help the national airline to rally passenger numbers from neighbouring countries due to the low traffic still experienced at Entebbe Airport.
Kenya Airways has a hub at Jomo Kenyatta International Airport, while British Airways has Gatwick and Heathrow airports as its operational hubs.
“When you have a national airline, there are many flights terminating at that airport,” says Igundura.
“Faced with war or any other disaster, Uganda would rely on the national airline to intervene and transport victims and arms.”
Race for a PPP on
Private operators are seeking partnership with the Government to re-establish a national airline, led by Air Uganda, a quasi-national flag-bearer belonging to the Aga Khan Fund for Economic Development (AKFED).
“We think of ourselves as a national carrier. Our logo is the Crested Crane, a national symbol,” says Roberto Manzi, the technical director.
“The Aga Khan has asked the Government to own shares (in Air Uganda) so that we operate as a national airline. We have not had a response yet.”
As well, SKA Uganda, another private operator, is seeking partnership with the Government.
“We want a PPP with Uganda to help start a national carrier and develop her export business,” says Andy Lewis, the station manager.
Challenges
But with widespread corruption, accounting for sh500b loss annually, according to the World Bank, fears abound that this would not be a worthy investment.
“Do we want to divert millions of dollars from health and education to set up an airline which may never be profitable?” asks a source that prefered anonymity .
Raising $500m to buy aircrafts, expand Entebbe Airport and take over ground-handling and catering services is challenging.
“By the time Uganda Airlines was wound-up, it had one plane, which was on and off and yet the Government was subsidising it at the cost of $1m a month,” says a former manager at CAA.
“Do we have that money to throw away?”
Uganda Airlines would also have to compete with established global airlines for international routes and be managed professionally to keep it competitive and self-sustaining.
Works state minister Eng. John Byabagambi says the Government must consider a national carrier not just as a business, but an infrastructure like a road commuting through the air.
“It should be budgeted for,” he says.
“RwandAir is not making profits, but the government looks at it as an infrastructure budgeted for and has bought three Boeings. Even Kenya Airlines is not profitable.”
Twelve years since the collapse of the Uganda Airlines in 2001, the Government plans to revive the national carrier in a move geared at boosting tourism and trade. However, this has attracted mixed reactions.
Formation and collapse
Following the collapse of the East African Airways in 1976 due to political squabbles among the East African Community (EAC) leaders, partner states were forced to start national carriers.
Tanzania took a head-start with Air Tanzania. Soon after, Kenya Airways (KQ) and Uganda Airlines started operations in 1977.
However, whilst Air Tanzania and Kenya Airlines stayed afloat, Uganda Airlines lasted just over two decades.
By 2000, the airline was not self-sustaining due to bankruptcy.
Attempts to privatise the airline to revive its profitability and competitiveness fell bare. Initially Air Mauritius, Inter Air, Kenya Airways and Sabena expressed interest but declined to submit bids, leaving only SA Alliance/ SAA by 1999.
SAA also lost interest, forcing the Government to liquidate the airlines in 2001.
Why it collapsed
Experts say the Government’s failure to support the airline to develop Entebbe International Airport as its hub, and the sale of its ground handling business to Entebbe Handling Services (Enhas), a company linked to foreign affairs minister, Sam Kutesa, led to its demise.
“Another reason was debts,” says a 78-year-old former employee who preferred anonymity.
“The Government owed the airline billions in unmet air travel bills.”
Government to revive national airline
However, the Government plans to revive Uganda Airlines.
“I am drafting a paper to present to the Cabinet about the viability of reviving the national carrier,” said works and transport minister Eng. Abraham Byandaala recently.
In its recommendations to the Government, the Civil Aviation Authority (CAA), the industry regulator, wants a study into the collapse of Uganda Airlines.
“The causes (of the collapse of Uganda Airlines) have to be analysed so that we don’t make the same mistakes,” says another source.
Ignie Igundura, the CAA spokesperson, said the Government is yet to respond to the recommendations.
“But there is a lot of (political) will to revive Uganda Airlines,” he noted.
Why a national carrier?
Reviving a national courier would boost Uganda’s tourism potential and positioning as a conferencing hub.
Entebbe boasts 24 scheduled and unscheduled international operators and 12 non-scheduled local operators. Its passenger handling growth stands at 1.5 million international passengers.
“There should be an airline that has a limb and spoke operation, picking passengers and dropping them at Entebbe (International Airport),” says Igundura.
“A national airline is a symbol of national pride. A Ugandan would feel proud to travel in a Uganda Airlines than with any other airline.”
A national airline would also offer cheaper internal fares, create employment and increase the taxable base.
But why does the Government have to revive the Uganda Airlines?
“Do we want to subsidise our high value exports? This does not require starting an airline. Exporters can be given concessions to reduce costs of the freight on existing carriers, which would be a whole lot cheaper than setting up a new airline,” says a source.
Starting a national carrier
A national flag-bearer can be started either through 100% government investment and ownership, or a public-private partnership.
For example, while Emirates Airlines, British Airways, Ethiopian Airways, Air Tanzania and RwandAir are government-owned, Kenya Airways is a joint-venture between the Royal Dutch Airlines, KLM and the Kenyan government.
Contrary to views that government enterprises are loss-making, Ethiopian Airlines posted a profit of $120m as of 2010, while Rwanda guaranteed $60m for RwandAir to purchase new aircrafts and fast-track Kigali International Airport as a hub.
“To start a hub, Uganda needs to invest about $500m to acquire five aircrafts, three of which would ply regional routes, while the other two take-on the longer routes,” says a source.
A hub would help the national airline to rally passenger numbers from neighbouring countries due to the low traffic still experienced at Entebbe Airport.
Kenya Airways has a hub at Jomo Kenyatta International Airport, while British Airways has Gatwick and Heathrow airports as its operational hubs.
“When you have a national airline, there are many flights terminating at that airport,” says Igundura.
“Faced with war or any other disaster, Uganda would rely on the national airline to intervene and transport victims and arms.”
Race for a PPP on
Private operators are seeking partnership with the Government to re-establish a national airline, led by Air Uganda, a quasi-national flag-bearer belonging to the Aga Khan Fund for Economic Development (AKFED).
“We think of ourselves as a national carrier. Our logo is the Crested Crane, a national symbol,” says Roberto Manzi, the technical director.
“The Aga Khan has asked the Government to own shares (in Air Uganda) so that we operate as a national airline. We have not had a response yet.”
As well, SKA Uganda, another private operator, is seeking partnership with the Government.
“We want a PPP with Uganda to help start a national carrier and develop her export business,” says Andy Lewis, the station manager.
Challenges
But with widespread corruption, accounting for sh500b loss annually, according to the World Bank, fears abound that this would not be a worthy investment.
“Do we want to divert millions of dollars from health and education to set up an airline which may never be profitable?” asks a source that prefered anonymity .
Raising $500m to buy aircrafts, expand Entebbe Airport and take over ground-handling and catering services is challenging.
“By the time Uganda Airlines was wound-up, it had one plane, which was on and off and yet the Government was subsidising it at the cost of $1m a month,” says a former manager at CAA.
“Do we have that money to throw away?”
Uganda Airlines would also have to compete with established global airlines for international routes and be managed professionally to keep it competitive and self-sustaining.
Works state minister Eng. John Byabagambi says the Government must consider a national carrier not just as a business, but an infrastructure like a road commuting through the air.
“It should be budgeted for,” he says.
“RwandAir is not making profits, but the government looks at it as an infrastructure budgeted for and has bought three Boeings. Even Kenya Airlines is not profitable.”
Opinion | To Revive or Not to Revive Uganda Airlines
By Eng. Dickinson Dunstan Turinawe — There has
been a growing debate on whether Uganda Airlines should be revived or not.
Having worked for the Airline for a period of 22 years up to the time it was
closed, in various senior positions, I feel it appropriate to add
some flavor to this debate as a civic obligation.
I trust that my input will further inform any decisions and plans that
are being formulated. It is my considered opinion that the historical
background of Uganda Airlines be considered to avoid similar mistakes.
As it is, my submission will look at what made Uganda Airlines fail, the
current industry situation, the success factors in the industry, the rationale
of a National Airline and the requirements for a sustainable Uganda National
Airline.
The pitfalls of Uganda Airlines Corporation
When I joined Uganda Airlines in 1978, the Airline had an Aircraft fleet
made up of 15 Aircraft fully owned by Uganda Government. Of course, the fleet
structure was disjointed with unclear strategic purpose. The fleet ranged from
two to 16-seaters that belonged to the Small fleet.
There were Two Fokker F27s, 44-Seaters that operated on domestic
regional routes. Then Two Boeing 707s that operated international routes
(mainly to London, Rome, Brussels, Cologne, Cairo and Dubai).
The Airline also operated Lockheed L100, commonly known as C130 (the
only surviving Aircraft to date) which was dedicated to cargo operations. Given
the above background, the decline and eventual collapse of Uganda Airlines is
attributable to undercapitalisation, gradual asset stripping, faulty
privatisation process and uncompetitive fuel prices.
Undercapitalisation and gradual asset stripping
Prior to the 1980s, Uganda Airlines was heavily financed by the
Government and was not treated as profit making organisation that was meant to
be autonomous. This was largely a result of how it had been formed.
It was treated as a strategic entity with the main aim of mitigating the
impact of sanctions against the then government given that Uganda is
land-locked. Indeed Uganda Airlines fulfilled its role very effectively.
Against this background, undercapitalisation may be irrelevant to that
period.
Come to the 1980s the role of Uganda Airline changed to a profit-making
organisation without any additional capital despite the heavy negative impact
the 1979- 1980 war had inflicted on her. As a result, the Airline had poor
technical support services.
The Police Air wing Hangar meant for Helicopters and small aircraft was
the only facility to talk about for purposes aircraft maintenance, workshops and
stores. Most of the basic repairs such as tire building were being done in
Nairobi in Kenya Airways facilities. The inability to carry out such basic
activities had serious implications on operational efficiency.
To go around this problem, the Airline resorted onto asset build up
using the only available assets then: the routes and Ground Handling services.
The air routes as an asset
In order to explain how routes acted as an asset, it is important to
understand how route structures are regulated in civil aviation.
Take an example of Entebbe/Nairobi. This route is co-owned by Uganda and
Kenya. For any operator to pick and drop air traffic (cargo or passengers),
say, from Entebbe and drop them in Nairobi or vice versa, that operator must be
designated (licensed) to do so by either government.
Where a single designation policy is at work- and this was the case
then- a third party would have to pay loyalty fee to the designated carrier.
Through this channel, Uganda Airlines was able to raise revenues that were used
to establish some of the basic maintenance facilities.
Unfortunately, this source was stopped by government without any respite
as part of liberalisation policy. This constituted one of the modes of asset
stripping.
Ground handling services
The other strategic asset that remained was the ground handling services that the Airline was offering to herself and other airlines operating into Entebbe. The Airline had a department called Ground Operations dedicated to this activity covering cargo, passenger and aircraft handling.
The other strategic asset that remained was the ground handling services that the Airline was offering to herself and other airlines operating into Entebbe. The Airline had a department called Ground Operations dedicated to this activity covering cargo, passenger and aircraft handling.
After the stoppage of loyalties from the routes, the revenue from ground
handling constituted about 65% of total revenue earned by the Airline. The
Airline decided on a strategy of building the transportation component
(acquiring Aircraft through lease arrangements) using funds from ground
handling services.
With this strategy, the Airline was able to acquire two B737s that were
plying regional routes. Unfortunately, in the mid-1990s, before the Airline had
acquired a self-sustaining Aircraft fleet composition, the department of Ground
operations was privatised.
This was additional asset stripping that dealt a fatal blow to the fleet
development strategy contributing to the eventual collapse of Uganda Airlines.
Faulty privatisation process
For a period of four years, the Airline had privatisation deadlines on a
monthly basis. This unending privatisation process was a latent killer given
that airline operations, by their nature are futuristic in terms of promises
made to the clientele.
A client has to be sure that once he picks your documents you will be
there in the near future to fulfill your promise. The impaired assurance meant
that the clients became reluctant to procure Uganda Airlines services. This
state of affairs meant that the airline was offering uncompetitive service
operations with attendant cash-flow difficulties.
Another negative development arising from this faulty process led to
inability to interline with other airlines because of poor dependability
arising from the constant uncertainty.
Fuel prices
In airline operations, fuel constitutes 25% to 36% of total costs and
Uganda Airlines because of the aged fleet and actual fuel price at Entebbe this
figure was about 40%. The fuel at Entebbe Airport was more expensive compared
to the bases of competitors.
Given the already cash-flow difficulties faced by the airline, this
could only make matters worse. Attempts to have this addressed, by way of
subsidies, did not yield desired results.
Current industry analysis
Current industry analysis
Given the desire to set up a national carrier that is to be commercially
run, the current industry analysis has to be addressed. The competitive forces
include suppliers, rivals, buyers, substitutes, and threat of new entrants.
There are few major Aircraft suppliers in the industry, notably, Boeing
and Airbus and this means that airlines are forced to make purchases in
advance, which can significantly distort their cash flows. The alternative is
to engage third parties with attendant stringent contractual terms.
The suppliers of spare parts are equally limited in number. This
precipitates a situation where the Supplier’s bargaining power, as a threat to
profit in the airline industry, is highly intense.
Rivalry in the airline industry, globally, is very intense and poses a
high threat to profit. Revenues are sensitive to numerous factors and the
actions of other carriers in the areas of pricing, scheduling, promotions and
interline capabilities.
In the EAC market, Uganda Airlines would have to contend with the
intense competition from existing major carriers who currently enjoy high
economies of scale and advantages accrued from a learning curve.
The airlines industry is sensitive to conditions beyond its control.
These are political stability, security, changes in consumer preference,
perceptions, spending patterns, and demographic trends. In most cases customers
can choose among many different airlines with a low cost of switching.
When buyers have less money to spend, they use air travel less
frequently, which poses a high threat to the profit in the airline industry. An
Airline based at Entebbe will be looking at Entebbe to Nairobi, Kigali, and
Juba as important regional routes with potential surface transport as a
substitute.
However, the efficiency and convenience of air travel is tough to
imitate by other forms of transportation especially long-haul journeys meaning
that the threat of substitutes is very low.
The airline industry is very tough to enter because of very high capital
outlays required and existing worldwide mega-alliances. The capital cost to
purchase aircrafts and specialist machinery, hanger and other airfield space,
skilled labour and to satisfy stringent safety requirements are very high and
make entry very hard. For example, a single modern jet for long-haul
operations cost between US$200 – 258m while its spare engine ranges US$17-19m.
Medium range Aircraft suitable for regional operations cost US$75-110m
with a spare engine costing US$6m to 8m. Because of the global nature of
Airline business, there are, basically, three worldwide mega-Airline alliances:
Star Alliance, SkyTeam and Oneworld.
An International airline has to network into these alliances in order to
tap into worldwide passenger flow; otherwise, it is almost impossible for new
entrants to win business, even after massive capital outlays. This means that
Uganda Airlines will need a Strategic Partner; otherwise, major airlines can
use economies of scale to undercut her on price and delivery speed.
Membership of Mega-Airline Alliances
SkyTeam
The members include Air Europa, Air France, Alitalia, Aeroflot,
Aeromexico, Continental Airlines, Czech Airlines, KLM, Delta Airlines, Korean
Air and a few other carriers. The alliance covers a large number of cities in
every continent of the world.
StarAlliance
The members of this alliance are Air Canada, Air China, Austrian
Airlines, BMI, Lufthansa, South African Airways, Singapore Airlines, Swiss
International airlines, Turkish Airlines, US Airways and United Airlines. Star
Alliance has reached destinations in US and Canada, South
America, Central America, Mexico, The Caribbean, Europe, Middle East and
Australia.
Oneworld
The members of Oneworld include British Airways, American Airlines,
Cathay Pacific, Finnair, Iberia, LAN, Qantas, Japan Airlines, Malev and Royal
Jordanian Airlines. Oneworld serves destinations in US and Canada, Central
America, South America, The Caribbean, Europe, Middle East, Asia, Africa and
Australia.
Rationale of a National Airline
While the debate on reviving a national Airline there is the question
about the necessity of the Airline. To appreciate the need of a national
airline, one needs not only to focus on the airline as an entity but also to
consider the externalities arising from the existence of the Airline.
The externalities cover tourism industry, agricultural industry, job
creation, the strategic implications for a land locked country as Uganda and
National pride (a flag carrier).
There is empirical data that shows positive correlation between aircraft
fleet size of national carriers, Tourism revenue and GDP. It is also well known
that it is those countries that have strong national carriers that have
excelled in tourism.
There are good examples of Kenya, Singapore, and South Africa to mention
but a few. Of course, a boost in tourism has its own externalities in terms of
creating a population with enhanced purchasing power, which is an essential
input into the drive for industrialisation.
It is important to note that a home based airline plays a big role in
marshalling tourist because passengers abhor stopovers, which have to be there
because designation rights the world over in the Airline industry.
A national airline would boost the Agricultural industry especially the
horticulture and Fresh food sectors. Without a home-based international
Airline, it is difficult to sustain horticultural activities such as
flower industries, fish industries and other products that have to be delivered
fresh to final consumer.
The other significance is the strategic implications given that Uganda
is a land-locked country. A national Airline will become handy in emergencies.
This may due to issues of national sovereignty, medical supplies, natural
disasters that require flexibility for the national interest.
A national airline would contribute directly and indirectly to Job
creation and resource utilisation. The direct contribution would be employment
opportunities of staff to run the Airline.
The indirect aspect would be through boosting other sectors such as
hotel industry, cultural industry and most important the revival of the
under-utilised Soroti Flying School.
Key success factors
In order to strategise for a successful national carrier, it is
important to identify the key success factors in the current Airline Industry.
The key success factors that need to be addressed include capacity utilization,
fuel cost control, labour cost control, maintenance capabilities, delivery to
market and customer service and satisfaction.
Capacity Utilisation
Because of the high fixed costs that are inherent in the airline
industry, the ability of airlines to utilise every seat on the aircraft is
crucial. This means that the Airline must acquire appropriate Aircraft fleet
size and combination for optimum capacity utilisation.
To determine this, careful route analysis has to be made and necessarily
Entebbe would be the hub with regional operations being the spokes fed by and
feeding into the long haul. Focusing on regional operations is not sustainable
because it is uncompetitive. As an example, assume that there is a passenger in
Entebbe flying to Dubai and he is given two options charging the same fare on
similar aircraft.
One of the airlines (operating regional flights) flies him/her to
Nairobi and wishes him/her well for onward flights and another can take him/her
from Entebbe via Nairobi to Dubai – the choice would obvious all other
factors being constant. The more seats that are filled on a flight,
the more profitable the flight will be for the company.
This explains why the capacity to interline is important. However, this
capacity will be greatly enhanced by Uganda Airlines networking into one of the
mega-alliances through a strategic partner and membership of IATA Clearing
House. The optimum capacity utilisation also requires investment in revenue
management system.
Effective fuel cost control
As mentioned earlier, for an airline fuel cost may constitute up to 40%
of total cost. This means any cuts in this area have substantial impact on the
profitability of the airline.
The cuts may be realised through actual enjoyment of low fuel price fuel
uplifts or having a cost saving uplift management plan of acquiring fuel
efficient modern aircraft. In the case of Uganda, this factor may have to be
taken into account as oil refinery plans are being considered.
It would constitute a crucial competitive advantage for an Airline based
in Uganda. It suffices to note this issue would also be a comparative advantage
for Entebbe Airport as a regional hub.
Effective labour cost control
Airline labour force is highly technical and guided by international
standards and can be expensive. A revived Soroti Flying School would act as a
sustainable source of trained manpower of national character that is cheaper
than expatriate staff whose wage bill can be exorbitant.
Effective maintenance capabilities
Ideally, an aircraft should keep in Air because an aircraft on ground
does not earn. Therefore, aircraft maintenance is about the capability to
efficiently repair aircrafts when there is a problem and return them into
flight as quickly as possible. This means that there should be appropriate
maintenance facilities, including sufficient inventory of spare parts and
qualified technical employees workers to manage the fleet.
This is an area where a lot will have to be done in the case of a
national carrier. Currently, there are no maintenance facilities to talk about.
A modern Hangar (Aircraft Maintenance facility) with basic facilities to handle
maintenance of long haul and medium range passenger aircraft costs about
US$8m–US$10m. This financial factor has to be factored into the
capitalisation programme of the contemplated national carrier.
Prompt delivery to market
In aviation, time is of essence. This means the frequency and
reliability of flights are critical factors for competing airline in airline
choice. On-time performance, builds brand loyalty, which translates into sales
and profitability. No airline can survive in the current environment without
appreciable reliable services.
Part of the consideration in the interline decision making considers
reliability because its implication to the perceived service quality. For the
national airline, this key success factor will be addressed through deliberate
financial outlays in staff training and Aircraft ground handling capability at
Entebbe, the home base.
Apart from enabling the efficient facilitation of her flights, the
airline will earn revenue from handling other airlines that operate into
Entebbe.
Customer service and satisfaction
Customer service and satisfaction includes ratios to measure mishandled
baggage, customer complaints, delayed flights, and overbooking flights. To
realise the benefits of this key success factor, in addition to training, the
airline will have to invest in modern Airline management information systems
including reservation and ticketing ICT.
Conclusion
The planned acquisition of 12 planes by the Government is a step on the
right direction, however, there is a lot more to do in order to establish a
viable international flag carrier.
The investment plan seems to be focusing only, on one key success factor
of Aircraft capacity while giving little attention to other factors. A modest
estimate of the value of planned fleet size of seven Aircraft for long-haul
operations and five regional operations works out at a capital outlay of
US$1.8b (seven Aircrafts at US$200m each and five Aircrafts at US$75m each).
Given that there are other essential infrastructural inputs, it would be
advisable to scale down on the aircraft acquisition, initially, and invest in
the other key result areas in order to have a flag carrier built on a strong
foundation.
Due to rapid technological changes in the Aircraft industry, the
Government may need to consider Aircraft acquisition through dry lease rather
than ownership.
One advantage of this method is that there capital outlay is
substantially less and there airline avoid obsolescence risks that may
precipitate from radical technological innovations, as it happened with many
Airlines when low-noise and more fuel efficient aircraft engines came onto the
market.
The issue of routes is rather intricate given the policy of
liberalisation and regional agreements regarding airline designation and route
rights for member countries, especially, COMESA. The National Airline will be
entering a mature industry where competition is stiff.
This means that the Government will have to support it for some time
before it can break-even, may be a period of about two years.
The positive externalities of a National carrier are evident in terms of
boosting tourism, horticultural, fishing and fresh food industries. There are
other multiplier effects, such as job creation and a population with enhanced
purchasing power, elements that are essential ingredients of industrialisation.
The discovery and impending oil production in Uganda could not have come
at a better time. As part of the plan for oil refinery, the Government should
consider production of Kerosene (Aircraft Fuel commonly known as Jet A1 in
aviation parlance).
Apart from giving the National carrier a substantial competitive
advantage, it will also make Entebbe Airport a competitive destination for
Airline operators. As mentioned earlier, this is so because fuel cost
constitutes a high percentage (25-40%) of total costs of an Airline.
Finally, the arguments made for passenger operations also hold true for
cargo operations. The only difference is that cargo has less direct complaints.
The writer is a lecturer/head of department of Management Science, Makerere University Business School, Kampala. Email: dturinawe@mubs.ac.ug, hodmanagementsci@mubs.ac.ug
Tel: +256 772 505 729/+256 704 818 432
The writer is a lecturer/head of department of Management Science, Makerere University Business School, Kampala. Email: dturinawe@mubs.ac.ug, hodmanagementsci@mubs.ac.ug
Tel: +256 772 505 729/+256 704 818 432
Uganda
goes shopping for planes in bid to revive national carrier
MONDAY DECEMBER 26 2016
By
RAYMOND TAMALE
Uganda
is determined to have its national carrier flying again in 2017.
Government officials have set August as the month Uganda Airlines will flap its
wings again after more than 16 years of being rendered inoperable and in some
kind of “abeyance”
The
EastAfrican has
learnt that negotiations with Canadian aircraft manufacturer Bombardier and
France’s Airbus for lease of planes to make the initial fleet are in
advanced stages.
“Reviving
the national carrier is a process, so we must move carefully and follow every
step properly, but I can assure you, a decision was made and our plans are now
in advanced stages. Uganda Airlines will be flying again next year,” Works and
Transport State Minister Aggrey Bagiire said on Thursday.
Sources
privy to the planning say the government will initially lease at least six
aircraft, four for short-haul regional flights and two for long-haul.
Regional
carriers, particularly Kenya Airways which has for the past 15
years operated Entebbe like a domestic hub, are likely to suffer loss of
revenue as Uganda seeks to claw back regional routes to kick-start an
ambitious global outreach.
Others
likely to be affected are RwandAir, Ethiopian Airlines and South African
Airlines.
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“We
are going through the protocols, processes and now a Cabinet paper has been
developed. Once Cabinet adopts it, the paper will be presented to
Parliament for approval and financial appropriation. We intend to lease and
start (flying) once people know that we are flying again, then in a period of
about two years, we shall purchase our own aircraft,” Mr Bagiire said.
He
added that leasing was cheap, but only in the short-run. “It becomes
expensive in the long-run, but to start us off, that is the easier option.”
Two
types of leases
Captain
Francis Babu, an aviation expert says there are two types of leases which
Uganda can look at: Outright purchase and lease purchase. “In this case I
would suggest a lease purchase because it’s affordable.”
“Lease
purchase requires between Ush200 to 300 million ($56,000 to $84,000) and there
is an option of changing the fleet every after three or five years, which I’m
certain Uganda can afford at the moment,” he added.
But
Captain Mike Mukula says though lease is convenient in the short term, it
becomes expensive long-term. He added that leasing should only be used as a
stop-gap measure while a more lasting solution is found.
“We
have gone to Airbus and Boeing; we are going to all of them so as to prepare
and also budget accordingly,” said Mr Bagiire.
But
a knowledgeable source said Bombardier’s CRG 900 Generation Next, fitted with
modern amenities like on-board Wi-Fi and the Airbus A320/200 are early
favourites, with the Boeing 737 Generation Next being considered later.
The
government is in the first quarter of next year expected to announce
a launch team of experts and a board for the national career, which will be
charged with establishing a management team.
“We
want to ensure that politics is totally out, I want to travel Uganda Airlines
not as a minister but like you a journalist,” Mr Bagiire said.
Airports
competition
The
revival of Uganda Airlines is likely to trigger competition among
airports. Kigali and Jomo Kenyatta International Airports have been
working to control the region’s air travel by expanding and improving
facilities.
During
this year’s 54th independence celebrations held in Luuka district, President
Yoweri Museveni said the government allowed the airline to close because
it was making losses and by that time Ugandans were not travelling as is the
case now.
“I
have learnt that Ugandans are now spending $420 million per year on travel.
That’s why we decided to revive the airline so as to stop the outflow of this
money,” he said.
Yet
in taking to the skies at this time, Uganda Airlines, which last flew in 2001,
joins a globally struggling industry, and the government is yet to present
a concrete business case.
Between
2001 and now, a number of privately owned airlines attempted to fill the void
left by Uganda Airlines, but all failed and were out of the skies less than two
years after starting operations, except Air Uganda, which operated for seven
years until it was grounded in 2014.
Air
Uganda, whose death knell was sounded when Civil Aviation Authority failed a
routine International Civil Aviation Organisation audit in June 2014, was also
a victim of intrigue, as powerful officials within government were opposed to
the idea of a foreign-owned airline taking the place of the national carrier.
At the time of its grounding, Air Uganda was the de facto national carrier,
operating out of Entebbe.
Uganda
is not alone among countries without national carriers. Other countries like
Ghana, Nigeria and Zambia pulled their airlines out of their skies after years
of loss making and dependence on government subsidies.
The
airline which was established in 1976 by former president Idi Amin with a fleet
of 15 aircraft flying to destinations within Africa and Europe is yet be seen
if it will surpass the recent wave of airlines in the region that are choking
on debt, in a market where the aviation business has become more competitive.
Business
case
According
to a June report of the International Air Transport Association (IATA), African
airlines were to post a $500 million loss by the end of 2016, a minor
improvement on the $700 million that the region’s carriers registered in 2015.
Mid
this year, Kenya Airways announced a Ksh26 billion ($252 million) loss,
which was partly attributed to collusion of the employees and suppliers to
defraud the airline by inflating ticket and fuel prices, an audit of the
carrier revealed, raising questions on whether the non-profitability of the
industry was commercial or sheer corruption.
Either
way, Uganda’s checkered history of corruption does not comfort those who make
the business case for the national carrier.
It
was revealed that Kenya airlines revenue dropped by 3.5 percent to $547 million
from $567 million posted during the period of 2015 while the cargo revenue
dropped by 20.9 per cent.
The
audit report which came out in September showed that Kenya Airways issued over
seven million seats between 2012 and 2015 at below price resulting in a $611.6
million loss, fuel prices were inflated where the airline bought fuel at higher
prices than other airlines in the region specifically compared with what Africa
airlines association had negotiated for its members leading to loss of $32.9
million between the period of 2012-2015.
“Most
times why we face these graft cases it’s because the president tends to give
these big jobs to carders in a way of rewarding them which in most cases are
less qualified who mess up in fear of employing experts meant for job”.
“So
long as no agency in Uganda is independent in its operations the fight against
corruption in all these government entities is still far until we zero it down
to individuals that can be held responsible,” said Cissy Kagaba, a civil
society activist.
Currently
Uganda is earning $800 million or Ush2 trillion annually from the tourism
sector and advocates for revival of a national carrier, arguing these numbers
can be enhanced.
Reviving the Uganda airlines: What government must look
into
The
airline industry is heavily regulated primarily because of the
need for safety, this tends to restrict competition in some way while favouring
those airlines that have got the money to invest.
Of
importance in the industry is what is known as the Bilateral Air Service Agreements simply stated
these are agreements between two countries to operate airlines in respective
countries.
These agreements require
airlines of different countries to have reciprocal arrangements to fly into
each other’s countries. They require that a country designates an airline that
is allowed to fly the national colours of that country and to fly those colours,
there is some requirement of a certain percentage of shares to be owned by
citizens of that country.
This
means that if Uganda wants to fly into the UK, the airline that will fly
passengers from Uganda into UK must be a flag carrier or so designated by
government. This means that Kenya Airways cannot
pick passengers from Entebbe for a direct flight into UK. This restricts
competition and favours the stronger airline. Of course, there are variations
in this model, for instance a country like the US with many airlines has its
airlines fly into Dubai only one airport where as Emirates, the Dubai based
airline flies into numerous airports in the U.S.
This
regulation favours airlines that are well established and have numerous
equipment. It is worth mentioning here that a Uganda airline assume with even 10 aircraft
for a start will not be able to take passengers into its leading passenger
markets.
The
other area of intense regulation is maintenance which I have earlier on
referred to. Because of the need for safety, the airline business is highly
regulated. This requires technical expertise in aircraft maintenance.
All
planes undergo various checks, some are clerical others by distance. Not every
country can do these checks, these are expensive undertakings which if the
airline is not making money, they cannot afford.
Related
to these checks, is insurance, whether on the ground or flying, aircrafts must
be insured. If the airline is not making profit, it cannot meet these costs. As
a result of this, the competition among those countries that can afford
aircrafts, the competition is extremely intense.
What
is interesting is everybody in the value chain except the carriers are making
profits, the only carriers, (airlines) making a profit are those that are
managing their costs very well.
It
is not surprising therefore that large airlines like British Airways, Delta
have cut the luxury on board. The food on these airlines is basic, on some
airlines, you have to buy the drinks.
The
number of aircrew has reduced tremendously, many airlines carry one or two
cabin crew members to serve a large number of people. It is not surprising that
even in countries like Germany, France and the UK. There are frequent strikes
by air crew over what they call pea nut pay.
The
consequence of this intense competition has been the emergence of the budget or
low cost airlines.
These
are airlines that charge low prices but do not serve meals on the plane, charge
you for carrying luggage, don’t refund you when you miss a flight.
They
take advantage of the well-organized regular schedules to ferrying passengers
to different locations. Some of the budget airlines include Ryan Air which charges people for using
toilets. The other is Easy Jet and South East Airlines.
These
local airlines have increased more intense competition in the industry as they
have taken away passengers from the regular scheduled airlines.
The
intense competition has created new challenges, it is not possible to operate
in the market alone, there are now global alliances of airlines trying to keep
competition at bay and be able to make some money.
These
include One World, Sky team and
Star alliance which are alliances of airlines feeding into one another to
control competition.
It
is very difficult to operate alone, Kenya airways is part of sky team, Ethiopian Airways is a Star alliance member.
To
understand this industry, there are over 2000 airlines with a big percentage in
North America, the industry generates over a trillion dollars in sales revenues
annually. The industry is highly technical requires a large number of engineers
and the death rate of airlines is extremely high.
A
large number of big names in the U.S have since closed, many airlines worldwide
are propped by their governments but they still turn a profit. Their activities
and volume of business is worthy the support from government.
It
is in these conditions that we look into reviving the Uganda airlines.
The writer is the former Chairman Uganda
Airlines and current Principal, Makerere University Business School.
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