UGANDA GOVERNMENT SHOULD NOT RUSH THE REVIVAL OF UGANDA AIRLINES.

I am one of those voices that are for the revival of Uganda Airlines, however, following the story by the Independent, Issue No. 381 of August 14 - 20, 2015, my position is that Government MUST first make the ground work to see the airline a viable undertaking.  As a starting point, the national budgets for 2016/17, 2017/18 and 2017/18 should reflect Government investment into Agro - processing, increased export of processed goods and a boost to all the areas that can make the undertaking viable which include investment in tourism as well as good governance.

Reviving Uganda Airlines

By The Independent Issue No. 381 (August 14 - 20, 2015)

Investors, Government moot $450m plan as experts warn on turbulent skies.

Uganda has recently been considering some quite dramatic developments in its aviation sector but, analysts warn, it could be flying into some foul weather without a risk-management plan. In July, Parliament approved a request by the government to borrow over Shs 680 billion for the expansion of Entebbe International Airport.

The two-phase expansion plan involves construction of more runaways, terminals, upholds, and taxi-ways.

In the first phase, the borrowed funds would be used to construct a new cargo terminal, resurface the main runway, and construction of a new terminal building to connect to the existing one.

But the high-risk antennae were raised by the confirmation in early August that the government was indeed considering reviving its defunct national carrier, Uganda Airlines.

Just a year ago, in August 2014, The Independent revealed that it had confirmation from the Vice Chairperson of Parliament's Infrastructure Committee, Simon Peter Aleper, that his committee was auditing the performance of the local airlines to pave way for the revival of Uganda Airlines.

The Independent reported that it had seen a document sent to President Yoweri Museveni detailing the interest of investors abroad to revive the national carrier.

Dated September 16, 2013, the proposal was prepared by two officials; Peter Yehangane and Enock Machelikim on behalf of Air Oasis (UG) Limited (the local coordinating team) for the USA-based Fly Comoros.

In the proposal, investors proposed to inject $160 million and start operations with 23 aircraft. Ugandan investors, probably the government, would foot the balance of US$40 million on an 80 to 20 ratio. Eventually, it was envisaged in the paper that the start-up would have operational capital of US$450 million. That would be higher than the total equity of Kenya Airways as at March 2013.

The investors proposed that they would run the airline for a period of three to five years and then exit after recovering their operational costs and earned a good return on their investment.

At the exit point, the investors say, all shareholding would revert to the State.

At the time, analysts said, the proposal was largely backed by CAA insiders and could have influenced the decision to ground Air Uganda.

At the time, Uganda's then-de facto national carrier, the privately owned Air Uganda, had just been grounded. It did not recover.

Other carriers grounded included Uganda Air Cargo, owned by the government and supervised by the Defence ministry, and smaller operators TransAfric Airlines, Mission Aviation Fellowship (MAF), NdejjeJuu and Aeroclub and Flight Training Centre (KAFTC) - all based at Kajjansi Airfield.

Since the collapse of Uganda Airlines, numerous efforts to revive a de facto national carrier have floundered. These included efforts by the East African Airlines, started by some Ugandans and Africa One, a pan-African airline initially based at Entebbe.

But the revival of the national carrier is favoured for both political-economic reasons and sentimentality.

When it was last discussed in Parliament, the Opposition Chief Whip and Dokolo District Woman MP Cecilia Atim Ogwal, spoke out passionately for it.

She said, without a national carrier, Ugandans have been forced to pay for costly tickets from Kenya Airways and other foreign carriers. "It is time we revive our airline," Ogwal said. Now, in an interview with The Monitor newspaper, the Executive Director of the Uganda Development Corporation (UDC), Fred Ogene, reportedly said his institution has been authorized to reinstate the national carrier within six months.

The revival of Uganda Airlines comes in the wake of British Airways suspending flights between Entebbe International Airport and Heathrow airport on grounds that the flights are not "commercially viable."

Big lessons for Uganda

The region's biggest carrier, Kenya Airways, in early August announced a loss of US$257 million (KShs 25.7 billion).

The third loss in three consecutive years, it was the biggest ever loss in the airline and country's corporate history.

KQ's bad fortune is being blamed on external factors, including terrorism, a slump in the European economy, the Ebola outbreak, travel advisories against Kenya and oil price volatility as contributing to the company's losses in 2014.

But, according to the local press, there have also been credible reports of shady procurement and aircraft leasing scams within the company that have been haemorrhaging cash. According to KQ's consolidated income statement, although turnover increased by 4% in the past year, it just wasn't enough to keep up with costs - operating losses were 500% higher than last year, net finance costs nearly three times higher, and ultimately, loss after tax was 661% higher than in the year before when the company posted a net loss of$33 million (Ksh3.3billion).

By 2013, KQ's wage bill had more than doubled to $161 million in seven years, and staff numbers stood at 4,000. According to the Centre for Aviation, the average annual wage at the airline was $32,333, about double what Ethiopian Airlines was paying its 6,300 workforce.

Meanwhile, Ethiopian managed to persuade its workforce to accept a pay cut in 2012. In a related development, there are unconfirmed reports that RwandAir is looking for a strategic partnership with either Ethiopian Airlines or Etihad Airways. Under the plan, RwandAir would cede 49% of Rwanda's national carrier and its management.

The Rwanda government continues to finance the operations of the non-profitable airline. In the 2013/2014 national budget, Rwanda allocated Rwf29 billion to RwandAir, a Rwf9 billion jump from the year before.

RwandAir recently borrowed $160m from PTA Bank to buy two Airbus aircraft and increase its fleet to eight.

"The airline business in Africa is not very profitable and in most cases relies on subsidies from governments," says RwandAir CEO John Mirenge.

Farther afield, South African Airways, one of Africa's big carriers has been in the red for years now, according to The Mail & Guardian newspaper.

In the latest figures for 2014, it posted a net loss of $200 million, up from $91 million in 2013.

Only Ethiopian Airlines appears to be flying under blue skies. It reportedly posted profits in the region of $96 million, according to The Mail & Guardian.

The paper also reports on a proposal that the then CEO of Kenya Airways, Titus Naikuni, made in 2012 to delegates attending an aviation conference in Johannesburg. He suggested a three-way merger between KQ, Ethiopian Airlines and SAA, according to an article in The Economist reports.

Naikuni reportedly argued that an African "super-airline" was the only way to survive competition from Middle Eastern carriers like Emirates, Qatar Airways and Turkish Airlines that were "stealing" African passengers with cheaper fares, bigger and better planes.

According to the African Development Bank, 17 countries in sub-Saharan Africa continue to operate weak State-owned carriers in very small, protected markets, that only survive thanks to substantial government subsidies and often represent a considerable drain on public finances.

An additional 25 countries have scrapped their flag carriers in favour of private operators - including Uganda, Nigeria, Ghana, Cameroon, Senegal Tanzania, Democratic Republic of Congo, Zambia and Malawi.

Analysts say that to be viable and survive operationally, African national carriers need governments with a firm hand, especially against corruption.

The Mail & Guardian writes: "Perhaps there is something unique in the airline business that makes it suitable for a "clever" hybrid democratic-authoritarian regime (emphasis on "clever") to find success. First, there is probably no other business that a developing country can run that is so embedded in the global economy, and that is so exposed to exogenous risk."

In Rwanda, however, President Paul Kagame takes a different view on the so-called RwandAir losses.

"If you compare the so-called 'loss' and how much money local businesses have made, the benefits are significant, and I am yet to be proven wrong," he said at the recent launch of the Rwanda-Kenya Business Forum in Kigali.

Kagame explained that in five years of government-aided operations, RwandAir flying to 20 destinations in at least 12 countries, has boosted tourism and widened market opportunities for the private sector.

Perhaps, Uganda needs to take a similar realistic perspective as it ventures into the skies under very dark clouds.

Do we still need Uganda airlines?

By Ismail Musa Ladu
Posted  Tuesday, August 18   2015 at  01:00

Fourteen years on, the story of Uganda Airlines has refused to die, not considering that the carrier was long disposed of. 
In May 2001 government liquated Uganda Airlines after prospective buyers including British Airways, Kenya Airways, Sabena, Alliance Air and South African Airlines all  quit the race citing political pressure and bad state of the carrier’s books.

At the time of its liquidation, Uganda Airlines was hugely indebted with a $6m (Shs21b) debt on its book.
The debt, according to former managing director Benedict Mutyaba had been reduced from $12m (Shs42.8b), which had accumulated over the years.

The liquidation, although a painful reality, did not settle in well with a number of stakeholders, who blamed government for deliberately killing the airline.

Indeed government has been under pressure to revive the airline, however the question that we seek to answer today is: Does Uganda need a national airline?

Government, according to Stephen Chemoiko Chebrot, the Transport state minister hired global audit firm, Ernst & Young to evaluate the viability of the airline and “the results where astonishing”.

“… we were all astonished by the findings. We are preparing a Cabinet paper which we expect to be approved by October. We are looking at an average of $300m (Shs1 trillion) as the initial injection,” Chebrot told this newspaper last week.

The airline, according to Chebrot, shall initially be a sole government business venture overseen by Uganda Development Cooperation but “we will sell off shares progressively to the private sector until when it is out of government control”. 
“…the country cannot afford to be both land and air locked,” Chebrot said.

However, whereas Mutyaba puts a case for the revival of the national carrier, he says: “I am skeptical about government managing it.”

“Government does not have a good record of running businesses. Private sector should be persuaded into taking up this venture,” he says, highlighting the need for the airline’s ability to “make money or else it loses meaning”.

The airline, Mutyaba says does not stop at creating employment but will help to turn Entebbe International Airport into a competitive regional hub, marketing Uganda and promoting tourism.

But government, he says should only guarantee private sector players, given that most financiers require it as a condition to advance loan facilities to such huge ventures.

Wastage of resources?
Just like Mutyaba, the former Uganda Investment Authority executive director, Maggie Kigozi, believes the revival should be left to the private sector.

“We are not short of airlines. The aviation industry is not struggling; actually government should have helped Air Uganda. We don’t need Uganda Airlines,” she says, adding, “The money that will be put in reviving the (national) airline should be taken to health and education sectors.”

Long over due 
However, contrary to Maggie Kigozi’s argument, George Michael Mukula, an industry player and a professional pilot, believes the revival of the national airline is long overdue, as “there is regional demand, which the airline can tap into before even thinking of flying long haul flights such as London or Beijing”.

“Look at the number and frequency of Kenya Airways (KQ) flights and RwandaAir are making across the region, including to South Sudan. KQ alone is doing not less than 12 flights a week between Entebbe and Nairobi. Doesn’t that tell you the potential the region has and how lucrative the route is,” he says.

Entebbe International Airport, Mukula says as a regional natural hub deserves to be promoted and this can only be done with the re-establishment of a national airline.
However, Moses Ogwal, the Private Sector Foundation Uganda policy analysts, advise the revival of the carrier put much concentration on cargo carriers, given the perishable nature of business in Uganda.

According to Ogwal, most of Uganda’s exports, including fish and flowers (horticulture) and agricultural goods are high value and perishable items, which demands that the airline’s objective should among others promote export and stimulate production.

The airline, Ogwal says should not be evaluated in terms of profitability but on its impact to the long term development of Uganda.

Ogwal’s view is supported by Rwanda’s president Paul Kagame who recently said the losses posted by RwandaAir as a national airline are far small compared to what it has delivered in terms of tourism promotion, easing export transportation and marketing the country.

Revival plan now at foot end
According to Kisamba Mugerwa, the National Planning Authority chairman, government is not only studying the revival but also examining the most suitable investors to partner with.
This, Mugerwa says, will help Entebbe International Airport become a competitive regional hub as well as improving Uganda’s aviation sector.

Recently Abebe Angessa, the Ethiopian Airlines area manager told this newspaper that the aviation here (Uganda) was better off with a national carrier.

What others say about the revival of Uganda airlines

According to Edward Kirumira, a Makerere University lecturer there is need for the revival of the national airline given that is important in recreating a national identity.
He advises that it should not be looked at as a purely commercial enterprise but as a source of national identity, which to Simon Rutabajuka, a historian, should act as a precursor for the revival of all other national institutions.

However, Vianney Luggya the Civil Aviation Authority public affairs officer cautions that even if it (Uganda Airlines) is revived it will not enjoy any special status and “will not be treated any different from other industry players”.
However, he agrees that the airline is likely to come with several advantages, including sense of pride, the ability to attract traffic and creation of new routes.

 

Alliance Air (Uganda)

Alliance Airlines (later known SA Alliance Air) was a multi-national long-haul airline based at Entebbe International Airport in Uganda. It was set up in 1995 as a joint venture between South African Airways (SAA) and the governments of Tanzania and Uganda. The airline ceased operations in 2000.

The airline's formation was linked to the African Joint Air Services (AJAS) Accord which was signed in 1990 by Tanzania, Uganda and Zambia. The latter left in 1992 due to lack of funds. It began operations in July 1995 and operated a single Boeing 747SP leased from SAA, painted in the distinctive Alliance Air colour scheme.

Alliance Air had planned to serve Dar es Salaam, Dubai, Entebbe, Johannesburg, London and Mumbai. Flights to Rome would have been added at a later date. The launch of the airline sent shock waves to Kenya Airways, the dominant airline in the region.

It was renamed SA Alliance Air^[4] for a short while with an SA Alliance Express sister airline as well featuring a new logo based on the South African Airways flag inspired tail design. However this look was not applied to any aircraft.

The airline had planned to offload 30% of its equity to Tanzanian and Ugandan investors and this block of shares were held in trust by the governments of the two nations. However, this never materialized.

Dissolution

Air Tanzania Corporation (ATC) left this venture in June 1998 and its departure was welcomed by the airline calling it a 'constant hindrance'. Uganda Airlines too parted ways the following year.

The joint venture was renamed to SA Alliance Air from 1999 until its demise. Transnet, the parent company of SAA ceased funding the airline in March 2000. Its rationale was to force the two nations in opening their regional and domestic routes to the airline, thus intending to make it the defacto regional carrier. ATC accused SAA of taking over national airlines of the region using the joint venture as a Trojan Horse. The airline required a monthly subsidy of US$420,000 in order to maintain its long haul flights. SAA was willing to fund its share of the deficit subject to the other partners willingness to fund the remaining 60%.

Uganda's transport minister said there were more than 50 areas of conflict with SAA. In October 2000, the Tanzania Chamber of Commerce, Industry and Agriculture (TCCIA) and Dairo Air Services (DAS) of Uganda offered to buy their governments' stake in the venture.

The airline cease to operate in 2000 and its exaugural flight from London to Johannesburg (via Entebbe) departed on 8 October. Both Tanzania and Uganda cited overdependence on SAA for the joint venture's going concern. It had accumulated losses to the tune of US$ 50 million