Are Ugandan taxpayers ready for the new airline experiment again? show me a state airline in Africa that makes money? other than Ethiopian Airlines.

Are Ugandan taxpayers ready for the airline experiment?

June 6, 2018 - By Godwin Matsiko Muhwezi - New Vision

Tomas's Comment:

Uganda Airlines was operational from May 1976 to May 2001 operating 1 x B707-320C, 2 x F-27-600's, 1 x L-100-30 Hercules, 1 x DHC-6-300 and leased B737-200 (from Air Tanzania).

Then came Air Uganda (from November 2007 to July 2017) owned by the Celestair Group (owned by the Aga Khan Fund for Economic Development) first using 3 x MD-87 then went to CRJ-200's, but kept losing money still, as CASK for CRJ200's are much greater than a MD-87, so yield had to go up to breakeven which it was not achieving off course.

Celestair also ran Air Burkina (formerly Ait Volta up to 2001 with 1 x EMB-110 and 1 x F28-4000) from February 2001 to May 2017 with MD-87's, now government owned Air Burkina operates 2 x E170's.

Also, Celestair ran Air Mali (2004 to 2012) with MD83/87 and CRJ-200's, pulled out when the civil war in Mali started, the original Air Mali goes back to 1961 and closed due to big losses and debts in 1988 having operated B737-200's, DHC-6 Twin Otter's, B727, AN-24, Sud Aviation Caravelle, IL-1, IL-18 to Bae 146-100 for Government us (long story on that corrupt deal-maybe another article).

No national carrier in Mali today, that can change soon?

In July 1995 a multi-national joint venture was set up between the Governments of Uganda and Tanzania along with South African Airways (SAA) using a single B747SP (photo below) for flights to London-Heathrow (LHR) from Entebbe (Uganda), Dar Es Salaam (Tanzania) and Kilimanjaro (Tanzania).

SA Alliance Air (based in Entebbe, Uganda) ownership was 40% SAA, Government of Uganda 5%, Uganda Airlines 10%, Government of Tanzania 5%, Air Tanzania 10% and 30% was held in trust for investors, though never distributed and thus held by the 2 governments.

The airline bought 49% of Air Rwanda in 1998 and branded it as Alliance Express.

In October 2000 Alliance Air shut down after it was burning $420,000 a month in public money, and after 63 months of operation, it lost $50 million with a single B747SP! ($800,000 a month) flying long haul only.

Alliance Express continued from 2000 to 2002 with SAA and then the Rwanda government stepped in changed name to Rwanda Express and later RwandAir in December 2002.

So Uganda has a history of having 3 international airlines, though neither made money and here we go again, with Uganda Airlines II? really Uganda Airlines IV!

Minister for Works and Transport, Monica Azuba-Ntege, told a media gathering in Kampala this week that government has made an initial cash deposit of approximately UGX4.43 billion Ugandan shillings (USD1.2 million) for the purchase of six aircraft (4 x CRJ900's and 2 x A330-200's), with operations to start in November of this year?

It will be competing with Ethiopian, Kenya Airways, Emirates, KLM, Turkish, Egyptair, Qatar, SAA, Jambojet, Precision, Rwandair, LCC Flydubai and the newly revived Air Tanzania with 3 x Q400's, 2 x CS300/A230 on order and 1 x B787-8, that is a lot of big airline brands to be competing against, yes non-stop is good, but 1-stop can be much cheaper for air travellers.

I do not think the Government knows how much the industry has changed since Uganda Airlines I failed in 2001, I get the CR900's (though E175 is better), but the long haul A330-200 will be the big money loser, competition to Europe, Middle East and Asia is tough, big airlines with big hubs can offer very competitive 1-stop connections, and they have the behind and beyond connections to fill the aircraft from 100+ connections.

Look at Rwandair formed in April, 2003 and still losing money, with a fleet of 12 aircraft (1 x A330-200, 1 x A330-300, 2 x CRJ900, 2 x Q400, 2 x B737-700, 4 x B737-800), and probably it won't, long haul is tough and it killed Ghana Airways, Nigeria Airways, Uganda Airlines I.

Just look at SAA, TAAG, LAM, Air Namibia, Air Zimbabwe, Arik Air, Air Madagascar, Air Seychelles, etc. all got in trouble with long haul, Air Seychelles just pulled out of long haul, and returned its 2 x A330-200's, a smart move, as it realized the competition from Europe, Middle East and Asia, was just overwhelmingly strong.

Now I read Uganda's Foreign Minister has signed an agreement with Russia to help it with its air transport industry, which possibly means SSJ-100 regional jets? that would kick in the head for Bombardier, but there is a reason NO African airline operates the SSJ-100, but Ugandan Air Force does operate 5 x SU-30 fighters (photo below) from Sukhoi, so let's see.

Azuba said Uganda Airlines will also operate ancillary services such as ground handling and catering among other tasks and "the plan is to break even in four to five years," she said.

We shall see, but I will be history will repeat itself once again, some never learn.

 "Those who cannot remember the past are condemned to repeat it." (George Santayana)

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We have always wondered if a government institution can independently and effectively audit and regulate a government project

The Government recently announced that it had ordered six planes and is on the verge of reviving the defunct Air Uganda with an ambitious debut set for November 2018.

There are obvious advantages to having our own carrier. Bragging rights, reliable transport for our perishable agricultural products and good manners in ticket pricing. As President Yoweri Museveni said, our neighbors have mistreated us since the collapse of Air Uganda in 2001 and maybe that is a squabble we can finally settle.

Air Uganda was established in the 1970s as one of many Idi Amin survival moves after the collapse of the East African Community and international sanctions against him. Although the urgency was to keep Uganda exporting coffee, a passenger aircraft was eventually included and by 1999, we were airborne heading to Arua, Nairobi or Brussels.

Inevitably, an irreconcilable debt led the carrier nosediving. Blistering regulatory demands chased away Alliance Air, the final shareholder and Air Uganda were dumped, six feet straight and buried; for a decade and some.

For a long time, Entebbe International Airport was a ghastly caricature of ill-fitting hangars emblazoned with signage of arrivals and departure. Until recently, the Crane Bank Building, the United Nations base and State House overshadowed the panorama of Uganda’s most important portal. Even with the unfortunate incidents of flooding, recent renovations and extensions could save Entebbe International Airport from looking like the Old Taxi park.

A little while back, British Airways left the country, the United Nations, one of the leading users of the airport, had proposed to shift its airbase to Nairobi; a move would hurt the airport significantly. Ugandans have long decried the monopoly of Entebbe Handling Services (ENHAS) in cargo handling at the airport. Other issues around trafficking and customs at Entebbe airport are best whispered!

The Government will spend heavily to revive the airline, but it will need more from the Ugandan taxpayer to sustain it. There is no indication that air traffic is increasing in the country or the region even for the existing airlines.

The entry of Jambo Jet has given travelers a disruptive Mc Donald’s option which is biting traditional airlines already. Even if Uganda were to get the birds in time and into the air, we will require some mileage and consistency of service delivery to attract frequent fliers who are hooked to bigger brands leeching off struggling aviation in Uganda.

One wonders if we fully appreciate the economics and what the numbers look like for African airlines in the industry. Not too long ago, we lost expensive fighter jets in Kenya and now we are importing different types of planes.

Do we have a pool of relevant expertise and crew too? Can we afford sending Ugandans for overseas training as licensed aircraft engineers? Without a transparent bidding process, are we certain that the taxpayer is getting the best deal? Can we justify the cost of negotiations and brokerage in such deals? How strong is our local content policy in the aviation sector?

We must be pragmatic about the initiatives that the industry needs rather than play a public relations game and lose trillions of tax payers money in the process. On the African continent, only Ethiopian Airlines teeters close to break even point and that could be because of its

antiquity in comparison to the likes of South Africa Airlines, Kenya Airways and RwandAir. It is unlikely that Entebbe will soon become a hub for flights on to the continent as is Addis Ababa.

Other airlines including South Africa’s require excruciating government injection to keep afloat in a fluffy venture called airline infrastructure. If RwandAir and Kenya Airways cannot agree a monopoly in the region, they will still struggle against other African Airlines, not to mention the likes of Qatar Air, Emirates, Fly Dubai and British Airways.

It is reported that RwandAir, the most ambitious airline in the region since 2002 had by 2016 accumulated $222m in losses. To plug this bottomless pit, Rwanda’s government has reportedly pumped $430m in loans and grants between 2013 and 2016. Add another $100m external loan and you complete the Conundrum. For a country with a GDP of $ 8.3b and a per capita income of $702, this is no slight problem.

Uganda Airline would inevitably compete with local Ugandan airlines, Kenya Airways and RwandAir for the same flights and that can only exacerbate challenges in the business. Airlines like the Virgin Atlantic are testament to the fact that we can have heavily invested private airlines which become profitable in the long run. A public private partnership might be more adroit at gliding across the murky waters. If government partnered with local private airlines with industry standards in place, experience with the market and technical expertise, these airlines would easily scale by dominating regional routes without compromising quality.

Even if (mis)management concerns contributed to the collapse of Air Uganda, it is a common challenge in the region with similar rhetoric voiced about Kenya Airways and RwandAir in the recent past.

The revival of Air Uganda seems to have originated from a Presidential directive rather than an opportunity in the market. With government interference in running of the restored carrier, bureaucracy and micromanagement might blur critical decisions that should be left to the judgement of technical staff.

We have always wondered if a government institution can independently and effectively audit and regulate a government project. Qualitative standards and integrity of systems is an expensive venture for most sectors to maintain and I reckon, it must be worse in aviation. What is to stop national airline from flouting regulatory demands and running to the Presidency claiming that it is being frustrated by civil servants?

We should ask the question, if East Africa is smaller than the East Coast of the United States of America, why doesn’t each state in that region have its own airline? Could it be that the reason we are far from harnessing the potential of the East African region is because we are not looking long term as a region? How do we get beyond unsustainable selfish ambition amongst the EAC countries?

If it is not too late, we should consider strengthening existing airlines to scale up to bigger business or even consider a regional airline which can leverage the stronger market in Kenya, the booming Tourism and vastness of Tanzania and oil interest as a springboard for frequent interconnections at subsidized rates.

Rather than sink more money into failed projects, we should expand the scope of the feasibility study as a region and explore opportunities of not business in the region but also, collective bargaining and central points for flights in and out of the region.