Uganda Airlines: Good investment wrong timing

Economists support its revival but remain skeptical about its success as a business  

Kampala, Uganda | JULIUS BUSINGE | Uganda Airlines will soon be back in the skies again but the questions remain on how the national carrier will avoid the past mistakes that led to its liquidation 18 years ago.

Economists who spoke to The Independent on April 4 said starting operations of the national carrier is a good idea but will not be profitable in the foreseeable future and could most likely fail unless a miracle happens.

“It is a mistake to build infrastructure and let the managers run a non-profitable venture,” Ramathan Ggoobi, a researcher and senior economics lecturer at Makerere University Business School said.

Ggoobi said the government needed to carefully analyse the events that unfolded 18 years ago that included but not limited to mismanagement of the Airline connected to unnecessary government interference and uncontrollable accumulation of debts that led to the closure of Uganda Airlines in May 2001.

“…what they are now doing is promoting stubborn nationalism and trying to reclaim our turf,” Ggoobi said.

Does this therefore suggest there is no sense in reviving the national carrier under the name Uganda National Airlines Company Limited? While answering this question, Ggoobi said the government should as much as possible avoid using a business model centred on borrowing to fund the company because the latter will not easily make profits to meet borrowing obligations.

He added that those in charge should think of business management strategies that are in line with tight competition in global aviation space and high safety standards. He also said they should avoid the confusion that was recently exposed regarding ownership and registration of the company. He also said that players should avoid politicising the process of reviving the airline and its whole operations.

Beyond the above challenges, sector experts say airlines globally have to be mindful about corporate governance, fuel prices, and unfriendly customs regimes if they are to run profitable ventures.

The International Air Transport Association (IATA) in its recent forecasts predicts that Africa would remain the weakest airline region in the world in 2019.

It says that African carriers are expected to report US$300 million net loss in 2019 — slightly improved from the US$400million net loss in 2018, with an expected net loss per passenger of US$3.51.

Similarly, Fred Muhumuza, a senior economics lecturer at Makerere University and former adviser to the Minister of Finance said the timing of this venture is wrong because most carriers are making losses.

He said that the best option would be, forming a partnership with the already existing Airline to minimise initial costs and avoid the would-be likely big losses.

“We have been advising government on this matter for the last 3-4 years…but it has not listened,” Muhumuza said adding, “those involved are only talking politics and not business.”

He added that leasing aircrafts would have been a better option instead of buying. This would also cut initial costs.

He also supports the idea of starting small – with domestic and a few regional flights – then grow bigger in years to come – with international flights.

Regrettably, Muhumuza said the government has already made commitments towards procurement of aircrafts and related processes which means there are limited cost cutting options other than the government waiting to face the tough reality on the ground.

“We are at a point of no return,” he said. He advised that going forward government should think of a business combination involving passenger travel, cargo and ground handling which could make money for the company.

On March 31, Parliament approved government’s supplementary schedule for an additional Shs280billion to cater for investment costs for the revival of Uganda Airlines.

Part of this money would help secure four Bombardier CRJ planes each costing US$27.7m (Shs102.5billion) and two A330-800neo made by Airbus each costing US$108million.

Last year, the government forwarded US$1.2 million to the carrier so that Airbus could start production of the two A330neo aircraft.

Bombardier Commercial Aircraft recently extended the final payment schedule for the planes to March 29 after government failed to meet the first deadline of December last year.

The first jet that was supposed to be in the country early this year has now been extended to a later date, in several weeks to come.

Beyond a funding gap, there have been challenges related to registration and share allotment of the company, recruitment of technical staff and political disruptions that government technocrats, say are being dealt with to have the airline in the sky by end of year.