Friday,October 30,2020 17:33 PM

Uganda Airlines and caution ahead

By Admin

Added 14th October 2016 09:24 AM

There are monster challenges that need to be tackled. Our major weakness seems to be the failure to adequately plan our way forward and set priorities.

Uganda Airlines and caution ahead

Jim Mugunga is the spokesperson of the Ministry of Finance and Economic Development

There are monster challenges that need to be tackled. Our major weakness seems to be the failure to adequately plan our way forward and set priorities.

By Jim Mugunga

Now that the celebrations of Uganda's 54th independence anniversary are behind us, time to get back to work as we aim to achieve middle income status by 2020.

There are monster challenges that need to be tackled. Our major weakness seems to be the failure to adequately plan our way forward and set priorities. For example, what should we mainstream through service delivery mechanisms in order to equip our population to attain middle income status? Do we focus available resources to education; health, agriculture, roads and waterways, rural and urban housing, job creation and youth employment - or do we meet widely accepted standards of a modern state with hydro and renewable energy, cable cars and national airline?

Of course we may attempt to do it all or a piece of each. An over committed resource envelope further exposed to the fastest growing wish-list does not add up. Indeed this non prioritised wish-list makes the minimal gains thus far like rationalising the wage bill, eliminating ghosts from the payroll and operating a single account system by the Treasury, seems like a drop in the ocean.

President Yoweri Museveni over the weekend made specific mention of a decision to set up a National Airline. He said, "…We allowed Uganda Airlines to die because it was making losses and, at that time, Ugandans were not travelling as much as today. Somebody has told me that Ugandans are spending $420m per year on travel. Therefore, the NRM Government has decided to start a National Airline to stop the outflow of this money and to end travel inconveniences to Ugandans. We are now finalising the modalities."  

From the above, it is obvious the President was clear on the policy decision. He was also clear that he will depend on those "informed about the sector" to determine the kind of airline business Uganda must take on board. My view is that he is abundantly aware that such national symbols of independence and modernity must be taken on board in the context of relevancy and affordability. He definitely awaits facts and figures. Our President is aware that whereas more Ugandans now fly as opposed to the days of Uganda Airlines, the needs of our wider and numerically greater population are a lot more. He is aware that flying is not for the majority ordinary wananchi. The facts and figures must add up for the packing order on the priority-list to once again change!

So does the case of the rebirth of Uganda Airlines really warrant fast tracking ahead of other pressing needs of the wider population? Is it true that starting a national airline would actually save $420m spent by Ugandans as they fly worldwide or would the amount and a lot more be spent on sustaining the operations of the national airline?

Uganda Airlines was established40 years ago. It operated on internal routes such as Kasese, Arua, Gulu, Mbarara, Soroti and Tororo. It flew regionally to Goma, Kinshasa, Dar-es-salaam, Kilimanjaro, Kigali, Bujumbura, Nairobi, Mwanza and Mombasa. Then it spread its wings to international destinations such as Dubai, Tel Aviv, Johannesburg, Rome, Cologne, London, Lusaka and Harare.

Its equipment included a Boeing 707-320C; two Fokker F27-600s, one Lockheed L-100-30, a twin Otter, a Britten-Norman Trislander and later a Boeing 737 leased from Air Zimbabwe. All these expeditions were not backed up in equal measure by sales income such as that made possible by traveling Ugandans, but were made possible by huge investments, guarantees and government subsidies.  

As Uganda's population grew, world economies became intertwined and competitive. The reality was that the economy could not further cushion Uganda Airlines given the numerous competing needs of the country and its people. These needs outweighed the Government capacity to subsidise the loss making flag carrier.

Not even direct bail outs to save the national flag bearer worked. The 1990s effort code-named Alliance Air by Uganda and Tanzania to run a joint venture failed too. South Africa invited on board later through SAA with the assumption that both Uganda and Tanzania domestic services would feed into SAA's long-haul operations capacity did not help either. The model crumbled because it was still premised on nationalism and not doing business.

Now that the national airline debate is back, it is important that the bureaucrats should dig deep and forge a way forward for a Uganda Airlines that will not repeat the same mistakes that led to its collapse.

The reality is that post 2016 airline management has to be professional, experienced and competent. The Government appointments and interference, failed ideology, backward thinking and corruption have no place here. That giant, multi-national and private airline companies have squeezed the traditional, "national airlines" out of business is a fact. The so called "national airlines" that still operate are so weighed down by debt and can hardly keep pilots and equipment airborne.

Two years ago, Kenya Airways (KQ) reported a net loss of $258m. This was documented among the country's worst ever corporate losses. This amount, equivalent to Ush870b, dwarfs the Ush188.8b set aside to finance the tourism sector this financial year and is about five times as much the amount budgeted for mainstreaming the oil and gas sector in the same period.

The good news is that KQ has been forced to adopt and implement major turnaround strategies. The expansionist strategy is being reviewed and the majority shareholders have pushed through with uncompromising reforms. The airline fleet has shrunk by one-third. Non-core but lucrative assets have been monetised including the valuable "takeoff and landing slot" at London's Heathrow Airport. Over 600 employees have been laid off. In so doing, the Kenyan government has decided to free national resources to be used for infrastructure and other pressing needs that impact the majority ‘non-flying' citizens.

In South Africa, the story is not very different. In 2015, South African Airways (SAA) declared that it was technically insolvent. To date, it survives on state-guaranteed loans yet remains incapable of producing financial statements. Early this month, the country's Finance Ministry granted SAR5b ($350m) to SAA to enable it continue functioning. An additional "going concern guarantee" to the struggling airline was, however, given along with stringent conditions for major reform, including looking for a strategic equity partner.  

Both KQ and SAA serve as a lesson to Uganda that no airline, national or otherwise, established under old school sentimental "national" carrier policies, can survive in today's hugely competitive environment. Therefore, the Uganda Airlines project must be subjected to real needs, options and cost benefit analyses all speaking to affordability, sustainability and overall feasibility of the venture, among many other sensitivities.

What does Uganda need: a ‘national' airline or efficient air transport?

Proponents argue that we need a national airline to create jobs, transport people, fly unpopular routes, develop tourism and trade and carry the national flag. What they do not state is that it will have to be protected from foreign competition through direct subsidies and other incentives.

Yes, Uganda needs jobs. But with the subsidies into the sector, these jobs may be more expensive than we budgeted for. Going by South Africa's R14.5b and 4,500 employees at SAA, each job retained in their case technically costs the national economy R1m a year!

The worst misery a ‘strategic route' might alleviate is the inconvenient flight connection. And indeed, if ‘strategic route' refers to non-commercially viable connections, then we have no business heading in that direction but to redirect that drain away from the national budget.

When you think of it: does anyone ever come to Uganda because of the thrill of flying Uganda Airlines as opposed to the misery of flying another airline? To encourage tourism, the alternative thing to do is invite airlines to fly within and to Uganda by allowing concessions; upgrading the national and local airports and airfields, ensure safety and airport handling capacity and of course improve internal travel and other facilities.

Starting up Uganda Airlines at any cost; in the old form and business model, in order to fly the national flag our allegedly pride and sovereignty is simply bizarre. Truth be told, where, when and by whom will the "flag" be seen? On our runways and during takeoff and landing only the lucky, patriotically inspired population will see a tail-fin flag. When Uganda Airlines planes take off and land elsewhere, a few thousand more might see it and, if we are lucky, recognise which country it represents.

The best national flag carrier is a flagpole in major capital and commercial cities of the world, at functional business and tourism minded Uganda embassies and missions in London, Beijing, New York etc. Our airline might fly again but only if we plan better for its take off.  

The writer is the spokesperson of the Ministry of Finance and Economic Development

Related articles

More From The Author

More From The Author