9 June 1998

Tanzania: Sighs of relief as Air Tanzania quits alliance

Johannesburg — Ugandan-registered Alliance Air, which is 40%-held by SAA, has welcomed Air Tanzania Corporation's announcement that it intends pulling out of their joint venture, saying it has been a constant hindrance to the airline.

Alliance Air executive director John Murray said from Kampala yesterday that Air Tanzania had a 10% holding in Alliance Air and its plans to divest this shareholding would not harm Alliance.

"In fact Uganda Airlines and Air Tanzania are in the process of privatisation and before this can take place they will in any event be compelled to divest their respective 10% shareholdings in Alliance Air. As far as we are concerned this is a normal process," he said.

The Tanzanian government and its airline have a total 30% holding in Alliance, while the Ugandan government and its airline own the remaining 30%.

Murray was reacting to reports yesterday that Air Tanzania Corporation had indicated it would pull out of the joint venture. Air Tanzania board chairman Abbas Sykes was quoted as saying Alliance was a loss-making venture and Air Tanzania could not afford to remain in it. He said Alliance was expected to lose a further $5m in the 1998/99 fiscal year.

Murray said yesterday that losses projected by Sykes were "pure speculation".

"We have been in deficit from day one due to normal start-up costs. We have now been fully operational for 18 months and should be profitable by the second half of next year."

He said Air Tanzania's decision to pull out of the venture could be a "blessing in disguise" because it had not been an effective partner. It had opposed everything done by Alliance and had acted in a manner contrary to the spirit of their joint agreement.

Murray said Alliance was setting up new routes to Dubai in August and would keep expanding. The takeover of Air Rwanda's operations earlier this year had gone well and these operations would be also be expanded next month. At present Alliance runs three main routes: Johannesburg- Kigali-Entebbe; Johannesburg-Dar es Salaam-Kampala-London; and London-

Kilimanjaro-Entebbe and back to London.

Murray said the prognosis for Alliance Air was good. Alliance, in partnership with SAA, was also bidding for the controlling stake in Uganda Airlines which was being privatised. Competing bidders were BA, Sabena and Air Mauritius, but he regarded BA as the most serious competitor.

Alliance Air was formed in 1995 when eight countries - Uganda, Tanzania, Kenya, Malawi, Burundi, Congo-Zaire, Rwanda and Zambia - signed an agreement endorsing a regional airline.

They wanted an airline which would serve all these countries in a cost-effective manner, reducing government involvement while still serving smaller markets.

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