The East African (Nairobi)

5 October 2000

Uganda: Private Firms Want to Buy Alliance Air

Kampala — A Ugandan company and the Tanzanian Chamber of Commerce have offered to buy the troubled regional airline, Alliance Air, owned by South Africa, Uganda and Tanzania.

Uganda's Dairo Air Services (DAS), a cargo company, and the Tanzania Chamber of Commerce, Industries and Agriculture (TCCIA), have offered to buy 30 per cent shares each, owned by Uganda and Tanzania respectively, saying they hope to recapitalise Alliance.

Aviation sources claimed Dairo was also interested in buying the 40 per cent stake owned by South African Airlines (SAA) at $5 million, and also in taking over Uganda Airlines, which is due to be liquidated by Uganda's Privatisation Unit.

Negotiations for the buyout are underway between officials of the African Joint Air Services (AJAS), the three-nation partnership trading as Alliance Air, Dairo Air Services, owned by Captain Joe Roy and Daisy Roy and the chamber.

TCCIA chairman Mr. Elvis Musiba could not be reached for comment as he was said to have travelled to South Africa, but other sources said the the chamber had made arrangements to buy the shares.

Owned on a 40:30:30 basis by South Africa, Uganda and Tanzania respectively, AJAS began operations in August 1995.

Alliance Air faces an uncertain future with the biggest shareholder, South African Airways (SAA), firmly indicating it wants to pull out of the partnership in October.

Transnet, SAA's parent company, first called for Alliance Air's closure in April, as operating losses ran into millions of dollars. But SAA offered to help the carrier stay afloat as long as Uganda and Tanzania endorsed a new business plan and agreed to pay a monthly contribution of $126,000 each to cover operating expenses.

The Uganda Government, which owns a 30 per cent stake, has failed to pay the monthly contribution since May.

Tanzania has also unsuccessfully tried to offset a similar monthly contribution through in-kind services, such as landing and other charges.

A task force set up by the stakeholders to verify Alliance's indebtedness and make recommendations on how to deal with the debt is yet to complete its report.

But in the event of a closure, Transnet would have to meet 40 per cent or $20 million of the carrier's liabilities, while Uganda and Tanzania each pay $15 million.

The Alliance board of directors met last week in Kampala to examine the sale proposals. The board, it was learnt, also discussed the fact that the two potential buyers of the airline are unwilling to take over its liabilities, including nearly $50 million owed to the South African company, Transnet.

Said an aviation source: "The governments of Uganda and Tanzania have no objection to the private sector getting involved in Alliance."

A letter from Uganda's Minister of State for Finance, Mr. Gabriel Opio, to the airline's board of directors, dated September 26, said the Uganda government endorsed Dairo's bid to buy its shares.

"The continued future of (Alliance) hinges on the interest shown by the private sector to take up government's equity stake in the airline. The Government of Uganda confirms that it has received a request from Dairo (DAS) ...and is agreeable to ceding its stake in AJAS to DAS subject to negotiating a mutually acceptable share transfer agreement," wrote the minister.

"We trust that the board will approve in principle our proposed approach to positively resolving the future of AJAS through participation of the private sector, and will complete the formalities," said Mr. Opio's letter.

In a proposal dated August 21, Dairo expressed interest in taking up the 30 per cent shares.

"Dairo has vast entrepreneurial experience in aviation. We believe letting the private sector take up the shares of Uganda in the regional airline AJAS/SA Alliance Air will greatly promote this objective," said Ms Roy, the managing director of Dairo.

Dairo's offer is, however, conditional upon a confirmation that it will be granted traffic rights on the routes where it wants to operate and that Alliance debts will be resolved with current partners, SA Alliance Air.

Dairo Air Services DAS, a Ugandan cargo company founded in 1983, operates a fleet of 10 aircraft, including three DC 10s and three Boeing 707s, with 40 flights a month into Entebbe airport.

It employs 400 people and has aircraft maintenance facilities in the United Kingdom.

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