17 October 2011

Tanzania: Local Aviation Industry Records Success

THE current political stability and economic situation remain the major determinant factors for the bright future of the airline development in the country.

The growth of air transport services represents a significant economic opportunity for African countries because they integrate into the global economy.

With a focus on safety and infrastructure improvements, coupled with a move away from restrictive policies, the aviation industry could be set for a period of rapid growth. The economic benefits of a thriving, competitive air services industry taking its place on the world stage will more than compensate for the investments by increasing access to other countries for business, tourism and goods.

The Chairman of Board of Directors for the Precision Air Services Mr Michael Shirima revealed recently at the launch of his company's Initial Public Offering (IPO) that the expansion and increase of competitions in the aviation industry will make the sector healthier businesswise.

"It is a positive trend for both the Precision Air Services as well as to the growth of the economy," observed Mr Shirima. Although the nation's investment share on the air services is still minimal, the Tanzania aviation industry globally according to the International Air Transport Association (IATA), reported an 18 billion US dollars last year.

"After a decade of constant crises, shocks and change, the industry is stronger and more efficient than ever," reads part of the IATA 2011 annual report. Against the capacity expansion of 5.2 per cent, demand increased by 10.3 per cent and average passenger yields improved by 6.1 per cent. The economic growth resulted in improved key aviation markets that led to increased international and domestic traffic.

The overall passenger traffic for all services in and out of the country rose by 9.9 per cent from 2,754, 355 persons in 2009 to 3,027,512 as of last year. The aircraft movements also increased by 8.1 per cent from 167,610 travels in 2009 to 181,240 in 2010. The outstanding performances in the aviation sector are attributed to the improved global economic recovery from the financial crunch down.

According to the Tanzania Civil Aviation Authority (TCAA), the international movements recorded an increase of 22.6 per cent last year compared to 8.6 per cent decline in 2009. The number of aircraft movement rose to 28,941 last year from only 23,611 the preceding period. The domestic aircraft movements at both international and domestic airports recorded a 5.8 per cent increase last year compared to 7 per cent decline in 2009. The overall domestic passenger traffic increased by 10.1 per cent from 1,492,139 in 2009 to 1,642,657 passengers last year.

The booming tourism due to sustained and co-ordinated marketing as well as efforts to promote domestic attractions is some of the significant futures characterising the airline industry in Tanzania. The Business Monitor International (BMI) forecast show that the mining industry which contribute to the positive future of the airline sector will reach the value of 0.5 billion US dollars by 2013 contributing to around 1.5 per cent of the Nation Gross Domestic Product (GDP).

Also the increased Foreign Direct Investment flow, the regional integration that expands the market base and improvement of infrastructures currently in progress are indication of a bright and prospective future for the airline in the country. Consequently, a good number of airline companies have expressed interest to operate domestic flights in view of exploring new market opportunities.

Seeking to operate scheduled passenger services are newcomers, the Dar es Salaam's based Air Africa International and Zanzibar's Zan Aviation at Work. The other two were for renewal of licences from Air Zara and Auric Air with the TCAA encouraging many operators in the market in order to bring competition in the sky, lower tariffs and increase the quality of services provided.

By early next year the Tanzania sky will have about seven big capacity airlines operating in major towns and cities including Dar es Salaam, Arusha, Mwanza, Kigoma, Mtwara, Kilimanjaro, Kagera, Shinyanga and Tabora. The Precision Air services, the biggest operator in the market controls almost 58.9 per cent of the market share. The Air Tanzania Company Limited (ATCL) which is expected to come back soon controls only 6.1 per cent while the Coastal Travel and others control about 35 per cent.

Other medium airlines that are cutting a bigger slice of the market share include, FightLink, Regional Air, Nomad Aviation and Safari Link. Precision Air Services has said that the upcoming Initial Public Offering (IPO) is the opportunity for the once privately owned firm to raise capital as well as diversify its ownership to the local investors.

According to the Precision Air Board's Chairman Mr Michael Shirima, the company is offering 58,841,750 shares (about 30 per cent of the stakes) for sale at 475/- per share which is discounted by 11 per cent since the calculated value was 533/-. The move aims to give majority citizens a chance to own a stake in the airline. The minimum number of shares per application will be 200 shares. Mr Shirima said 93.5 per cent of the 27.9bn/- expected to be raised will be used for capital expenditure and the 6.5 per cent balance for working capital enhancement.

With the money, the airline company expects to purchase five aircraft in a bid to extend its outreach to other African destinations including Democratic Republic of Congo (DRC) and Angola. "We are very cautious in every step of investment to ensure the right target is reached. We will have both fleet and route expansion initially domestically and in the East and Central Africa before expanding beyond the continent," he added.

According to Mr Shirima, share application forms will be available at all the registered stock brokers in the country and in all Stanbic bank and CRDB bank branches across the country. The Tanzania aviation industry globally reported an 18 billion US dollars in 2010. Against the capacity expansion of 5.2 per cent, demand increase by 10.3 per cent and the average passenger yields improved by 6.1 per cent.

Kenya Airways acquired a minority 49 per cent shareholding in 2003 and from there, the transformation of the company's image into professionally run modern regional airline carrier began. The shareholding structure after the offer for subscription will be 68,857,650 shares (about 35.52 per cent) to be owned by Mr Michael Shirima, the majority shareholder, 66,157,350 shares (34.13 per cent) for Kenya Airways Limited and 58,841,750 shares (30.35 per cent) for others.

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