17 February 2013

Uganda: Reviving Uganda Airlines

The government - facing demands from the business community - is considering reviving the 'national carrier' by buying into Air Uganda, a development that has been received with mixed feelings.

The airline, which is part of the Aga Khan's business empire, has been in operation for five years and boasts two 50-seater planes and two 99-seater planes, which fly to seven destinations across East Africa, and connects to West Africa and Europe through its Celestair Group affiliation. The Aga Khan appears to be ready for the buy in; having held discussions with with President Yoweri Museveni about the deal.

But while some experts support the acquisition of equity in a private airline, some industry analysts and experts would prefer a completely new public-owned airline as the national carrier - locally registered and enjoying preferential rights or privileges accorded by the government.

"The government has to be very careful, that's a risky decision. You don't know the liabilities that the company has," Francis Babu, a former MP and retired pilot, told The Independent, adding that if the government was thinking of a national carrier, let it start its own.

Established in 1976, Uganda Airlines started operations in 1977 but due to mismanagement, corruption and political interference, the airline could not operate profitably. The government attempted to privatise the company, but all potential bidders pulled out, eventually leading to its liquidation in 2001.

But MPs on the Tourism Committee are pushing for the revival of Uganda Airlines, the national carrier, so as to benefit from the advantages that come with such an investment.

The Civil Aviation Authority (CAA), the industry's regulator, is also in full support of having the national carrier revived. But would nit want it to be just for the sake of it.

"What we want to see is a strong home based flag carrier," Ignie Igundura, the CAA's public affairs manager, told The Independent. He declined to reveal details but said they had submitted their technical report about the revival of the national carrier to the Transport ministry on the request of the government.

Supporters of the revival of the national carrier argue that like any other national airline carrier, if revived, it would aid the growth of the country's economy, particularly in the area of tourism and exports.

Babu warned that while the revival of the national airline would be a "good idea," it should not be "politicized." He said government should recruit competent managers supported by experienced technical staff.

Asked whether the airline would survive the high operational costs and the challenges that led to its collapse a decade ago, Babu said what matters is being in the hands of professional managers. He said Uganda could also borrow a leaf from Kenya, which revived Kenya Airways (KQ) and went on to invest in it amidst the feared investment risks like high fuel prices and competition from other players. He suggested that the government could as well think of going public by selling shares to the public - like Kenya Airways did - to raise more capital and expand its operations in the long term.

Aviation figures:

Official figures show that the prospects are good because aviation industry in Uganda maintained its growth trend last year, posting a 14.1% increase in passenger traffic - mainly driven by an increase in tourist arrivals. Entebbe Airport registered 1.23 million international arrivals compared with 1.08 million passengers in 2011. The year also saw a 15% increase in cargo volumes, with 55,908 tonnes handled last year compared with 48,636 tonnes registered in 2011. The airport currently hosts over 21 scheduled passenger airlines. VistaJet, an American luxury aviation company, is the newest entrant; having launched on Feb.6.The positive trend was

Betty Kabahenda, an accountant at Icemark Africa Ltd - exporters of fresh fruits and vegetables - said it was a good idea to revive the national carrier.

"The biggest challenge we are facing is the high cost of doing business," she said. "So, we can't compete properly with other countries that have lower flight costs."

"We need subsidies on these charges," she said, adding that this can only be offered by a national carrier whose aim is to promote trade to earn foreign exchange. She said such offers were seasonal as many players offer them when they want to achieve certain goals in their business.

Kabahenda said their company spends about $100,000 (about Shs 260 million) on two cargo flights per week to export various volumes of fruits and vegetables to the European market.

"This is too much because we have had to increase the price of these products, something that is affecting the growth of their demand," she said.

Icemark recently wanted to enter the Middle East market but were hindered by the high flight costs. A kilogramme of vegetables is transported at $1.35 (over Shs 3,500) whereas the company purchases the same quantity locally at around Shs 2, 500 - meaning that flight charges are higher than the local purchase price for each kilogramme.

Kabahenda said other factors aside, that alone makes their exported goods less competitive compared to products from other countries.

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