New Vision (Kampala)

28 February 2013

Uganda: Should the Govt Revive Uganda Airlines?

Twelve years since the collapse of the Uganda Airlines in 2001, the Government plans to revive the national carrier in a move geared at boosting tourism and trade. However, this has attracted mixed reactions.

Formation and collapse

Following the collapse of the East African Airways in 1976 due to political squabbles among the East African Community (EAC) leaders, partner states were forced to start national carriers.

Tanzania took a head-start with Air Tanzania. Soon after, Kenya Airways (KQ) and Uganda Airlines started operations in 1977.

However, whilst Air Tanzania and Kenya Airlines stayed afloat, Uganda Airlines lasted just over two decades.

By 2000, the airline was not self-sustaining due to bankruptcy.

Attempts to privatise the airline to revive its profitability and competitiveness fell bare. Initially Air Mauritius, Inter Air, Kenya Airways and Sabena expressed interest but declined to submit bids, leaving only SA Alliance/ SAA by 1999.

SAA also lost interest, forcing the Government to liquidate the airlines in 2001.

Why it collapsed

Experts say the Government's failure to support the airline to develop Entebbe International Airport as its hub, and the sale of its ground handling business to Entebbe Handling Services (Enhas), a company linked to foreign affairs minister, Sam Kutesa, led to its demise.

"Another reason was debts," says a 78-year-old former employee who preferred anonymity.

"The Government owed the airline billions in unmet air travel bills."

Government to revive national airline

However, the Government plans to revive Uganda Airlines.

"I am drafting a paper to present to the Cabinet about the viability of reviving the national carrier," said works and transport minister Eng. Abraham Byandaala recently.

In its recommendations to the Government, the Civil Aviation Authority (CAA), the industry regulator, wants a study into the collapse of Uganda Airlines.

"The causes (of the collapse of Uganda Airlines) have to be analysed so that we don't make the same mistakes," says another source.

Ignie Igundura, the CAA spokesperson, said the Government is yet to respond to the recommendations.

"But there is a lot of (political) will to revive Uganda Airlines," he noted.

Why a national carrier?

Reviving a national courier would boost Uganda's tourism potential and positioning as a conferencing hub.

Entebbe boasts 24 scheduled and unscheduled international operators and 12 non-scheduled local operators. Its passenger handling growth stands at 1.5 million international passengers.

"There should be an airline that has a limb and spoke operation, picking passengers and dropping them at Entebbe (International Airport)," says Igundura.

"A national airline is a symbol of national pride. A Ugandan would feel proud to travel in a Uganda Airlines than with any other airline."

A national airline would also offer cheaper internal fares, create employment and increase the taxable base.

But why does the Government have to revive the Uganda Airlines?

"Do we want to subsidise our high value exports? This does not require starting an airline. Exporters can be given concessions to reduce costs of the freight on existing carriers, which would be a whole lot cheaper than setting up a new airline," says a source.

Starting a national carrier

A national flag-bearer can be started either through 100% government investment and ownership, or a public-private partnership.

For example, while Emirates Airlines, British Airways, Ethiopian Airways, Air Tanzania and RwandAir are government-owned, Kenya Airways is a joint-venture between the Royal Dutch Airlines, KLM and the Kenyan government.

Contrary to views that government enterprises are loss-making, Ethiopian Airlines posted a profit of $120m as of 2010, while Rwanda guaranteed $60m for RwandAir to purchase new aircrafts and fast-track Kigali International Airport as a hub.

"To start a hub, Uganda needs to invest about $500m to acquire five aircrafts, three of which would ply regional routes, while the other two take-on the longer routes," says a source.

A hub would help the national airline to rally passenger numbers from neighbouring countries due to the low traffic still experienced at Entebbe Airport.

Kenya Airways has a hub at Jomo Kenyatta International Airport, while British Airways has Gatwick and Heathrow airports as its operational hubs.

"When you have a national airline, there are many flights terminating at that airport," says Igundura.

"Faced with war or any other disaster, Uganda would rely on the national airline to intervene and transport victims and arms."

Race for a PPP on

Private operators are seeking partnership with the Government to re-establish a national airline, led by Air Uganda, a quasi-national flag-bearer belonging to the Aga Khan Fund for Economic Development (AKFED).

"We think of ourselves as a national carrier. Our logo is the Crested Crane, a national symbol," says Roberto Manzi, the technical director.

"The Aga Khan has asked the Government to own shares (in Air Uganda) so that we operate as a national airline. We have not had a response yet."

As well, SKA Uganda, another private operator, is seeking partnership with the Government.

"We want a PPP with Uganda to help start a national carrier and develop her export business," says Andy Lewis, the station manager.

Challenges

But with widespread corruption, accounting for sh500b loss annually, according to the World Bank, fears abound that this would not be a worthy investment.

"Do we want to divert millions of dollars from health and education to set up an airline which may never be profitable?" asks a source that prefered anonymity .

Raising $500m to buy aircrafts, expand Entebbe Airport and take over ground-handling and catering services is challenging.

"By the time Uganda Airlines was wound-up, it had one plane, which was on and off and yet the Government was subsidising it at the cost of $1m a month," says a former manager at CAA.

"Do we have that money to throw away?"

Uganda Airlines would also have to compete with established global airlines for international routes and be managed professionally to keep it competitive and self-sustaining.

Works state minister Eng. John Byabagambi says the Government must consider a national carrier not just as a business, but an infrastructure like a road commuting through the air.

"It should be budgeted for," he says.

"RwandAir is not making profits, but the government looks at it as an infrastructure budgeted for and has bought three Boeings. Even Kenya Airlines is not profitable."

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