The Independent (Kampala)

25 August 2014

Uganda: Behind Air Uganda Grounding

On December 5, 2013 President Yoweri Museveni flew to Paris to meet one of his favourite investors, Prince Shah Karim Al Husseini otherwise known as the Aga Khan. Their meeting took place the same day at the plush Mandarin Oriental Paris Hotel in the French capital. At that meeting, the Aga Khan Fund for Economic Development (AKFED) agreed to construct a modern hospital in Uganda and another hydropower dam.

President Museveni for his part agreed that the government would buy shares in the Aga Khan-owned Air Uganda.

Six months later on June 17, in events that appear likely to impact those agreements, Uganda's Civil Aviation Authority (CAA) withdrew the Air Operating Certificate (AOC) of the Aga Khan's airline. Air Uganda was asked to reapply for the AOC but the process, which initially was envisaged to take no more than a week entered a third month on August 17.

After this long without being resuscitated, experts say Air Uganda is effectively financially 'dead'. The only question now is what Museveni and the Aga Khan will do about it?

Wencelaus Rama Makuza, the 64-year old managing director of Uganda's CAA must be mulling that question with trepidation.

So far, neither Museveni nor the Aga Khan have spoken out publicly about the grounding of Air Uganda, but Makuza who is a retired banker with experience in such delicate decisions would be familiar with the behind the scenes discussions. Inevitably, sources tell The Independent, something has to give.

"The President has said Air Uganda is not going anywhere," sources privy to the marathon discussions told The Independent.

Powerful investor wars:

Under Museveni, the Aga Khan has invested substantially in Uganda. Apart from Air Uganda, he built the country's biggest 250MW hydropower dam at Bujagali, owns two top hotels, and the Monitor Publications Ltd.

Before his airline was grounded, it was portrayed at the defacto national carrier, enjoyed preferential treatment, and was the designated carrier for government officials flying to any of its destinations.

But this favoured position also attracted animosity from camps that viewed it as a barrier to the re-establishment of the defunct national carrier, Uganda Airlines. On July 21, the Opposition Chief Whip and Dokolo District Woman MP Cecilia Atim Ogwal, sparked debate in parliament when she said the government needed to revive Uganda Airlines.

"Following the grounding of Air Uganda, some Ugandans find it more costly to fly. The cost of a Kenya Airways ticket between Entebbe and Nairobi has shot up from US$380 to US$560. It is time we revive our airline," Ogwal said.

Even the Vice Chairperson of Parliament's Infrastructure Committee, Simon Peter Aleper, told The Independent at the end of July that they were auditing the performance of the local airlines to pave way for the revival of Uganda Airlines.

This must have been music to a powerful lobby for the revival of the national carrier.

The Independent has seen a document sent to President Museveni detailing the interest of investors abroad to revive Uganda Airlines.

Dated September, 16, 2013, the proposal was prepared by two officials; Peter Yehangane and Enock Machelikim on behalf of Air Oasis (UG) Limited (the local coordinating team) for the USA based Fly Comoros.

In the proposal, investors are proposing to start with 23 aircraft; the proposing investors would inject US$160 million (representing 80%) and the Ugandan investors probably government would foot the balance, US$40 million (20%), putting the start-up operational capital at US$450 million. That would be higher than the total equity of Kenya Airways which stood at Kshs31,209 million as at March 2013.

The investors proposed that they would run the airline for a period of 3-5 years and then exit after recovering their operational costs and earned a good return on their investment. At the exit point, investors say, all shareholding would revert to the state. Some analysts claim this proposal is largely backed by CAA insiders and could have influenced the decision to ground Air Uganda.

Makuza's future:

As he rides the turbulence in his airspace, CAA boss Makuza has shown that he knows how to put a smile on almost every tough situation.

A month after taking the drastic step of withdrawing the AOCs of not only Air Uganda, but five other local international commercial air operators in the country, Makuza did a PR interview with the American media communications agency, United World.

Qn: Tell us about the evolution of this institution (CAA) and the development of the sector.

Makuza: "We have seen that the whole purpose for the government creating the CAA has been achieved: having a capable entity that would develop and promote the air transport industry.

We have built a trusty and accomplished advisory body to the government in matters pertaining air transport. We have raised and managed properly an efficient airport infrastructure able to meet the expectations of a country that is the heart of the East African Community. Now we have an international airport and 13 domestic airports. We are now planning to have another airport of international status with a special purpose: serve the national oil refinery -based in Hoima... "

Qn: What airlines are the ones you want to have?

Makuza: Airlines should go fast to capture markets, and also tourists. We need as many as possible from Europe, Asia, and the US. We need the global community to visit Uganda.

Qn: How many airlines are currently operating here?

Makuza: We currently have 17. Quite a number are international: British Airways, Turkish Airlines, Emirates, Egypt Air, Qatar Airways... others are based in the continent: South African, Ethiopian, Kenya, Ethiopia, and Rwanda.

Qn: Which are the national ones?

They are not national in the sense the government owns them. They are private sector companies based in Uganda. Air Uganda is one. Uganda Air Cargo is completely owned by the government. They transport goods, but three small sized aircrafts transport passengers. We also have TransAfric, which is also cargo based.

Rama Makuza's interview was published by United World on July 24, just days after he grounded all six local airlines with international AOCs on June 17. His dismissive tone when asked about local operators is possibly a peek into why he did not hesitate to re-assign their routes to international carriers.

Frustrated business:

The affected operators include Air Uganda, which has been flying the national symbol; the Crested Crane, and was the largest scheduled operator with flights from Entebbe as the main hub to Burundi, Kenya, Rwanda, Somalia, South Sudan and Tanzania.

The others are Uganda Air Cargo owned by the government and supervised by the Defence ministry mandated to offer Air Cargo Transport services, Air Charter services and a Travel bureau. Before it was shut down, Air Uganda operated un-scheduled air cargo flights to Juba, Kenya, Dubai and South Sudan. Other carriers are TransAfric Airlines, Mission Aviation Fellowship (MAF), Ndejje Juu and Aeroclub and Flight Training Centre (KAFTC) all based in Kajjansi Airfield.

They all blame Makuza's CAA for frustrating them and causing financial losses since they were grounded and their operating certificates withdrawn.

The Kajjansi based, Kampala Aero club and Flight Training Centre (KAFTC) has written two protest letters to CAA, which The Independent has seen. In one of the letters, dated July 21, signed by the company's director, Jeremy McKelvie reacting to a CAA advert, which mentions that the operations of some airlines had been suspended due to safety concerns, the Airline questions why KAFTC's operations were suspended without any prior notice.

"We are writing to place on record that KAFTC have not received notice of any safety concerns on our aircraft or operations from the CAA. We also did not receive any communication from the CAA in regard to the amending of our valid AOC," the letter reads in part.

Tim Cooper, an owner and manager at Ndege Juu Aviation in mid-July told The Independent that the grounding has cost his company US$2 million (about Shs 5.1 billion) and described the action by CAA as illegal. In a letter dated July 23, Cooper says that they were not prepared to apply to recertify its AOC until such time as the CAA explains what regulatory process is being applied.

Air Uganda (U7), which was operating three leased CRJ 200s, is still assessing the loss. It will be huge because it was forced to return the three CRJ 200s it had leased.

Its Chief Executive Officer, Cornwell Muleya, has spoken about the possibility of winding up the business but, The Independent has learnt, the airline has paid its staff in advance up to September, possibly as a way of holding on to them - just in case.

But that has not stopped Ethiopian Airlines and RwandaAir, with consent from CAA, from snatching up Air Uganda destinations.

The CAA has so far sought to act as if it is following 'normal' procedure in all its actions and decisions.

Part of the reason is that only 2% of Ugandans use air travel in any given year and Entebbe International Airport, which is usually quiet and laidback, has not added any noticeable change after the grounding of the local operators.

As the quiet chaos twirling around the local operators, travellers continue to hop onto the international. In some cases, the fare has been hiked.

When The Independent visited the airport on Aug.4 and enquired about the near empty runway, deserted duty free shops, and slack traffic, an employee described it as "normal".

"Most flights; RwandAir, Emirates, Kenya Airways, Ethiopian Airlines, Qatar, and others have their flights scheduled from 12pm local time onwards."

But nothing is normal.

Before it CAA grounded Air Uganda, the carrier had scheduled flights throughout the day to diverse destinations like Nairobi, Mombasa, Dar es Salaam, Juba, Bujumbura, Kilimanjaro, and Mogadishu. Air Uganda had come a long way from 2007 when it was launched with just two flights daily to Nairobi, five flights a week to Dar es Salaam, and three flights to Juba.

Air Uganda, which started as a US$20 million sweetener for a US$770 million deal between the government of Uganda and the Aga Khan Development Foundation to construct the Bujagali Hydro-power Dam in 2007, has performed beyond expectations.

Its success was doubly confounding as it came seven years after Uganda's national carrier, Uganda Airlines, collapsed and was scavenged, and myriad other start-ups failed.

Since then, Air Uganda says, it has become a major cog in Uganda's economy and aviation infrastructure. It employs up to 231 staff, and contributes over US$23.5 million in taxes and fees.

Despite this, the CAA says one of the reasons it withdrew Air Uganda's AOC was its bad safety record. With incidents recorded on a regular basis, CAA says it had no choice but to withdraw the Airlines AOC.

Safety concerns:

That is an allegation that Cornwell Muleya, Air Uganda soft-spoken chief executive officer needs to take seriously. It is no surprise that he raises his voice just slightly when, in an interview, he insists the carrier had stellar safety standards and that CAA is creating excuses to justify its incompetence.

Muleya says Air Uganda had even voluntarily acquired a safety international standard certificate from the International Air Transport Association (IATA) -- which allows them to be at par with other international airlines.

"The association has no problem with us," he adds.

The point Muleya raises, keeps popping up ever since CAA grounded Air Uganda and the others. Why did CAA not ground them before the International Civil Aviation Organisation (ICAO) audit on Uganda on June 14?

Three days after that audit, on June 17, CAA boss Rama Makuza, withdrew the AOCs.

"The action is highly regretted but has been taken in the interest of the civil aviation safety nationally and internationally," Makuza said in a notice.

It was a vaguely worded document that said Air Uganda's AOC was withdrawn because "the air operator certification process as established by the authority was not reflected and could not be observed in the operations process and procedures".

Second, "there was insufficient or lack of industry surveillance to enable the authority identify shortcomings and the operator to correct non-compliances."

And third; "the industry was observed to be complacent and lacked commitment to effect and implement the terms of approval."

Makuza adds in the letter that in view of those challenges and in order to avoid harming the entire civil aviation system of Uganda, CAA decided to withdraw all the approved AOC and Operations Specifications of all international commercial air operators and then work with a team of experts to help operators undergo a new recertification process.

Although CAA appears culpable, its explanations paint a different picture.

In an interview, Ignie Igunduura; the CAA's public affairs manager, told The Independent that Air Uganda "gross negligence" was seen when appearing before the International Civil Aviation Organisation (ICAO) auditors in June.

"The airline deployed unprepared personnel to handle the audit," Igunduura said.

But Muleya refutes this. He says Air Uganda has invested more than US$4 million in staff training since 2007 and that the routine ICAO audit went badly because of deficiencies in the structures for CAA in terms of capacity to oversee the industry.

"The audit was not on the airlines, it was on the regulator," he said, "we are surprised by those reports because our standards as Air Uganda are very high."

He says Air Uganda offered to give CAA expert support to prepare for the audit but the offer was rejected.

This is the second time that Uganda fails an ICAO audit. The first was in 2008 when ICAO directed CAA to amend its regulations to match ICAO standards. CAA did not.

Instead, sources say one of justifications that CAA had to give to prove it was not wrong was to fault local operators on some safety incidents reported before the audit and then withdraw their AOCs. Of course this was a miscalculated move. "When you do that you are killing business," said an industry expert.

Instead, on June 18, as the suspended Air Uganda was fumbling to reapply for the AOC, it was told CAA was finally changing the regulations.

In an interview, Ignie Igunduura the CAA's public affairs manager confirmed that the ICAO Coordinated Validation Mission came to establish the status of implementation of the 2008 audit. He added that they also wanted to see the implementation of the recommended amendment of the Civil Aviation Authority Act, organisational set up, accident investigation, air navigation services, aerodromes, Ugandan international airlines, aircraft maintenance centers and aviation training institutions.

Igunduura said: "The ICAO audit does not target the regulator alone as alleged by some operators; it targets the industry and that is why ICAO officials visit the premises of Airlines".

In a separate notice, CAA said Air Uganda had failed to demonstrate to the satisfaction of the auditors that they were operating in compliance with the established standards and terms of approval as had been demonstrated by the authority.

The notice adds that with the incidents recorded on a regular basis, it had no choice but to withdraw the Airlines AOC. Another operator, TransAfric, Igunduura said was found to be carrying items that were not authorized in their Air Operator Certificate. That among other reasons forced CAA to withdraw its AOC. He did not mention the items. But sources said they were military related equipment.

Going forward, Makuza has a big task to prove to ICAO that they will live up to the standards set by the UN organization and remain a member. As of 2008 audit, data from the ICAO website indicates that on the eight areas which ICAO rates member countries, Uganda still performs poorly on most areas when compared to its neighbours, Kenya and Rwanda.

The organization says each Audit Area is rated from 0% to 100%, with 0% being "Not Implemented" and 100% being "Fully Implemented". Anything below 60%, is considered unacceptable, while that above the line is considered best practice.

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