17 March 2019

Uganda: Museveni Goes for Domestic Financing in Airlines Revival, Operations to Start By June

Uganda has deferred delivery of its first aircraft from Canadian manufacturer Bombardier to the end of March after President Yoweri Museveni opted for domestic financing over borrowing for the first phase of the national carrier's revival project.

President Museveni has also turned down pleas from the Uganda Airlines interim board for a six-month delay in the launch date, insisting that the carrier must take off within two months ending June, a date he agreed to in an earlier meeting.

Museveni reportedly wants the aircraft in Entebbe, regardless of whether the airline will be ready to commence operations by that date or not.

The project team had also requested that the delivery of the pair of Airbus A330-800 Neo earmarked for long-haul operations be deferred to December 2022, but the president wants them in Entebbe by December 2020 irrespective of whether the routes are available or not.

The EastAfrican has been told that after the February 23 initial delivery date for the first aircraft was missed, the parties agreed to a revised delivery matrix that would have seen the first aircraft handed over on March 18, followed by the second one on March 28.

Delivery dates

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Monica Azuba, Minister for Works and Transport, that is directly responsible for the project, confirmed the change in delivery dates, saying that the aircraft would definitely be handed over at the end of this month.

She did not clarify if this would be a tandem delivery involving the two aircraft that Bombardier is so far ready to hand over in a single delivery.

"Take it from me that we shall be ready to receive the aircraft at the end of March," she said.

Ms Azuba declined to speak about the financing arrangements for the fleet, referring those questions to the Finance Ministry. Treasury Secretary Keith Muhakanizi did not respond to our calls.

However, a government source confirmed the reports about President Museveni opting for domestic financing.

"We are trying to raise funds from local sources because loans can be expensive. The process is ongoing and once we have secured the funds, we shall be ready to take delivery of the aircraft," the source said.

Junior Finance Minister David Bahati was recently in parliament seeking approval for supplementary funding to cover the purchases.

He said the drawdowns on the consolidated fund would be partially covered by proceeds from the MTN Uganda licence renewal that President Museveni had initially set at $100 million.

AfriExim's offer

While government officials were unwilling to throw more light on why Museveni has walked away from an earlier offer by the AfriExim Bank to provide bridging finance for the project at a rate of just under 6 per cent per annum, sources familiar with the internal deliberations say he was alarmed by the frequent shifting of goalposts by finance officials that was slowly dragging the project towards expensive financing terms.

This was after they persuaded the Cabinet to put on hold AfriExim's offer, which came in at slightly above 5.6 per cent, so that alternative offers, some as low as 2.8 per cent, could be vetted by the Financial Intelligence Authority (FIA).

The outcome of this process was not immediately available. In an earlier interview, FIA chief Sydney Asubo said he was not at liberty to discuss matters of his advice to the government outside designated channels.

But, in what was being fronted as a last-ditch effort in view of the slipping deadlines, Treasury officials were now suggesting that the project accept bridging finance from one of the small local banks at commercial rates ranging between nine to 10 per cent.

At the upper end, such a rate would be double the 5 per cent rate on loans projected in the business plan. The money would be repaid after negotiations with longer tenure lenders are completed.

Although the project has made progress with the initial crew sets now through with their type ratings, President Museveni is reported to be angered by internal squabbling between the board and the task force that continues to hold up different aspects of the projects.

For instance, the pilots cannot have their licences endorsed with the CRJ-900 rating until the aircraft they are going to fly are registered to Uganda. The last batch of pilots are expected back in Uganda at the end of April.

Other challenges

Recruitment of key staff for departments such as sales and marketing continues to lag. Some posts such as the 2,600 applicants but the board has insisted on conducting interviews at its own pace.

The Internal Security Organisation has also reportedly vetoed the recruitment of some pilots over security concerns. The matter has been referred to President Museveni for resolution.

There is also a risk that some key position holders may decline to take up the posts they have been offered after the board unilaterally revised their compensation downwards.

Sources say salaries for cockpit crew were unilaterally cut to half of what had been recommended in the business plan.

Internal frustration over these developments triggered an appeal for intervention to Dr Joseph Muvawala, the executive director of the National Planning Authority, which initially conceived the national carrier's revival project and enjoys an overseer's role.

In a March 6 letter based on the contents of an internal memo to the Permanent Secretary Ministry of Works, Dr Muvawala raises concerns over reported deviations from the approved plan.

"I totally agree with the management team that the issue of consistency of salaries within the same level and the competitiveness of salaries for some staff levels need to be sorted out before appointment letters are issued. Kindly note that the quality of staff and level of motivation are critical success factors for an airline," Dr Muvawala writes.

He also cites the delays in the recruitment and training of staff as well as the setting up of the marketing and sales systems.

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