This has been one of the fastest implementations of new government policy, the revival of Uganda Airlines. In a few weeks, the national carrier will take to the skies, a fleet of two Airbus wide-bodied jets and two Bombardier commuter planes. Boeing, yes Boeing, the American manufacturer with a bigger range and lower cost planes didn’t make the cut off.
Most American companies are precluded from doing business in many parts of the world due to the Foreign Corrupt Practices Act of 1977 that prohibits the making of payments to foreign government officials to assist in earning or retaining business. FCPA has helped save the value and capitalisation of large American companies and protect their access to credit. Listed companies live in fear of being prosecuted for paying bribes, and money laundering regulations that track movement of cash across the globe, make this the most daunting prospect for American companies.
From the minister’s statement, the planes were paid for with cash, a huge achievement given Uganda’s perilously shaky finances. Credit-financing has hampered the profitability of RwandAir, which for all its excellent public relations, is flying a number of routes half empty and hasn’t made a profit since its inception. But servicing the planes in the build-up period of seven-10 years, will be a challenge as most services will have to be secured abroad at great cost, or outsourced to bigger airlines like Ethiopian Airlines or Kenya Airways, which have built capacity over the last 40 years. Ethiopian Airlines founded in 1946 really took off in the Mengistu regime in 1976 after the collapse of East African Airways. KQ much smaller, still has a respectable fleet of more than 20 aircraft and a smaller budget airline Jambo to run domestic and regional routes.
There is a silent protocol that has added to the urgency of Uganda Airlines. Officially it is presented as a cost-cutting measure, $450 million is spent by government on travel, and this money will go to Uganda Airlines. This falsehood is premised on the presumption that a four aircraft airline will overnight acquire a global footprint in all the exotic locations government officials visit for work.
Take for example AU business, which is carried out in more than 50 countries, the most recent big meeting was in Nouakchott, Mauritania or the Commonwealth many of whose prominent members are in Oceania - the likes of Australia, New Zealand, Kiribati, Nauru, Gilbert Islands etc.
It has taken KQ a decade to get approvals to fly into New York and even then the plane is just one third full.
During a recession, stimulus projects like these give hope by stimulating demand. But in the case of Uganda Airlines, absent a change of focus to domestic and regional routes, the airline will be simply be joining a trend of national pride invested in another round of loss-making aviation. Margins in air travel are very thin.
Just 15 per cent passengers sit in premium seats, first class and business class depending on the configuration of the plane, 85 per cent fly economy where a base fare from Nairobi to Washington D.C. is just $500, the rest comprising taxes and fees.
Starting to fly in 2018 when fuel prices are on the up, a barrel of oil is now $75 and is likely to increase with the strengthening of the dollar due to rising interest rates and faster American economic growth (the US hit 3.5 per cent in the last quarter) will be a blot of red ink.
There is a saying in business circles, that government cannot get a bag of cement at Shs30,000.00 on the open market. After hearing tales of the sale of the name, routes and unclear legal status of Entebbe Handling Services, which hemorrhaged the defunct Uganda Airlines by taking away the valuable cargo and handling services, this is a case again of past events predicting future conduct. Good luck to you all, safe flights safari njema !
Mr Ssemogerere is an Attorney-at-Law and an Advocate. [email protected]