How Uganda Airlines got in Shs500b mess

Uganda Airlines has racked up a loss of Shs498b since being revived in 2019, Parliament’s Committee on State Authorities and State Enterprises (Cosase) heard this past week.

Two of the three years that followed the airline’s commencement of operations on August 28, 2019, have been a perfect storm for the aviation industry. Covid-19 brought with it a fear of contagion and pessimism about the global economy that buffeted airlines, not least those in their infancy like the flag carrier of Uganda.

Experts, however, say while Uganda Airlines was dealt a bad hand, it played it badly. It barely helped matters that the airline—through government subventions—opted to pay out of pocket for the six aircraft.

Options such as dry leasing (taking an aircraft from a leasing company for a period not exceeding two years) and wet leasing (getting the aircraft, crew, maintenance and insurance typically over a short-term) were not explored.

These, industry players argue, would have allowed the national carrier to scale up capacity without capital expenditure. Instead, it separately placed orders for half a dozen planes inside 2019.

Mr Paul Turacayisenga, the airline’s director finance, told Cosase lawmakers that the initial projection was Uganda Airlines would break even this month. Then Covid-19 happened.

Mr Turacayisenga revealed that last financial year (2021/2022), the national carrier posted more than twice the losses registered in its first financial year (2019/2020) since its revival. The revelation came not as a shock but, perhaps, as a troubling inevitability.

The portrait Mr Turacayisenga sketched to the Cosase lawmakers this past week was of an airline plunging into the red. They heard that Uganda’s flag carrier made a record annual operating loss of Shs232b last financial year (2021/2022). Before that, the Auditor General’s report captured a Shs164b loss for the financial year 2020/2021. Referencing another report from the Auditor General’s office, Mr Joel Ssenyonyi—the Cosase chairperson—put the loss posted in Financial Year 2019/2020 at Shs102b.

Pandemic blues

Mr Turacayisenga was quick to peg the national carrier’s travails to Covid-19 curbs. The onset of the pandemic in March 2020 saw Uganda Airlines ground its fleet, barely six months after its revival.

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“When the airspace was opened, most countries were limiting the frequencies [that] we were meant to fly to as they were monitoring the post-Covid situation,” Mr Turacayisenga revealed, adding, “So, we flew less than we had planned in addition to the fact that our assumptions in planning the post-Covid era were based on pre-Covid, which was not correct.”

Ms Jenifer Bamuturaki, the chief executive officer of the airline, confessed to being powerless to reduce the cost base because “mandatory operations and, or services offered to third parties” ensured the business was haemorrhaging cash.

When Mr Ssenyonyi told the airline’s top brass—in no uncertain terms—that “Ugandans are interested in being sure they are not pumping money into Uganda Airlines and it is just disappearing”, grounds for optimism still proved elusive. Mr Turacayisenga revealed that while a new airline typically needs three years to break even, the pandemic has complicated the calculus for Uganda Airlines.

Some of the operating expenses Ms Bamuturaki told lawmakers the airline is saddled with include ground handling operations and mandatory on-job training of some critical staff “before they are permanently absorbed.”

Loss margins are also said to have been escalated by the introduction of two Airbus A330-841s. The wide-body airliners run off a much bigger budget than the four Bombardier CRJ900s Uganda Airlines has as part of its fleet.

Mr Lukman Ndusa, the director of flight operations, for instance, told lawmakers that pilots of the A330-841s are paid significantly more than those who take the controls of the CRJ900s.

Poor business model

Uganda Airlines’ financial woes offer fodder to critics, who say the business model of national carriers in Africa is counterproductive. An International Monetary Fund (IMF) county report for Kenya No.20/231 dated July 2022 for one revealed that Kenya Airways—the flag carrier airline of Kenya—received an $868m (Shs3.2 trillion) bailout from the Kenyan government.

Kenya’s national carrier has also brought in cost cutting measures such as delaying director and staff pay, reducing and deferring capital expenditure, as well as decreasing discretionary spending. It has also followed the lead of Ethiopian Airlines—the only profitable carrier on the African continent—by warming up to cargo business.

Kenya Airways recently converted two of its passenger aircraft. Uganda Airlines says it is also doing some soul searching.

“We must manage our cost of operation. A lot of the things that we have put up and going to do are spreading over five years,” Ms Bamuturaki told Saturday Monitor, adding, “For instance, in October, we should be starting our own self handling [and with this], we are going to save close to Shs79b a year.”

The African Airlines Association (AFRAA) at the start of this year proffered six strategies to help carriers on the continent nose their fortunes upwards. The strategies AFRAA put on the table are intended to cut costs, gain traffic, improve aircraft utilisation and provide efficient services. It, for instance, held out hop-and-pick services as a way to ease restrictive air travel on the continent for carriers that are tailspinning into a stall.

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Expanded sharing of routes was also mentioned as one of the antidotes. The East African Business Council (EABC), on its part, recommended during the first workweek of March that the EAC heads of state expedite finalisation of the EAC Regulations for Liberalisation of Air Services, which will guide the EAC partner states in granting rights to each other for the First, Second, Third, Fourth and Fifth Freedoms.

Air pockets

Not everyone is holding their breath, though. Forecasts from the International Air Transport Association (IATA) suggest that African airlines are staring at a full year revenue loss estimated at $4.1b (Shs16 trillion) this year. In 2021, the airlines cumulatively lost $8.6b (Shs33 trillion) in revenue due to Covid-19 restrictions. The pandemic also saw Africa’s traffic market share drop to less than two percent as per IATA.

IATA’s gloomy forecast further estimates that the spike in fuel prices—traditionally a millstone for airlines—will see airlines lose more than the $11b (Shs42 trillion) it had predicted for 2022. IATA’s intra-African demand (31.3 percent) and intercontinental travel (23.5 percent) figures also rain on the parade Uganda Airlines took great delight in last year whilst launching new services to Johannesburg (South Africa) and Dubai (UAE). Uganda’s national carrier also hired a stage for its London (UK) office to much fanfare.

Mr Ssenyonyi told Saturday Monitor that it has not helped matters that there is no financial prudence to correct Uganda Airlines’ profligacies. In the Financial Year 2020/2021, the airline burned through nearly Shs28b on wages while not explicitly stating how many employees it has on its books.

“The Auditor General raised it as a query, saying they (Uganda Airlines) lack a staff structure or establishment,” Mr Ssenyonyi said, adding, “They asked for until the end of year to put it together, but I gave them one month to put it together.”

Enemy within?

An internal financial report leaked to Saturday Monitor captured multiple episodes of reckless extravagance. The report spotlighted disturbing patterns of abuse of the airline’s fuel policy and credit cards by senior managers, including the chief executive.

A fuel management policy unveiled on January 27, put Ms Bamuturaki’s monthly fuel allocation at Shs2m. Barely three days after the policy was unveiled, the acting financial accountant sent an email to the human resource department requesting that the chief executive’s allocation be increased to Shs2.5m per month. The human resource department instead increased it to Shs3m per month. No justification was given for the increase.

According to the report, in October 2021, Ms Bamuturaki, then acting chief executive officer, drew $12,750 (Shs48.2m) as per diem for working trips to all stations across the Uganda Airlines network. She, however, reportedly neither made the journeys nor refunded the said money.

“The planned travels did not take place and this money has not been accounted for over seven months after receipt of funds. The acting chief executive officer had a trip to Nairobi (Kenya) recently where she was entitled to $1,135 (Shs4.2m) as per diem. She instructed finance to net off from her unaccounted for funds. This leaves $11,400 (Shs43.1m) unaccounted for,” the report reads in part.

The Auditor General’s reports have also consistently offered no words of praise for the national carrier straying into punch bag territory.

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“The company incurred a loss of Shs164,573,633,000 at the end of the trading year 2020/2021. This was a result of generating low revenue in comparison to its costs,” the report for Financial Year 2020/2021 revealed how Uganda Airlines was failing to add to its bottom line, adding, “The company generated revenue totalling to Shs46,927,333,000 from its operations.”

More problems

On Wednesday, Cosase lawmakers heard that the national carrier collected only Shs48b out of a projected Shs304.6b during the Financial Year 2020/2021. This, the airline’s top brass reasoned, was down to the inability to operate flights on all 18 routes. The two A330-841s that are part of the airline’s six-strong fleet cannot also be deployed without the Approved Operators Certificate (AOC).

After coming through Wednesday’s grilling by Cosase members through a mixture of tenacity and good fortune, Ms Bamuturaki told journalists that a wage structure that has her earning just under Shs90m a month is “truly false.” The internal report leaked to us offers support, putting her monthly net salary at Shs34.2m.

The report indicates that whereas the airline’s finance manual stipulates that one cannot take out a salary advance that is above their monthly salary, Ms Bamuturaki was advanced Shs94m between May 2021 and April 2022. She for one took out an advance of Shs10m on July 11, 2021 recoverable over the next three months; Shs30m on September 3, 2021; Shs34m on January 19, 2022; and Shs20m on May 8, 2022. The Shs30m and Shs34m advances were in breach of a policy that stipulates that one cannot be advanced more than 50 percent of their net pay.

Speaking with a face that betrayed a mixture of annoyance and concern, Ms Bamuturaki told journalists on Wednesday that she remains unrepentant.

“It does not matter whether I went to the moon or whether I did MDD [Music, Dance and Drama]. What matters is: Do I have the skill? And I do. I can’t blame myself for being appointed. That is something that will have to be requested from the board and whoever they were following,” she said, almost conclusively.