First A330neo delivery for Uganda Airlines scaled
News emerged of a possible deal for Boeing with Uganda Airlines. As the dust settles from this news, it is important to consider some background.
Uganda Airlines is a state-owned airline today whose origins are in the demise of the former Air Uganda. That airline was hurriedly shut down in 2014. A 2014 ICAO audit of Uganda’s CAA would not end well. The CAA was in danger of failing the airline oversight part – so they suspended every single AOC of all Uganda operators indefinitely. The Aga Khan backed the former Air Uganda, and his investment got shafted.
Of course, Uganda had to have a national airline, so another was to be created. The formation of the follow-up airline was the work of state bureaucrats, none of whom had the requisite commercial aviation experience. Nonetheless, a 108-page business plan was developed. Here is a picture of its cover.
Here is an item from the report:
- “Overall, the report recommends that investment in the National Carrier should be considered as an
infrastructure for enhancing the country’s global connectivity and competitiveness beyond direct financial
benefits, as the Carrier will play a critical catalytic role in tourism development and promotion, export
growth and investment in various priority sectors. The study particularly highlights that the National Carrier
will facilitate significant direct foreign exchange savings to the country through cheaper air transport for
passengers and cargo.”
These are the report recommendations
“Summary of feasibility study results, findings, and recommendations
- Under-capitalization, use of inappropriate aircraft technology, weak capacity for airline management, failure to appreciate airline value addition to the economy, political interference in airline management, corruption in procurement processes, among others, have been the major causes for failure of African based airlines.
- A comparative technical evaluation of the different aircraft types based on market suitability, aircraft cost, efficiency, reliability and resilience, cargo capacity and configuration, cabin comfort and technology, among others, identified the CRJ 900 and Airbus A300-200 series as the most appropriate aircraft types for the National Carrier’s regional and international operations, respectively.
- The scenario to purchase aircraft for both regional and international operations gives the highest financial and economic benefits to Uganda compared to all the options under the scenario of leasing aircraft. All leasing options give financial and economic results that are below the minimum threshold, required for investment decision. In particular, it is only the case of leasing aircraft for regional operations that marginally meets the threshold for investment.
- The options of leasing aircraft should be considered after the airline has built sufficient assets for the necessary credit worthiness of the airline. This is necessary because the airline requires capital assets (aircraft fleet or cash equity) to be used as a basis for code sharing and receiving other airline services on credit that are billed monthly. In the case of Uganda’s National Carrier Business Plan developed in this study, a total cash equity of USD 140 million will be required to replace the option of using aircraft as the asset base.
- Currently, Uganda loses about USD 540 million annually, in form of higher transport costs (extra charges) to passengers originating and terminating at Entebbe International Airport, due to absence of a National Carrier. The best-case investment scenario (combined regional and international aircraft purchase) would generate a direct Net Present Value (NPV) economic benefit of USD 580 million, after taking care of all the investment and operating costs, over a 15-year period.
- An internationally recognized management team with clear performance targets is recommended by the study for a period of three years, for successful launch and sustainability of the National Carrier and listing of the Carrier on the stock exchange.
- The study recommends operation of domestic air transport routes through franchising and/or partnerships with domestic private operators. With increased traffic, due to the National Carrier, domestic operators will find it viable to invest in modernizing their aircraft fleets.
- For greater focus and highest efficiency, the study also recommends that the airline should undertake its own ground handling, without immediate plans to diversify into ground handling of other airlines.
- Government requires to undertake full capitalization of the National Carrier during the initial years and later divest through public listing, to avoid challenges of risk transfer between Government and private sector. This capital structure will also enable the airline to build from modest equity provided by Government to self-financing from operations thereafter.”
The airline selected CRJ900s, which were almost certainly the wrong aircraft for Uganda since it does not need regional jet service. Turboprops, perhaps, but not jets. But you must get a few when the people set up to run the airline are CRJ-qualified pilots.
But wait, there’s more. Uganda Airlines’ decision to acquire A330-800s is even better. The choice was driven by head-of-state hubris. The first Airbus widebody for RwandaAir (neighboring Uganda) was inexplicably flown from Toulouse to Entebbe (the capital of Uganda) rather than the capital of Rwanda. Why this occurred is unclear. However, Uganda’s head of state apparently saw this shiny new Airbus for his neighbor and decided that his nation needed a better model.
Our sources state that Airbus had no business case for a deal. But when the head of state decides he wants an airplane, especially one that isn’t selling well, you deliver. And hey presto, Uganda now owns an A330-800. When they got their brand new A330-800s, the fleet was grounded nearly a year after delivery because Uganda Airlines failed to add them to its OpSpec ahead of delivery. The delivery was a rush job over Christmas 2020, using European crews from Rishworth Aviation to meet the President’s demand for delivery by the end of the year.
Recall point 1 from the above recommendations: “Under-capitalization, use of inappropriate aircraft technology, weak capacity for airline management, failure to appreciate airline value addition to the economy, political interference in airline management, corruption in procurement processes, among others, have been the major causes for failure of African based airlines.” Marvelous, right?
This story highlights the thin ice under any Boeing deal with Uganda. If Airbus could not make a business case, how can Boeing make a business case?
Does the country need this many aircraft? Are the right models selected? What else is going on behind the scenes? Because what we see is probably not what is going on. We “know” this: “Persons familiar with the development say Ugandan president Yoweri Museveni has authorized the purchase of four aircraft – two freighters and two passenger aircraft from Boeing.”
The Boeing delegation to Uganda was headed up by its MEA President based in Dubai (Kuljeet Ghata-Aura), together with some people from the US. However, their new managing director for Africa (Henok Teferra Shawl) was notably absent. Perhaps this reflects another rush job?
What will happen with those A330-800s? If those aircraft are proving effective, why would Uganda need two 787s, not to mention the two freighters? Invariably, the taxpayer will get shafted.
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