Rethinking Uganda Airlines

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Analysts say the government needs Shs800bn subsidy annually to keep national carrier in the air

The good news is that if President Yoweri Museveni’s New Year 2017 pledge is implemented, Uganda could end this year with a revived national air carrier. The bad is that the revived Uganda Airlines could end up like a dove flying among eagles in very turbulent skies.

Research by The Independent across Africa, Europe, Asia and the Middle East shows that a government needs to inject between US$250 million (Approx. Shs875 billion) and US$350 million (Approx. Shs1.3 trillion) annually to keep the national air carrier flying.

Faced with that decision, many investment managers question whether any country should be paying that price for national pride.

“The idea of having a national carrier is good but we are trying to chew what we cannot swallow. We are likely to have a very huge debt that could choke the economy,” says George Mulindwa, a portfolio manager at Stanlib, the US$40 billion South African investment management firm with operations in Kampala.

“I will need to know whether government has done an assessment on whether it is cheaper to use a state-owned airline in doing a similar job that other airlines can do,” says Rachel Sebbudde, an Economist at the World Bank office in Kampala.

But there are many people, especially government technocrats and politicians who have spoken strongly in favour of reviving the national carrier which the same Museveni government had closed in 2001 when the IMF/World Bank privatization drive was starting.

“We are advocating for re-instating of Uganda Airlines in order to make Uganda remain a hub and for sustainable development,” said Wilberforce Kisamba Mugerwa, the chairperson of the National Planning Authority (NPA).

Part of the attraction is the growing passenger traffic which has grown more than 10-fold to 1.51million in 2015 over the past two decades. However, this same passenger traffic is being used by 18 international carriers and a revived Uganda Airlines would struggle to compete at fare rates and service.

National pride

Jannie Rossouw, the head of School of Economic & Business Sciences at the University of the Witwatersrand in South Africa wrote in the Mail and Guardian that time when national airlines flew as carriers of national pride is a thing of the past as they have become major liabilities to their respective states.

“They must be cut loose to protect the pride of the nation,” he said, adding that with some exceptions, the situation in many developing countries is particularly bad that they can’t afford the huge financial burden that comes with failing national carriers.

To even make the situation worse, African carriers have continued to make losses every year. Latest data from the International Air Transport Association released mid last year shows that African carriers are expected to post a $500 million loss in 2016, a slight improvement on the $700 million that the region’s carriers lost a year before. Capacity growth (5.3%) is anticipated to outpace demand growth of 4.5%.

“Carriers in the region continue to confront a plethora of challenges including intense competition on long-haul routes, political barriers to growing intra-Africa traffic, high costs and infrastructure deficiencies,” the Association said in its assessment.

In addition, many major economies in the continent have been hit hard by the collapse of commodity prices, and the impact that has had on revenues and the inflow of hard currencies. Also, unresolved foreign exchange crises are adding to the economic difficulties facing airlines in this region.

Debate over the airline has risen since December 31, 2016, when President Yoweri Museveni said in his New Year message that the government has finalised a plan to revive a national air carrier. He said it would ease air travel and enable Ugandans to spend money on local rather than foreign airlines.

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