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Atcl quandary: Time to press the re-boot button

Discussion in 'Biashara, Uchumi na Ujasiriamali' started by ByaseL, Feb 14, 2011.

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    ByaseL JF-Expert Member

    #1
    Feb 14, 2011
    Joined: Nov 22, 2007
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    Things are very dicey at ATC House. Back in 2006 when the Government of Tanzania (GoT) and South African Airways (SAA) decided to go separate ways on Air Tanzania Company Limited (ATCL) joint venture, many aviation pundits and ATCL workers alike lauded this move as a positive development. In fact some even went as far as calling it-the “liberation of ATCL!” The reason behind this thinking was that in the relationship between SAA and ATCL the latter was the abused, ignored and exploited party by the investor cum service provider.



    There were serious concerns that that the business agreement between SAA and ATCL was exploitative because after SAA came into ATCL, the latter was literally entirely dependent on the former on key functions and services including aircraft maintenance, revenue and general accounting, reservations services, fuel management, training and human resources functions at exorbitant fees. Not least, the agreement was lopsided in the sense that the top management of the national airline was basically from SAA with no chance, whatsoever, for local participation because the local staff were either sidelined or ignored in key decisions on the day to day management of the airline.


    In the event the GoT went ahead and terminated the agreement with SAA and took full control (100%) of ATCL promising to put the giraffe-tailed carrier back on its feet. This entailed the GoT assuming a debt of about Tshs. 13.3 billion owed by ATCL by various creditors including SAA who were owed Tshs.5.7 billion so that the “born-again” ATCL could start from the clean slate. Also the GoT undertook to finance the airline by either sourcing a credible and capable investor or supporting the airline through the exchequer so that ATCL could turn the page on its murky past to become a reputable airline contender.



    To cut the long story short the ATCL regeneration process has been a song and dance tale, so to speak. The GoT has been oscillating from one firm position in the morning only to change to a very shaky one in the evening as far as the future of ATCL is concerned. For example, on one hand we have seen the government’s efforts to brig in a Chinese investor –China Sonangol Holdings Limited (CSHL) into ATCL, who came in with gusto only to backtrack midway on very slippery grounds! The good and bad of CSHL as far as its involvement in ATCL goes have been catalogued extensively in this column. On the other hand the GoT’s funding of the national carrier has been rather patchy if not ill-timed with dire financial and operational consequences to ATCL.



    A deep scrutiny of the GOT/SAA fallout on ATCL actually reveals that the major bone of contention between the erstwhile shareholders was disagreement and persistent squabbling at the Board of Directors level because the GoT was perpetually coming short when it came to fulfilling its fudicial responsibility as far as ATCL funding is concerned. Credible sources has it that while GoT had 51% shareholding in ATCL “it had no desire to see this translated into concrete actions in terms actual funding of the airline and somehow expected SAA to go it alone!” laments one former ATCL Board Director. This became quite untenable and eventually SAA decided to let go.


    The ink had not even dried on the settlement agreement when the GoT started baulking at SAA’s (Tshs. 5.7 billion) debt! Tired of the sweet language crafted in a typical “come-tomorrow” empty promise, SAA took ATCL to court for legal recourse. It’s being said that the GoT has eventually relented and signed a deed of settlement to pay SAA. Given this experience I would not hesitate to caution those who are rejoicing over the impending divorce between the GoT and RITES Consortium of India in the Tanzania Railways Ltd affair to first wait and see the long term repercussions of this separation.



    Hon. Omar Nundu, Minister of Transport, has been quoted in the Guardian Newspaper saying that ATCL has been sued by Celtic Corporation in the USA court over non-payment of $5.7 million debt. This money relates to accumulated lease charges for the B737-200 aircraft. Celtic Corporation is a USA based aircraft leasing company which has been leasing aircraft to ATCL. Superficially it’s ATCL being sued but realistically it’s the GoT on the firing line. This is due to the fact that the GoT is the guarantor of ATCL in all aircraft leasing agreements and because the airline has no ability to pay the government is legally bound to settle the debt in question. This is likely to be the scenario if Wallis Trading Company, the lessor of the redundant A380 aircraft decides to take similar action to demand a jungle of debt put at more than Tshs 25.0 billion owed in lease charges!


    So the question is: how long will the ATCL circus go on before the government decides to “draw the curtains” to end this rather unpalatable and unsustainable show? Quite frankly, in my view, there are only two choices here. The GoT may either resolve to remove the “patient” from a life-supporting machine and let the patient (read ATCL) wither away or decide that now it’s the time to press the re-boot button and have a completely fresh start. The sooner this is done the better for the government, ATCL, Management and staff.


    But let it be clear from the outset that just in case the government decides to take the second option mentioned above, it should have no role or may retain a very minimal role (say 5% at most) in the new airline set-up. Personally I prefer this course of action because despite all ATCL’s shortcomings the airline still has some intrinsic value left which can be successfully nurtured by the new owners. In any case the trend globally is increasingly for the governments to get out of the business of running airlines. It’s quite evident that the GoT has miserably failed to measure up to this task.


    It is now time for the Government to sober up and, as a matter of urgency, set up a task force to firstly, review the policy framework of ATCL particularly regarding the GoT stake-holding in the airline and secondly prepare the modality of divesting ATCL (devoid of encumbrances) to the private sector as previously suggested my Reginald Mengi and like minds. Time is of essence.

    Byase Luteke
     
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