PrecisionAir faces financial dilemma
By Florian Kaijage
9th June 2013
PrecisionAir
The unplanned regional expansion and the entry of low-cost airline, FastJet, has thrown the country's biggest private airline, PrecisionAir into financial crisis, The Guardian on Sunday has learnt.
Though none of airline's top executives are unwilling to confirm the current financial turmoil, details gathered by The Guardian on Sunday for two months show that the airline has been forced to cancel the operation of Boeing 737-300 in domestic routes due to financial crisis.
The airline's troubles were first noticed just after the departure of its former Chief Executive Officer, Alfonce Kioko, who was replaced by Sauda Rajabu, The Guardian on Sunday has been told. Some believe the former CEO mismanaged the company's finances, while others say the current financial turmoil was caused by a rapid regional expansion that saw the airline expanding its wings to Johannesburg, Lusaka and Lubumbashi between 2011 and 2012.
The expansion plans, according to inside information, weren't well researched -- especially the Dar-Johannesburg route – which turned to be a burden for lack of enough passengers to break even. The airline was operating a Boeing 737-300, which compared to 737-800 or Airbus A320 operated by South African Airways, was more expensive than the latter especially in fuel efficiency.
So PrecisionAir was forced to cancel its Dar-Johannesburg route before the end of last year, giving SAA virtual monopoly on the route, the Guardian on Sunday has learnt.
This regional expansion ostensibly carried out without proper planning and also without a fleet with fuel efficiency – to accommodate more passengers and cargo – were some of the factors that literally shot down the airline.
As the airline ran high operation costs at its newfound regional routes -- including Dar-Nairobi -- at the domestic market scene was dogged down by the arrival of the low-cost airline, Fast Jet, our surveys show.
FastJet, which operates the Airbus A319, came riding the high crest of the promotional lower fares – in itself a sensation rare in Tanzania, where even bus fares keep rising. Within weeks, the airline's financial outlook deteriorated -- especially on its Dar-Mwanza route.
As a result, Precision was forced to suspend the operations of Boeing 737-300 between Dar and Mwanza three months ago in what was termed as high operational costs. Before that, the airline was operating three times a day. The route has since been replaced by ATR-500, which has the capacity to carry 70 passengers, and uses fuel efficiently.
The Guardian on Sunday has also learnt that the former CEO had apparently mismanaged the company's finances, leaving behind a cash-strapped airline when he left the company at the beginning of this year.
However, The Guardian on Sunday couldn't independently verify how much monies were lost during Kioko's tenure, but insiders say the former CEO cost the airline dearly.
Talking to The Guardian on Sunday, the airline's current Managing Director Sauda Rajab responded:
"Precision Air is currently involved in reviewing its five-year business plan. The plan involves massive growth in our operations and will therefore require injection of funds. Various investment options are being reviewed and once the plan has been finalized and approved by the board, we will share with various stakeholders and the public at large.
The new CEO who took over about three months ago added: "Indeed, the next five years will be exciting ones for the airline as we continue to venture channels to further position PrecisionAir as Tanzanian airline of choice."
On reports that the airline had approached the government asking for soft loan amounting to $4 million, the new MD didn't deny or confirm the reports -- apart from insisting that she was busy reviewing the new five-year business plan that would see major growth in the airline's operations.
However, The Guardian on Sunday has reliably learnt that in the wake of its deep financial crisis, the airline is now struggling to finance the country's only surviving airline, which issued initial public offering (IPO) at the Dar es Salaam Stock Exchange early in 2011.
The IPO didn't raise enough money as projected – which whittled down its ambitious expansion plans.
The Guardian on Sunday has established that the company's top brass could, in fact, apply for government assistance through the Ministry of Transport – up to Sh6.48 billion ($4 million).
Sources close to the transport ministry and the airline itself intimate that that the application was, indeed, submitted some weeks ago but the ministry has yet to decide due to "sensitivity of the matter."
"It looks like the ministry took the matter positively … but still could not make final decision … given the huge sums of money at stake … so it was deemed wise to channel the matter to the country's top authorities … possibly the Prime Minister's Office," hinted one of the sources.
Another well placed source noted: "The matter was discussed at the two meetings in Dodoma during the week ending June 2, 2013 … it involved a number of ministers and one of them was chaired by the Minister of State in Prime Minister's Office responsible for Investment and Empowerment, Mary Nagu but the idea was rejected in its totality because of the delicate source of funds."
This paper has been impeccably informed that due to inappropriate timing of the airline's application the Ministry of Transport proposed that the private company be assisted by releasing the money from Air Tanzania Company Limited (ATCL) – through an insurance cover for the Bombardier Dash-8 aircraft that was involved in an accident at Kigoma Airport in April, 2012.
The said money is held at one of the bank accounts of the Consolidated Holding Corporation (CHC). And the proposal to spend the money comes at a time when the state-owned airline is also in deep financial troubles, and barely struggling to remain airborne – and owns a single 50-seat aircraft.
However, Minister Marry Nagu told this reporter that she could not divulge details, saying the matter was being dealt with by the government.
"These are purely government internal matters …it's true we are working on it … we are yet to decide … so I can't go into details," she said.
It remains unclear as to what was the form of financial assistant; a loan grant or by the government purchasing shares
The Deputy Permanent Secretary at the Ministry of Transport, John Mngodo could neither confirm nor deny reports about the airline's application; instead, he advised this reporter to contact the airline itself.
"Where did you get this information? You better communicate with Precision Air …. they are in a better position to talk on the matter," said Mgondo.
Precision Air
The company was established in 1993 as a private charter service company operating a five-seater light piston-engine aircraft before embarking on scheduled flights some years later. In 2003 Kenya Airways acquired minority 49 per cent shareholding.
Currently the Dar es Salaam-listed carrier is 41.23 per cent owned by Kenya Airways, Tanzanian Michael Shirima holds 42.91 per cent, while the rest of the shares are held by the public after 2011's Initial Public Offering.
The airline is pursuing an aggressive expansion plan.
Kenya's Daily Nation newspaper reported early this year the over the next two years, the company plans on spending about Sh145.8 billion ($90 million) to expand its fleet while launching routes to the Middle East and Europe.
The airline is funding the expansion through a combination of its own capital and debt. Last year, the company's board opted out of paying dividends in favour of modernising the fleet.
The carrier has also borrowed heavily from Citibank International, the Finnish Fund for Industrial Development and the International Finance Corporation. At one point, the company's debts exceeded its assets by as much as Sh30.78 billion ($19 million).
The information available on the airline's website indicates that in 2006, the airline embarked on a fleet modernization program that saw it sign a contract with ATR of France to deliver seven brand new state-of-the-art aircraft. The last of the seven aircraft arrived in September 2010.
The company says current fleet consists of five 70-seater ATR 72-500, four 48-seater ATR 42 and three Boeing 737.Plans are underway to expand the fleet further by acquiring more E-jets and ATRs.
SOURCE: GUARDIAN ON SUNDAY
By Florian Kaijage
9th June 2013
PrecisionAir
The unplanned regional expansion and the entry of low-cost airline, FastJet, has thrown the country's biggest private airline, PrecisionAir into financial crisis, The Guardian on Sunday has learnt.
Though none of airline's top executives are unwilling to confirm the current financial turmoil, details gathered by The Guardian on Sunday for two months show that the airline has been forced to cancel the operation of Boeing 737-300 in domestic routes due to financial crisis.
The airline's troubles were first noticed just after the departure of its former Chief Executive Officer, Alfonce Kioko, who was replaced by Sauda Rajabu, The Guardian on Sunday has been told. Some believe the former CEO mismanaged the company's finances, while others say the current financial turmoil was caused by a rapid regional expansion that saw the airline expanding its wings to Johannesburg, Lusaka and Lubumbashi between 2011 and 2012.
The expansion plans, according to inside information, weren't well researched -- especially the Dar-Johannesburg route – which turned to be a burden for lack of enough passengers to break even. The airline was operating a Boeing 737-300, which compared to 737-800 or Airbus A320 operated by South African Airways, was more expensive than the latter especially in fuel efficiency.
So PrecisionAir was forced to cancel its Dar-Johannesburg route before the end of last year, giving SAA virtual monopoly on the route, the Guardian on Sunday has learnt.
This regional expansion ostensibly carried out without proper planning and also without a fleet with fuel efficiency – to accommodate more passengers and cargo – were some of the factors that literally shot down the airline.
As the airline ran high operation costs at its newfound regional routes -- including Dar-Nairobi -- at the domestic market scene was dogged down by the arrival of the low-cost airline, Fast Jet, our surveys show.
FastJet, which operates the Airbus A319, came riding the high crest of the promotional lower fares – in itself a sensation rare in Tanzania, where even bus fares keep rising. Within weeks, the airline's financial outlook deteriorated -- especially on its Dar-Mwanza route.
As a result, Precision was forced to suspend the operations of Boeing 737-300 between Dar and Mwanza three months ago in what was termed as high operational costs. Before that, the airline was operating three times a day. The route has since been replaced by ATR-500, which has the capacity to carry 70 passengers, and uses fuel efficiently.
The Guardian on Sunday has also learnt that the former CEO had apparently mismanaged the company's finances, leaving behind a cash-strapped airline when he left the company at the beginning of this year.
However, The Guardian on Sunday couldn't independently verify how much monies were lost during Kioko's tenure, but insiders say the former CEO cost the airline dearly.
Talking to The Guardian on Sunday, the airline's current Managing Director Sauda Rajab responded:
"Precision Air is currently involved in reviewing its five-year business plan. The plan involves massive growth in our operations and will therefore require injection of funds. Various investment options are being reviewed and once the plan has been finalized and approved by the board, we will share with various stakeholders and the public at large.
The new CEO who took over about three months ago added: "Indeed, the next five years will be exciting ones for the airline as we continue to venture channels to further position PrecisionAir as Tanzanian airline of choice."
On reports that the airline had approached the government asking for soft loan amounting to $4 million, the new MD didn't deny or confirm the reports -- apart from insisting that she was busy reviewing the new five-year business plan that would see major growth in the airline's operations.
However, The Guardian on Sunday has reliably learnt that in the wake of its deep financial crisis, the airline is now struggling to finance the country's only surviving airline, which issued initial public offering (IPO) at the Dar es Salaam Stock Exchange early in 2011.
The IPO didn't raise enough money as projected – which whittled down its ambitious expansion plans.
The Guardian on Sunday has established that the company's top brass could, in fact, apply for government assistance through the Ministry of Transport – up to Sh6.48 billion ($4 million).
Sources close to the transport ministry and the airline itself intimate that that the application was, indeed, submitted some weeks ago but the ministry has yet to decide due to "sensitivity of the matter."
"It looks like the ministry took the matter positively … but still could not make final decision … given the huge sums of money at stake … so it was deemed wise to channel the matter to the country's top authorities … possibly the Prime Minister's Office," hinted one of the sources.
Another well placed source noted: "The matter was discussed at the two meetings in Dodoma during the week ending June 2, 2013 … it involved a number of ministers and one of them was chaired by the Minister of State in Prime Minister's Office responsible for Investment and Empowerment, Mary Nagu but the idea was rejected in its totality because of the delicate source of funds."
This paper has been impeccably informed that due to inappropriate timing of the airline's application the Ministry of Transport proposed that the private company be assisted by releasing the money from Air Tanzania Company Limited (ATCL) – through an insurance cover for the Bombardier Dash-8 aircraft that was involved in an accident at Kigoma Airport in April, 2012.
The said money is held at one of the bank accounts of the Consolidated Holding Corporation (CHC). And the proposal to spend the money comes at a time when the state-owned airline is also in deep financial troubles, and barely struggling to remain airborne – and owns a single 50-seat aircraft.
However, Minister Marry Nagu told this reporter that she could not divulge details, saying the matter was being dealt with by the government.
"These are purely government internal matters …it's true we are working on it … we are yet to decide … so I can't go into details," she said.
It remains unclear as to what was the form of financial assistant; a loan grant or by the government purchasing shares
The Deputy Permanent Secretary at the Ministry of Transport, John Mngodo could neither confirm nor deny reports about the airline's application; instead, he advised this reporter to contact the airline itself.
"Where did you get this information? You better communicate with Precision Air …. they are in a better position to talk on the matter," said Mgondo.
Precision Air
The company was established in 1993 as a private charter service company operating a five-seater light piston-engine aircraft before embarking on scheduled flights some years later. In 2003 Kenya Airways acquired minority 49 per cent shareholding.
Currently the Dar es Salaam-listed carrier is 41.23 per cent owned by Kenya Airways, Tanzanian Michael Shirima holds 42.91 per cent, while the rest of the shares are held by the public after 2011's Initial Public Offering.
The airline is pursuing an aggressive expansion plan.
Kenya's Daily Nation newspaper reported early this year the over the next two years, the company plans on spending about Sh145.8 billion ($90 million) to expand its fleet while launching routes to the Middle East and Europe.
The airline is funding the expansion through a combination of its own capital and debt. Last year, the company's board opted out of paying dividends in favour of modernising the fleet.
The carrier has also borrowed heavily from Citibank International, the Finnish Fund for Industrial Development and the International Finance Corporation. At one point, the company's debts exceeded its assets by as much as Sh30.78 billion ($19 million).
The information available on the airline's website indicates that in 2006, the airline embarked on a fleet modernization program that saw it sign a contract with ATR of France to deliver seven brand new state-of-the-art aircraft. The last of the seven aircraft arrived in September 2010.
The company says current fleet consists of five 70-seater ATR 72-500, four 48-seater ATR 42 and three Boeing 737.Plans are underway to expand the fleet further by acquiring more E-jets and ATRs.
SOURCE: GUARDIAN ON SUNDAY
