2008-12-14 12:07:59
By Richard Mgamba
Officials seemed to be gathering nails for Air Tanzania`s `coffin` this week, when the ailing airline suspended service amid a mound of safety violations and a mountain of debt.
They dined and wined two years ago, after the end of controversial `partnership` between South African Airways and Air Tanzania Company Ltd, hoping that the move would propel the cash-strapped national carrier to stability and success, but now things seem to have irreparably fallen apart for the state-owned airline.
ATCL`s safety problems are just the latest hitch for the already troubled airline, which for nearly seven years has failed to post any profit, but has accumulated over $30m in losses. But what really went wrong? Can ATCL be rescued financially?
This week sure seemed a long way off from the toast that once christened the partnership between South African Airways and Air Tanzania Company Ltd.
The two companies had celebrated at the time, touting the 2002 buy-in as a breakthrough that would propel the cash-strapped national carrier to stability and success, but now things seem to have irreparably fallen apart for the state-owned airline.
The airline`s failure stings even more given the region`s troubled past in aviation - ATC was only established 30 years ago after the East African Airways, which operated under the umbrella of the collapsed East African Community, had itself folded.
While its counterpart Kenya Airways (KQ) has beaten the odds to become one of Africa\'s biggest airlines, under the slogan of `the proud of Africa`, ATCL seems to have survived only to illustrate the poor management of state-owned corporate entities and the lack of business skills within most African governments.
ATCL`s safety problems are the latest hitch for the already troubled airline, whose profits and reputation have been compromised in recent months by a lack of proper strategic planning and recurrent financial woes.
Since June, ATCL has lost about 60 per cent of its market share in both domestic and regional routes, with routes between Dar es Salaam and Mwanza and Johannesburg plagued with cancellations.
In June the airline had five planes in its fleet of Boeing 737-200s, Air Buses and DC 9s, but by the end of last month only two were operating.
ATC was formed in 1977 and privatised in February 2002 under the government`s Presidential Parastatal Sector Reform Commission (PSRC).
Air Tanzania Company Limited (ATCL), a limited liability company, was established under the Companies Act to take over the operating assets, and specified rights and liabilities of ATC, as well as the creation of a new company, Air Tanzania Holding Company (ATHCO), to take over the non-operating assets and all other liabilities of ATC.
South African Airways was the winning bidder and in December 2002, after signing an agreement with the government, it bought a 49 per cent stake in ATC for $20m - $10m as the value of the shares and the remaining $10m for the Capital and Training Account for financing its proposed business plan.
SAA planned to create its East African hub in Dar es Salaam to form a ``Golden Triangle`` between Southern, Eastern and Western Africa. It had also intended to replace ATC`s fleet with Boeing 737-800s, 737-400s and 767-300s.
But after four years of partnership the plan had stalled in its tracks, and the two airlines parted ways in 2006.
In March of that year, the government announced that ATCL had accumulated a loss of 24.7bn/- over the four years, casting a bleak future on the nation`s carrier.
Things only gotten worse from there, as ATCL has failed to post profit over the past two years, nor has it been able to raise itself out of debt or reshuffle its management for better results.
No cash, no business plan
According to an investigation conducted by The Guardian on Sunday, ATCL`s total collapse can be attributed in large part to a lack of a proper business plan and a feasibility study on where the airline planned to head after parting with SAA.
Inside sources say the lack of cash to operate it as well as failure to meet the safety regulations set by both local and international regulators have also sunk the airline deeper in the hole.
Despite the government`s pledge to revive ATCL with a multi-billion shilling bailout, nearly 25 months since its partnership with SAA ended the state has failed to honour its pledge.
According to ATCL Chief Executive Officer David Mattaka, the government had promised, among other things, to cover the 3.5bn/- fuel debt accumulated during the SAA-ATCL partnership, but none of that money has been allocated thus far, forcing the airline to spend part of its modest income to service the debt.
The government also promised to inject cash as operational capital to empower the airline to lease and buy medium- and long-range fleets that would have been used to operate both regional and international routes.
But according to details made available to The Guardian on Sunday, the pledge wasn't fully honoured by the government, and the once prosperous airline - which in the early '80s operated Dar-London, Dar-United Emirates routes in addition to its regional and domestic routes - continued to flounder.
Though on Thursday Mattaka praised the government for its support - contradicting his earlier remarks that the airline `was left an orphan` by the government - available details show that the state has yet to fully commit to bailing out the ailing airline.
As a result, this week the company failed to buy the 5.5 tonnes of jet fuel needed to fly its Boeing 737-200 from Mwanza to Dar es Salaam.
The plane had been grounded for the past two months due to technical problems discovered in the takeoff stage, but after the company's engineers managed to repair the engine, the plane still could not fly to Dar es Salaam due to lack of jet fuel.
The airline`s main supplier BP Ltd refused to give ATCL the fuel on loan.
It costs about $1,300 (1.56m/-) for a tonne of jet fuel, according to data from BP Ltd made available to The Guardian on Sunday this week.
``If the company has even failed to buy 5.5 tonnes of fuel for its plane due to financial problems, what else do you want to prove that it has gone bankrupt?`` asked a senior official from ATCL headquarters this week.
The cost of poor planning?
While the airline has been gunning for a government bailout, inside sources told The Guardian on Sunday that since it took over about two years ago, the new management has failed to come up with a comprehensive business plan backed by credible feasibility study.
As a result the company went ahead and leased an older Air Bus plane A320, whose operation costs proved to be yet another burden to the company.
ATCL leased the 156-passenger plane from a Liberian-registered company called Wallis Aviation Services at a staggering $370,000 per month.
The A320, manufactured in 1997, was previously operated by Air Jamaica before it was abandoned two years ago due to rising fuel costs.
ATCL, which for the past three decades has operated Boeing planes almost exclusively, turned suddenly to Air Bus without having its own crews and engineers to man the plane.
``All of the pilots and engineers were trained to man a Boeing 737-200. The decision to operate Air Bus was taken blindly for questionable reasons and it has cost us dearly,`` an ATCL official who requested anonymity told The Guardian on Sunday.
The official went on, ``We have built our reputation in the region on having the best engineers and pilots, who were trained at high cost to man the Boeing 737-200...but suddenly the airline, without trained crews, was forced to operate an Air Bus.``
According to details made available to The Guardian on Sunday, ATCL was forced to hire international crews to man the leased plane, which has been operating regional and domestic routes for the past six months.
ATCL also entered into a maintenance agreement with Air Mauritius in order to allow the latter to provide technical services for the leased A320, contributing to the plane`s $800,000 monthly operational costs.
At this cost, critics of the project doubt that ATCL has any chance of breaking even this year, considering the high fuel costs seen over the past 36 months. Fuel consumes nearly 60 percent of the airlines\' operation costs.
While other regional players like South African Airways and Kenya Airways abandoned Air Bus fleets recently, citing higher operation costs, ATCL decided to do the opposite, raising concern on the management`s judgment.
ATCL`s CEO dismissed the criticisms of the company\'s decision to lease the A320, which he said was a decision backed with facts and reality.``
``People just think that a plane is acquired easily like buying a car or motorbike,`` Mattaka said. ``It is a very complicated process that involves months of negotiations as well as the safety inspection of the earmarked fleet.``
Ignored experts?
Some aviation experts inside the troubled airline had earlier advised ATCL management to instead acquire a Boeing 737-300, which consumes 15 percent less fuel than an A320 but has a lower carriage capacity of 128 passengers.
To start with, the 737-300 would have been suitable to operate regional and domestic routes, considering the current business nature of ATCL, a senior official from the company told The Guardian on Sunday this week.
The two aircrafts have similar types of engines but the 737-300 has less power than the A320.
Since ATCL has already been operating the Boeing 737-200, it would have been cheap and easy for the latter to adjust to the 737-300 in terms of training and developing the same calibre of pilots and engineers familiar with Boeing technology.
``The Boeing 737-300 was available at $250,000 but the management abandoned the plan under the claims that the A320 was cheaper to operate,`` the senior official said. ``Time has proved them wrong.``
Experts say leasing and operating the 156-seat A320 on the Dar-Mwanza and Dar-Johannesburg routes wasn`t an economically viable decision based on the availability of passengers and cargo.
The Dar-Mwanza route for instance has an average of 70 passengers per trip, though during the high season the number can reach 100, whereas the Johannesburg-Dar es Salaam route has a minimum of 90 passengers with figures picking up to about 120 during peak seasons.
Defended its decision
But while announcing its move to acquire the Air Bus A320, the then minister for infrastructure defended the move saying that the proposed plane was economically viable because of its modest fuel consumption.
Doing a comparison with what ATCL was spending on fuel to operate its 737-200, the former minister said it was the right decision to make the switch from Boeing to Air Bus, in order to position the company in a competitive direction.
However, experts further came out saying it was unfair to compare the A320 with the 737-200 because the two planes have different carriage capacity, engine configuration and technical specifications.