The East African Development bank (EADB) might step in a possible joint venture with local commercial banks to fund the revival of Uganda Airlines, according to the country manager of the regional bank.
Francis Ogwang, who spoke last week at the first East African Community conference at Skyz hotel, Kampala, said: “We’ve heard of the revival of the Uganda Airlines. The EADB and other institutions will finance this project.”
The conference was organized by the African Institute of Regional Integration Studies. The search for money for this project has one of the hurdles that government is facing.
About a week ago, state minister for Finance David Bahati appeared before parliament to ask for a supplementary budget and to use money from the renewal of the MTN license fee and the petroleum fund to pay the manufacturers of the planes, just 10 days to the delivery of the aircraft.
Bahati said government needed legislators to approve Shs 280 billion as part of the purchase costs for two aircraft. He added that the money was required in 10 days to pay for the two Bombardier CRJ 900 aircraft from Canada before the manufacturer could release them.
“We have taken a decision and we are proposing that proceeds from the MTN license and also the capital gains tax from the proceeds from the Petroleum Fund be used to finance the Shs 280 billion required to complete the payment for the first delivery…,” Bahati told parliament.
Ogwang’s revelation that the EADB could be financing the project was thin on detail but it indicated government might have approached them and a joint financing package could be in the making.
Uganda will spend $319 million (Shs 1.2 trillion) in the acquisition of aircraft to ply regional and international routes in phases 1 and 2, according to the blueprint laid out by the government.
The country also needs additional start-up capital of $70m (Shs 270bn) required to launch the airline. The plan says government intends to borrow all the money that will be initially invested in the airline.
The blueprint estimates the cost of loans would be at five per cent interest and payable between five and 10 years. The overly-ambitious plan claims that in the first year of operation (2019), the airline will post a profit of $3.9m. This will jump to $7.2m in the second year.
Profitability is impacted by the introduction of long-haul flights resulting into a loss of $6.1 million in 2021, the third year of the operation. According to a cabinet plan, the international flights section is expected to make losses for the first five years.
The airline is expected to generate enough cash to keep it in the skies throughout the planned period with bank balances increasing significantly after year 10 when the majority of the loans have been repaid. Net cash generated from operations increases from $10.6 million in year 1 to $28.7 million in year 5.
Ministry of Works and Transport will own one per cent of the airline and the reminder 99 per cent will be owned by ministry of Finance, according to the government plan.
The plan warned against government interference, saying it will be the biggest threat to the airline. It says: “Government involvement in the business operations of a national carrier can deter the primary business objective of profit maximisation and hinder optimal efficiency.”
Slow, legislative decisions have the potential to impair operations of the airline, the plan says. Private financiers could rein in public officials’ interference.
“Failure to run the company as a separate legal entity from its stakeholders…would create bureaucratic-slow systems, which are inadequate to address dynamic markets,” the plan reads.