Turbulent times: Precision Air has sought the government’s intervention
in the wake of a severe cash crunch that is threatening to ground the
airline. PHOTO | FILE
In Summary
The debt ballooned because the anticipated cash
flow after the company listed on the Dar es Salaam Stock Exchange in
2011 did not materialise.
Arusha. Precision Air (PW), which was once
Tanzania’s fastest growing airline, is in financial turmoil and
desperately in need of a $32 million (about Sh51.2 billion) bailout
package, The Citizen can authoritatively report. The airline’s board
chairman, Mr Michael Shirima, told The Citizen that they were seeking
the money
from various sources, including the government, to enable it to meet
urgent financial obligations that include servicing bank loans and
paying aircraft suppliers.
Other sources said the airline had left the
government to decide whether it would act as a guarantor for a bank loan
or provide funds in exchange for a stake in the troubled carrier.
Mr Shirima, who founded the airline in 1993,
admitted that PW was going through tough times because of huge debts
accumulated after it ordered seven aircraft
worth $136 million (Sh218 billion at current exchange rates) from the
France-based French-Italian aircraft manufacturer Avions de transport
regional (ATR) in 2007.
The debt ballooned because the anticipated cash flow after the company listed on the Dar es Salaam Stock Exchange in 2011 did not materialise.
“We expected pension funds to buy shares but, to our surprise, they didn’t,” Mr Shirima said.
“Our cash flow is now constrained. The audited
accounts for 2012 will be out any time from next week and for the first
time we are going to post a loss,” he added.
Mr Shirima has a 43 per cent stake in the airline,
while Kenya Airways (KQ) has 41 per cent. The rest of the shares were
sold in the initial public offering (IPO) in 2012.
But failure to raise cash through the IPO and
other sources is not the sole reason for the financial constraints the
airline is facing.
Mr Shirima said spiralling fuel prices, high taxes
and levies and currency fluctuations had also contributed to the
airline’s troubles.
“Fuel is hurting everybody in the aviation sector.
Fuel constitutes about 40 per cent of operating costs. The problem was
compounded by the leasing of three Boeing 777s, which have since been
returned to their owners.”
The giant twin-engined jets were leased to serve
regional routes between Dar es Salaam and Nairobi, Entebbe, Lusaka,
Lubumbashi, Johannesburg and other destinations under an expansion
programme the airline unveiled last year.
The aircraft were later withdrawn and returned to
their owners after the plan was found to be too ambitious as a financial
crisis loomed.
The company, however, continues to fly to Nairobi, Entebbe and
Mombasa using its remaining fleet. It also flies to more than a dozen
local destinations.
Mr Shirima said PW was taking a raft of measures to get back in the black.
“The problems we are going through are a wake-up
call. We are in the process of putting things right. Recovery measures
include seeking a capital injection from other sources other than the
shareholders,” he said.
Those approached for assistance include the
government which, according to Mr Shirima, had shown positive signs
“although as is always the case with governments, the process has been
too slow”.
He said without specifying that strategic investors were also being sought from elsewhere.
The board was keen to ensure that the majority of PW shares would remain in the hands of Tanzanians, Mr Shirima added.
The airline will also continue with the
partnership it entered into with Kenya Airways (KQ) in 2003. Contrary to
earlier expectations, KQ has failed to inject capital, but retains a 41
per cent stake. Measures to restore the company’s glory hinge on a
five-year-strategic plan unveiled in April but whose success depends on
cash flows from creditors and shareholders.
“Precision Air may not be the same in the next
five years. We plan to expand our fleet to serve international routes,”
Mr Shirima said.
Several cost-cutting measures are underway. They include “rationalising” the firm’s workforce of about 700 employees.
“We need an optimum number of staff to propel the company to new heights,” Mr Shirima said.
The airline currently has 10 aircraft. Under the strategic plan, the priority is on single aisle aircraft suited for regional and short and medium-range flights.
Source: The citizen, 15.08.2013
Source: The citizen, 15.08.2013
