UGANDA AIRLINES, FLOGGING A DEAD HORSE

This week news came out that the board and the top management of Uganda National Airlines Corporation had taken accumulated leave, been suspended or been sacked, depending on who you speak to.

This came hot on the heels of an Auditor General report that questioned the assumptions made in the business plan that set up the airline, especially since they had failed to meet revenue targets they had overshot their cost budget.

The evidence shows that even in the best of times it takes years for a new airline to break even. RwandaAir was set up in 2001 and todate has not reported a profit, with the government shoveling millions of dollars into the carrier annually. That Uganda Airline was going to make a loss in its first year was not a surprise, except to the people who drew up the airlines’ business plan...

In the business plan they projected that Uganda Airlines would be profitable from their first year in operation. This may have come to bite them in the backside, because the Auditor General commented that it was hard to judge them against their business plan whose, ”timelines with in which certain activities were to be accomplished had not been specified.”

Industry players were highly critical of the initial business plan, smelling a rat when it was based on the assumption of profitability in the first year.

For obvious reasons business plans cannot work to the letter. The people who draw them up are not prophets.

That being said, the quality of a business plan depends on the assumptions made for and against the success of the business and a reliable assessment of whether it will work or not. The business plan is an indicator of how much thought has been put into thinking about the business, speaks to the quality of the promoters and whether it would make sense to back them.

Against this background you can see how the judgement can be made that government has a lot of money lying around. It is amazing that on the strength of this business plan, government committed to release at least $400m -- $330m to buy six planes, startup costs of $20m and $70m for contingency money.

Would we be wrong to assume that the promoters of this project sugar coated the figures so that the “ignorant” people in charge of the treasury can release the money?

This story is sad, even tragic on many levels.

Businessmen with more bankable projects with more immediate impact on the wider society,  are crying daily about the difficulty of accessing patient capital, capital which the owners are willing to wait years for a return or never.

This money being flushed down the toilet represents real opportunity cost.

The sh1.4trillion would have made a real difference in a child’s life whose education would have been enhanced by an extra blackboard or roof over his classroom; it would have meant life or better health for a child born in a rural health center III; at a million dollars a kilometer these monies would have opened up opportunities for a rural community previously unserved by a tarmac road.

Going by past estimates this money would have been good for at least 50,000 primary school classrooms or treating at least a million in patients at Mulago hospital. This is before you factor in the losses the airline is expected to make for years.

Believe it or not I have no problem with a national airline, a state owned one at that. My argument has always been that for what we want to achieve – greater tourism numbers never mind building “national pride”, there must be more efficient, more cost effective ways of doing this....

First of all people do not come to your country because you have an airline, they come because you have something that they want. So for starters can we inform/market  the country better abroad? For a fraction of a fraction of the cost, we can add a few thousand visitors from abroad through a deliberate, systematic and consistent marketing campaign.

For a fraction of the cost we can beef up our civilian policing to ensure the country is safer for visitors. For a fraction of the cost we can set up a hospitality school to improve our waiters and waitresses capacity to ensure our visitors are comfortable.

Once we have these and a few other basics under control, we can then go to the airlines which fly into Entebbe and work at lowering the costs of flying into Uganda, if that is a major impediment to visitors coming here. And I haven’t even begun to eat into the $400m.

But that is all water under the bridge. The challenge for government is how do we make the best of a bad situation.

The smart thing maybe to cut our losses at this point, liquidate the airline and hope we recoup some of our money and pride in the process. That seems unlikely to happen.

The next best thing, maybe to go back to the drawing board – rewrite the business plan, reconstitute the board, hire new management … start all over again.

The third option may be to just flog it off as a going concern – a badly going concern, preferably to another airline who can integrate it into its existing network and make it work. And even in this last scenario, there are no guarantees the thing will not continue to bleed the treasury for years into the future.

In the greater scheme of things Uganda Airlines has hit a speed bump, but given that its set up was so shambolic, it has made it all the more difficult to get up from this mishap...