Uganda Airlines flies into fresh headwinds as fleet financier pulls out

Uganda Airlines’ plan to take to the skies by April 2019 has run into another hurdle after the Export Development Canada (EDC), which had committed to funding the acquisition of its debut Bombardier fleet, pulled out of the deal citing “commercial reasons.”

The Ugandan national carrier had in July announced a partnership agreement with Bombardier for the purchase of four CRJ-900s which were to be delivered from January 2019, to prop-up its regional operations.

The EDC, which had committed to extend $108 million to Uganda for the purchase of the aircraft, pulled out of the deal a fortnight ago.

“Uganda’s Treasury officials have already received the EDC communication over their new position. This was done through the Canadian diplomatic channels,” a source told The EastAfrican.

Another source with knowledge of the matter said that the credit agency said it was undergoing restructuring and asked for a two-week extension to deliver the term sheet to Uganda Airlines. A term sheet spells out the terms and conditions as well as the schedule for repayment of a loan. EDC was expected to deliver the term sheet on September 21.

But Shelley Maclean, the principal advisor for external communications at the Canadian Export-Import bank, told The EastAfrican that the lender had not committed any finances for this transaction.

“We were approached for financing support, but we are not participating in the transaction. Due to the commercial confidentiality clauses on prospective transactions, I will not reveal the reasons,” said Ms Maclean.

A Ugandan government official however said that it received the term sheet from Canada Exim Bank on Thursday last week and a meeting was held at the Ministry of Finance on Friday to evaluate it.

“In all 12 new offers have come in but a decision has been taken against revealing their identities at this time because evaluation process is ongoing, ending this week,” the source said.

Flood of offers

Two local banks have joined the fray, submitting offers to finance the acquisition of the CRJ’s.

But sources say the withdrawal of the Canadian lender has triggered a flood of offers that are cheaper than the 3.5 per cent that the Canadian financier was offering.

“Fund managers from Australia, Europe and the Middle East have sent in proposals that are significantly better that what Canada Exim bank had offered.

The Chinese have been out of play from the beginning because the project is run by a team of rigid cadres that have kept the commission agents from both within the government bureaucracy and State House at bay. So they have not been in contention,” a source told The EastAfrican.

Two months ago, Uganda Airlines said it planned to start operations from April next year, with Minister for Works and Transport Monica Azuba announcing that they will receive the first Bombardier aircraft in January and the other three over the following three months.

“We have already finalised the CRJ contracts with Bombardier and have paid a commitment fees of $400,000. We are also expecting to receive two Airbus A330-800 Neo in 2020, for which we have paid a commitment fees of $800, 000,” Ms Azuba said.

The carrier’s order for the CRJ-900s was valued at $190 million.

“We are delighted to have ordered the world’s leading regional jet, and as we are establishing Entebbe as a strong hub in East Africa and building more connectivity in Africa, we thoroughly reviewed our needs.

With its proven track record in Africa and other regions of the world, we are confident that the CRJ-900 aircraft will help us succeed,” chief executive of Uganda National Airlines Ephraim Bagenda, said during the signing ceremony.

According to the draft of a business and implementation plan seen by The EastAfrican, Uganda Airlines had indicated that it would relaunch with services to 15 regional destinations out of Entebbe, which will be complemented by three domestic routes and an equal number of international destinations in the short to medium term.

The carriers’ international route network will comprise London, Mumbai and a point on the Chinese mainland.

According the plans, breakeven on the regional routes, which will account for 60 per cent of revenue, is projected for the fourth year. Operational breakeven is being projected at a load factor of 64 per cent for regional routes and 80 per cent for international routes.

The plan also projects that the carrier will capture a quarter of Uganda’s 1.6 million passenger market in the first year, progressively increasing that as more capacity becomes available.

The 15,000 passengers a year domestic market will be served through partnerships with existing domestic airlines.

The Eastafrican

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