African Roundup October-November 2015

 Our July/August African Roundup started with what we hoped would be the nadir point for two of Africa’s big three, SAA and Kenya Airways. Things could only get better. Unfortunately these hopes were a bit premature. They have got worse and become very public.

Much South Africa’s press isn’t doing President Zuma many favours at the moment and are now pointing fingers at his alleged special relationship with SAA’s Chairperson Ms. Dudu Myeni. There are accusations that the sacking of the country’s Finance Minister Nhalala Nehne was down to his refusal to provide more government cash to the airline. The Police are understood to have been called in (by the pilots?) to investigate accusations of corruption while the former CFO has said that in reality the airline is bankrupt and stuck between the conflicting needs to reduce its debt at the same time as paying for four new A330s which will reduce its flying costs.

So....first the good news or the bad? Recent weeks have been weighted towards the bad so let’s start with that especially as the good, other than that the airline is still flying, is a bit thin in the air.

The turmoil in SAA grows by the day. 2014 was the year of the Long Term Turnaround Strategy.  The auditors had billed the once proud company as ‘Not an on-going concern’. That means on finals to bancruptcy. The Government admitted the company was ‘under-capitalised and in need of support’ and granted US$560m of State guarantees. Nico Bezuidenhout, appointed as Acting CEO, before he was sent back to subsidiary Mango, came up with a 90-day recovery Implementation Plan and made progress with fleet and network rationalization.

Despite this the momentum has stalled in 2015.  The operating losses have persisted. Right now as the year closes the company has sought a further US$285m ‘going concern guarantee’ from Government and has appointed its eighth CEO inside 4 years.  The Board and, in particular, the Chair lack confidence in many quarters. There have been debilitating resignations of key senior staff including the CFO and the Chief Strategy Officer. Both cited loss of trust and confidence as the reason .If they felt demoralised by that one can only guess at morale further down in the company. The sunlit Highveldt for SAA has yet to come into view.

Kenya Airways too has experienced another rough year. The 3 years of losses have continued and CEO Mbuvi Ngunze has admitted that “the company needs restructuring”. Finance costs are rising faster than revenue. A USD220m bridging loan has been secured from the Africa ExIm Bank.  A programme of asset sales, mainly land and the four B777-200s, plus revenue growth are being planned to restore profitability within 2 years.  Thanks to reported pressure from Boeing to take them or lose them the last two of the B787 fleet have now been delivered thereby giving the carrier a single type widebodied fleet offering modest capacity as well as the opportunity for enhanced levels of passenger service and operational performance. This offers a small break in the clouds but, after the 777 disposals there is no short term wide bodied growth potential. There are no more 787s on order either. Where now the fast growth model which requires constant additions of destinations and capacity in the style of both the global Gulf and Turkish hubbers and the point to point European short haulers? The required rates of growth can be frightening. Even steady is worrying. Looking back or down is not recommended for managements wishing to avoid a sense of vertigo. Worse still is panic leading to the brakes being slammed on. That, coupled with a lack of management and political vision, seems to be where Kenya Airways is now. Keeping the four mid life 777-200ERs would look a better bet than trying to dispose of them in an already over supplied used widebodied market is. In the absence of a lessor or buyer just parking them up while still having to pay for them makes little sense. It is hard to believe that they could not make more money, or at least lose less, in the air on the airlines’ key routes. Another factor here may be that there is just no money to give them a complete interior refurbishment to bring them up to the standard of the new 787s.  Also in need of review is the widespread use of the new and expensive Embraer 190s. Although these are cheaper to operate, though not to own, than the older 737s now disposed of, they hit the effectiveness of the Nairobi hub because they lack cargo and even passenger excess baggage capacity. Worst of all though is the fact that, like SAA, the airline daily becomes the focus of more and more political scrutiny and intervention, twin proven kisses of death to any enterprise.

Meanwhile, alone amongst the African big three, state owned but always free of intervention Ethiopian flies on,- and upwards. Profitability is strong and growth continues apace towards the 2025 target of a 150 aircraft fleet. The carrier is seeking earlier delivery of the current order for 10 A350-900s and is talking of ordering a further 14 of the type. In parallel, the imminent placing of an order of up to 20 B777X is being mentioned despite that meaning the added costs of a mixed big twin fleet. A key necessity though is the construction of the new airport before the airline’s expansion runs ahead of the capacity of its hub as has happened to Kenya Airways in Nairobi.

Away from the big three, Fastjet has been battling for 3 years to secure rights into and out of Nairobi.  A little success has now been achieved with the award of a 12 month licence for 5 domestic points, pending the granting of an AOC. Twelve months is far too short a time to give any measure of security and to make it worth actually investing in. Gaining the AOC alone could take up most of those months and that isn’t the only Kenyan foot stuck out to make life less than easy for what remains seen as an alien and threatening (to existing Kenyan companies) startup. The alien interloper view persists despite a promised 51% Kenyan shareholding.

It’s not only in Kenya that jumping the regulatory hurdles mean a trouble-free takeoff for operations.  Low cost Flyafrica Zimbabwe, has been grounded by the ZimCAA citing non-compliance with certain AOC responsibilities after just a few months of operations. Similarly Skywise, the South African low cost entrant, remains grounded by ATNS and ACSA claiming USD500K of unpaid charges after just a few months flying.

1.  EAST AFRICA

Air Djibouti is planning to start scheduled passenger services early in 2016 using a fleet of up to 5 B767s and B737s working in conjunction with Cardiff Aviation, UK.

Ethiopian Airlines is planning to inaugurate a New York route in June 2016. That’s additional to the the current Washington and Los Angeles routes services.

As indicated above, CEO Tewolde Gebremariam has said he hopes to order 15 to 20 B777X later this year for fleet growth and replacement of the 6x B777-200LR and talks are underway with Airbus to bring forward first deliveries of the 14x A350-900 on order to 2016-7 from 2017-8 and possibly add a further 10 aircraft the order. The airline’s fleet is estimated to be to be 150 by 2025.

Fastjet is planning to launch a twice weekly Dar es Salaam-Moroni, Comoros A319 along with

 an extension to Zanzibar of the current daily Johannesburg -Dar service which will start on January 11^th.

Fastjet Zimbabwe has fared better than its intended Kenyan sibling and has been awarded an AOC by Zimbabwe.  It was then quick to start thrice weekly A319 domestic operations between Harare-Vic Falls on 28 Oct, to be followed by Harare-Bulawayo.  International services will be next once the airline has been designated as a Zimbabwean carrier in Air Service Agreements. Independently of this , Victoria Falls runway is being extended and a new terminal constructed.

FlySAX (Kenya) retired its veteran DC-9-10, the oldest example worldwide, at the end of November and  CEO Don Smith anticipates extending the network by adding a B757 to the fleet of 2 CRJ100s and 2 Dash8-100s.

Jambojet (Kenya Airways’ low cost or at least low fare subsidiary).The introduction of 2 Q400s has generated a small operating profit for the first half of 2015.  Particularly as these  aircraft will operate on routes which are important to Kenya’s smaller private operators there is some scepticism as to whether in the whole scheme of the Kenya Airways’ losses this choice of  investment is worthwhile or even fair.  To add to this scepticism a now redundant B737-300 sits on the Nairobi ramp. Maybe it could be leased back to the parent company to substitute on some regional services where there is an Embraer-induced cargo backlog?

Kenya Airways Now that ebola restrictions have been lifted the company expects to return to Conakry. This was the last of the West African countries affected. Hopefully there will be a backlog of months of pent up demand to ensure good loads from the outset. Also planned is a twice weekly return to Bangui on a Nairobi – Bangui – Douala routing.

CEO Mbuvi Ngunze, faced with the current losses, has admitted that the company “needs restructuring” .The growth of financing costs exceeds revenue growth. A US$225m bridging loan has been advanced by the African ExIm Bank It is possible that a ‘special purpose vehicle’ will be created to own and finance major assets eg aircraft.

Life has not been made any easier by the report by the Senate team which has questioned the capability of CEO Mbuvi Ngunze and the Board to run the airline. It also attributed the airline's finance crisis to "the Board members' incompetance". There was criticism of past procedure and recommendations for financial changes and the appointment of a Marketing Director with international experience. The team also called for a forensic audit and prosecutions if indicated and for the past CEO , Titus Naikuni, to account for his actions. Additionally cited are "deep rooted syndicates that milked Kenya Airways' finances dry". It is not clear who these may be or over what period of time. Only three options are seen,- dissolution (which is unlikely in the overall national interest as seen in Kenya), recapitalisation through a rights issue or bringing in additional shareholders. The sale of the Kenya Government's 26% shareholding is a possibility but that might complicate their de facto position as guarantor or saviour of last resort.  

For now the airline is relying on US$146m of asset sales plus US$200m from revenue growth to return to profitability within two years.  Sales of land and the 4 Rolls Royce powered B777-200ER fleet are the main elements of the asset sales .The 777s may struggle to realize their current book. value especially as Emirates and Singapore are among airlines beginning to release similar, if older, aircraft of the same type. Three years of worsening operating losses have triggered the sell-offs.  The first tranche of a US$225 bridging loan has been received from the Africa Export-Import Bank. McKinsey Consulting are back again and now making debt-restructuring recommendations.

Precision Air (Tanzania) has resumed Dar es Salaam – Musoma flights following upgrades to the Airport by Tanzania Airports Authority.

2.  SOUTH / CENTRAL AFRICA

Air Botswana. Longevity or security of tenure isn’t a big feature of life for many African airlines’ senior managements . Here the Government , always a player, has terminated the contract of GM Ben Dahwa appointed 18 months ago. And the Board has gone too. Finance Manager Agnes Khunwane is to be the interim GM but will know better than to get too settled.

The airline has placed its two BAe (original Brian Pocock era Avro) 85s on the market as a start to a fleet renewal process. Currently deployed are 3 ATR-500s and a single ATR72-500, all of which are due to be retired by the end of 2017.

Air Namibia has a new Acting MD, Mandi Samson, one time GM, Namibia Airports Co. The intention is that he will succeed current MD Renee Gsponer on expiry of his contract. 

Air Zimbabwe The Government, in a sort of Chapter 11 move, has helpfully granted the airline 3 years protection from creditors to enable it to raise cash and pay debts. 

flyafrica.com Zimbabwe withdrew flights on routes between Harare, Bulawayo and Victoria Falls to Johannesburg  after the Zimbabwe CAA suspended its AOC. The carrier charged its local majority shareholder with theft and fraud relieved him from his CEO and Chairman roles. He in turn responded with counter-claims. The CAA is seeking payment of US$2mn unpaid passenger service fees before restoring the AOC. Successive announced dates for resumption of operations were missed.

To make things just a little more difficult a Harare court cited breaches of AOC conditions to be ‘put in order’ before the suspension can be lifted.

SAA See this bulletin’s lead item. Where do we go from there? First a bit of good news. Jan2016 will see the launch of the Johannesburg – Abuja route. Nigeria’s commercial capital   Lagos is also served.

The senior staffing turmoil goes on. The new interim CEO is Musa Zwane, the 7^th such appointment since 2012.  CFO Wolf Meyer has resigned and strongly criticized the airline from the outside. Interim CFO Phumeza Nhantsi has been appointed, seconded from accountants SizweNtsalubaGobodo.

CCO Sylvain Bosc has been suspended for “Knowingly presenting to the Board a flawed business case” for opening a service to Abu Dhabi.

All these developments are unlikely to encourage high quality candidates to step forward for future top level vacancies.

A new Board, overdue since September, is to be announced ‘in a few weeks’.

An additional US$285m Government ‘going concern’ guarantee plus new USD1.1bn longer term debt to raise additional working capital is being sought ,partly in response to which a 15 January deadline for submission of the outstanding yearly financial report has been imposed.

On a brighter note on the fringes of SAA, SA Airlink is planning Cape Town - Maun services with E135s next March. Through bypassing intermediate points and avoiding aircraft changes en route yields would be expected to be high. This fits with the up-market nature of Maun’s Okavango tourist market.

Skywise (S Africa) was grounded on 13 October by ATNS pending settlement of US$280,000 outstanding Air Traffic Services charges. ACSA subsequently claimed a similar level of outstanding debt.  Domestic flying between Johannesburg and Cape Town had started in February 2015. The current fleet comprises  2 B737-400s, one owned, one leased. The latter has now returned to the lessor who is claims non-payment.

TAAG (Angola) Emirates appointee CEO Peter Hill who on a previous secondment dramatically revitalised Air Lanka has voiced concerns that Government hesitancy in providing the necessary investment finance is jeopardising the achievement of the U$100m profitability forecast for 2019. Emirates has a 10 yr Management Concession Agreement. They might find the going harder than they thought.

3.  WEST AFRICA

Air Côte d’Ivoire is expecting delivery of 2 new Q400s in December this year and March 2016. Planned new 2016 destinations are Abuja, Bangui, Banjul, Luanda and Nouakchott plus progress towards a fully owned fleet of 5 A319s and the 4s Q400.

Arik Air resumed Lagos-Monrovia flights now the ebola crisis there is over.

CAMRA Regional Airlines (Cameroon) is a proposed Canadian-backed, Yaounde-based, start-up. A Saab340 fleet is envisaged to initially operate domestic flights expanding to West African regional points.

Dana Air (Nigeria) started regional flying with a daily Lagos-Accra on 1^st December.  

Med-View Airlines (Nigeria). This Kano-based carrier has begun four times weekly B767-300 flights between Lagos and London Gatwick. It has also been awarded rights from Lagos to Lisbon and eight regional West African points.

Royal Fly-GH (Ghana) is a proposed start-up to be born out of debt-ridden and defunct Fly-540. Funded by a Lonrho bank-loan plus local interests.  An F100 has been sourced and new AOC application submitted. Two ATR-72-500s are being sought. Domestic and W Africa regional routes are envisaged.

SmileAir (Ghana) This proposed start-up using ex-Iranian B747s. Toronto, Dubai and Guangzhou has not unexpectedly withdrawn its proposals.  A West African regional network was also envisaged

4.  NORTH AFRICA

Libyan Wings after a temporary suspension relaunched twice weekly A 310 Tripoli-Istanbul operations with a leased aircraft on 4^th November. Tripoli-Tunis services are being increased to thrice daily and flights to Khartoum and Beirut are under evaluation.

Royal Air Maroc is planning a May 2016 launch of a Casablanca-Sao Paulo-Rio route, to be followed in September by thrice weekly B787-8 Casablanca-Washington route to be flown thrice weekly.

Syphax (Tunisia) has been placed into judicial administration and ceased flying in July.  The fleet comprised 2 A319-100s, a very rare breed now.

5.  NON-AFRICAN AIRLINES

Air China, like many of China’s state owned or funded businesses, is on the march into Africa. On 23^rd October it launched non-stop, B777-300ER, Beijing-Johannesburg services and on 27^th. October started flights to Addis Ababa.

Atlantic Star Airlines (UK) plans its first flight Gatwick-St Helena in March. TUI-fly will now be the operator of the charter with an ETOPS B737-800 with a technical stop in Banjul, where local traffic rights could be useful in generating another link between the remote island and Africa. It will operate overnight south-bound and go northbound the following morning.  This is subject to the new airport opening as planned in February . South African Comair’s weekly contract scheduled B737-800 services from Johannesburg with a B737-800 should precede that.

Brussels Airlines ceased serving Nairobi at the end of October ending a 58 year old presence. These started with predecessor Sabena’s DC 3 and DC 4 links to the then Belgian Congo rather than to Brussels which came much later. Until 1960 Tanzania also had a weekly DC3 service across the Congo to Tabora and Dar es Salaam.

Flydubai launched four times weekly B737-800 services to Asmara, its 17^th African point, on 26^th October.

Lufthansa is back in Nairobi after an 18 year gap. Nairobi came online again on 25th October using a 3 class (F/C/Y) Privat Air, Switzerland, B737-700NG. Again the question of whether narrow bodies in standard configurations are acceptable on full price flights of more than 4 hours is being put to the test. Previous Privatair 737 operations such as to Sao Tome used more of a one class more spacious seating arrangement. The verdict on this one will be interesting. Kenya Airways tried and then withdrew a standard 737 service to Rome but it isn’t clear whether failure to make it work was down to narrow body unacceptability or any combination of volume and the traditional low yields obtained in the Italian leisure market. Germany should offer greater premium cabin opportunities.

TAM (Brazil) plans to inaugurate a Sao Paulo-Johannesburg route in 2016.  There have been no South American carriers on the continent since Varig,who at various times operated to Dakar, Abidjan, Luanda, Maputo, Johannesburg and Cape Town departed in 2006.

6.  MISCELLANEOUS

AFRAA is to continue its Joint Fuel Buying Agreement  for a 5^th year. 14 Carriers participate including Ethiopian Airlines, Kenya Airways and SAA.

African Union (AU) renews the ICAO/AU 2008 cooperation agreement to improve safety across the continent, the AFI Plan.  The Plan focuses on safety oversight, the resolution of deficiencies and enhancement of safety cultures. 

Zambia After toying with the idea for a long time the Government has found the temptation to re-establish national carrier Zambia Airways  which was liquidated in 1995 irresistable. Hopefully it’s not a case of “Here we go again”.  US$310m funding is earmarked to get it up and running  in late-2016. Zambia is currently without a locally owned medium and long haul carrier and seemingly not suffering too much as various foreign and private operators have kept it on the airline map without a cent of Government expenditure. Proflight, Zambia flies a domestic network and Fastjet Zambia is poised to launch regional routes once it has been awarded a Zambia AOC. 

John Williams -December 2015.