Uganda Airlines responds to Daily Monitor’s ‘misleading’ story: We don’t owe any loans, interest payments to any financier

Second Uganda airlines Airbus A330-800neo touched down at Entebbe International Airport on Tuesday, February 02, 2021
By :
AT Reporter

Uganda Airlines on Tuesday denied claims by the Auditor General’s office that the carrier had posted a sharp rise in losses from Shs15b in the 2018/19 financial year to Shs102b in the 2019/20 financial year.

The airline, which trades as Uganda National Airlines Limited, said the highlights in a Daily Monitor article under the title “Uganda Airlines posts Shs102b loss in first year of operation” published on Monday 15th March 2021 were misleading and not factual.

According to the airline, the national carrier does not owe any loans or interest payments to any financier.

Full Statement: Fact Check about Uganda Airlines’ performance in response to a Daily Monitor Article Published on Monday, 15th March 2021

 The referenced report is for a period of 29 months and covers two reporting years as follows;

 The first period (pre-operation period) starts from 30th January 2018 up to 30th June 2019. It is a period when the airline had just been incorporated and it was mobilizing funds from the shareholders to start its set up processes in preparation for operations. First step was to secure the industry Airline Designator Codes from the International Civil Aviation Organization (ICAO) and the International Air Transport Association (IATA), which would be used to identify Uganda Airlines in the industry.

 The airline also applied for and obtained its Air Service Licence (ASL) from the Uganda Civil Aviation Authority (CAA), which is entry point in aviation. However, the ASL does not allow launch of commercial flights and an airline needs another certificate, the Air Operator Certificate (AOC) which document is only issued after aircraft are procured.

 Purchase Orders for both aircraft types in the plan, (4x CRJ900 and 2 x Airbus A330-800neo) were placed during this period and deposits paid, so that the manufacturing processes could begin. Aircraft manufacturing and assembly takes a period of one year for the regional CRJ900 aircraft and two years for the wide body A330s.

 The airline was also securing office premises, recruiting staff, procuring systems, creating and producing its brand, negotiating for route traffic rights, negotiating and securing service contracts across the intended network.

 It was only on 23rd April 2019 that the first set of two CRJ900 aircraft arrived in Uganda and the process of getting the airline Air Operator Certificate (AOC) could begin. This is the licence that once granted allows an airline to start commercial flights. The AOC five phase process was completed in August, 2019.

 Given that the Auditor General’s first report was for the 17 months up to June 30th 2019, it means therefore that it covers the period when the airline was investing in its set up activities and was not flying. It had not yet obtained an AOC in order to mount flights and open routes. The costs of investing in aircraft, purchasing tools and equipment, setting up and performing all the activities needed to secure licences, skills, competences and systems are what is recorded for this period.

 How then can you expect a company which is not yet operating to generate revenue and make money? The article conveniently omitted all these facts.

 The report for the second period covered the year from 1st July 2019 up to 30th June 2020. The airline obtained its AOC in August 2019 and it started commercial flights on 28th August 2019 with its first two CRJ900 aircraft.

 Uganda Airlines then received the second set of two CRJ900 aircraft in October 2019 and using the four aircraft opened 8 regional routes to Nairobi, Juba, Mogadishu, Bujumbura, Dar es salaam, Kilimanjaro, Mombasa and Zanzibar by December 2019.

 As from November 2019, the COVID-19 virus was being reported in China and other parts of the world, and unfortunately this led to the closure of air travel at the end of March 2020.

From 23rd March 2020 up to 30th June 2020, the end of the reporting period by the Auditor General, the air space was closed in Uganda and internationally such that there were no commercial flights.

 Therefore, over the full 29 months covered by the two reports from the Auditor General, the airline could only perform commercial flights for 6 of those months. Most of the period was dedicated to investing and set up activities to ensure Uganda Airlines exists as an international airline, and the rest of the time aviation markets were closed. For the six months that it was flying, Uganda Airlines revenues were 10 percent below budget despite the impact of Covid19.

 The story also refers to the company having a debt ratio, yet Uganda Airlines is fully capitalised by the shareholders and has no debts on its balance sheet. All the aircraft and other assets were paid for by cash from the shareholders.

Uganda Airlines therefore does not have any loans or interest payments to any financier.

The financial position of the airline at this early stage, reflects the initial investment in aircraft, tools and equipment as well as the set-up cost structures for a modern international airline. This will then be balanced with revenues when all start-up processes are completed, routes and markets are opened. Whereas aircraft purchases bring in the capability for airline operations, these high-cost investments, at the same time must be armotised to the income statement every year as per the accounting rules. This is an infrastructure investment needed to support Uganda’s growth as per National Development Plan III and IV as well as Vision 2040.

This position was presented to the shareholders at the Annual General Meeting on 25th February 2021 and the shareholders commended the Board and Management for the progress made and restated their commitment to the airline.

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